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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>UNITED STATES<br/>
SECURITIES AND EXCHANGE COMMISSION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>WASHINGTON, D.C. 20549</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FORM <ix:nonNumeric contextRef="c0" name="dei:DocumentType">20-F</ix:nonNumeric></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentRegistrationStatement"><span style="font-family: Times New Roman, Times, Serif">&#9744;</span></ix:nonNumeric>
<b>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>OR</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-true" name="dei:DocumentAnnualReport"><span style="font-family: Times New Roman, Times, Serif">&#9746;</span></ix:nonNumeric>
<b>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>For the fiscal year ended <ix:nonNumeric contextRef="c0" format="ixt:date-monthname-day-year-en" name="dei:DocumentPeriodEndDate"><ix:nonNumeric contextRef="c0" format="ixt:date-monthname-day-en" name="dei:CurrentFiscalYearEndDate">December 31</ix:nonNumeric>, <ix:nonNumeric contextRef="c0" name="dei:DocumentFiscalYearFocus">2022</ix:nonNumeric></ix:nonNumeric></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>OR</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentTransitionReport"><span style="font-family: Times New Roman, Times, Serif">&#9744;</span></ix:nonNumeric>
<b>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>For the transition period from __________ to
__________</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>OR</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentShellCompanyReport"><span style="font-family: Times New Roman, Times, Serif">&#9744;</span></ix:nonNumeric>
<b>SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Date of event requiring this shell company report
__________</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Commission File Number: <ix:nonNumeric contextRef="c0" name="dei:EntityFileNumber">000-29442</ix:nonNumeric></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_001.jpg"/></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><span style="text-decoration:underline"><span style="-sec-ix-hidden: hidden-fact-0">FORMULA SYSTEMS (1985) LTD</span>.</span></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Exact Name of Registrant as Specified in Its Charter<br/>
and translation of Registrant&#8217;s name into English)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt-sec:countrynameen" name="dei:EntityAddressCountry"><b><span style="text-decoration:underline">Israel</span></b></ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Jurisdiction of Incorporation or Organization)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><ix:nonNumeric contextRef="c0" name="dei:EntityAddressAddressLine1">Yahadut Canada 1 Street</ix:nonNumeric>, <ix:nonNumeric contextRef="c0" name="dei:EntityAddressCityOrTown">Or Yehuda</ix:nonNumeric> <ix:nonNumeric contextRef="c0" name="dei:EntityAddressPostalZipCode">6037501</ix:nonNumeric>,
<ix:nonNumeric contextRef="c0" format="ixt-sec:edgarprovcountryen" name="dei:EntityIncorporationStateCountryCode">Israel</ix:nonNumeric></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Address of Principal Executive Offices)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><span style="text-decoration:underline"><ix:nonNumeric contextRef="c1" name="dei:ContactPersonnelName">Asaf Berenstin</ix:nonNumeric>; <ix:nonNumeric contextRef="c1" name="dei:EntityAddressAddressLine1">Yahadut Canada 1 Street</ix:nonNumeric>,
<ix:nonNumeric contextRef="c1" name="dei:EntityAddressCityOrTown">Or Yehuda</ix:nonNumeric> <ix:nonNumeric contextRef="c1" name="dei:EntityAddressPostalZipCode">6037501</ix:nonNumeric>, <ix:nonNumeric contextRef="c1" format="ixt-sec:countrynameen" name="dei:EntityAddressCountry">Israel</ix:nonNumeric></span></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="text-decoration:underline">Tel: <ix:nonNumeric contextRef="c1" name="dei:CityAreaCode">972</ix:nonNumeric> <ix:nonNumeric contextRef="c1" name="dei:LocalPhoneNumber">3 5389389</ix:nonNumeric>, Fax: <ix:nonNumeric contextRef="c1" name="dei:ContactPersonnelFaxNumber">972 3 5389300</ix:nonNumeric></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Name, Telephone, E-mail and/or Facsimile Number
and Address of Company Contact Person)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Securities registered or to be registered pursuant
to Section 12(b) of the Act:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="width: 34%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt">Title of Each Class</span></td> <td style="width: 1%; text-align: center">&#160;</td> <td style="width: 32%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt">Trading Symbol(s)</span></td> <td style="width: 1%; text-align: center">&#160;</td> <td style="width: 32%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt">Name of Each<br/>
Exchange&#160;On&#160;Which&#160;Registered</span></td></tr> <tr style="vertical-align: top; background-color: #CCEEFF"> <td style="text-align: center"><ix:nonNumeric contextRef="c0" name="dei:Security12bTitle"><span style="font-size: 10pt"><b>American Depositary Shares, each representing one Ordinary Share, NIS 1 par value</b></span></ix:nonNumeric></td> <td style="text-align: center">&#160;</td> <td style="text-align: center"><ix:nonNumeric contextRef="c0" name="dei:TradingSymbol"><span style="font-size: 10pt"><b>FORTY</b></span></ix:nonNumeric></td> <td style="text-align: center">&#160;</td> <td style="text-align: center"><span style="font-size: 10pt"><b><ix:nonNumeric contextRef="c0" format="ixt-sec:exchnameen" name="dei:SecurityExchangeName">Nasdaq</ix:nonNumeric> Global Select Market</b></span></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Securities registered or to be registered pursuant
to Section 12(g) of the Act: <b>None</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act: <b>None</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="margin: 0pt">&#160;</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Indicate the number of outstanding shares of each
of the issuer&#8217;s classes of capital or common stock as of the close of the period covered by the annual report:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>As of December 31, 2022, the registrant had
<ix:nonFraction contextRef="c2" decimals="INF" format="ixt:num-dot-decimal" name="dei:EntityCommonStockSharesOutstanding" scale="0" unitRef="shares">15,317,667</ix:nonFraction> outstanding ordinary shares, NIS 1 par value, of which 141,398 were represented by American Depositary Shares.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:EntityWellKnownSeasonedIssuer">Yes</ix:nonNumeric> <span style="font-family: Times New Roman, Times, Serif">&#9746;</span>&#160;&#160;No
<span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Yes <span style="font-family: Times New Roman, Times, Serif">&#9744;</span>&#160;&#160;<ix:nonNumeric contextRef="c0" name="dei:EntityVoluntaryFilers">No</ix:nonNumeric>
<span style="font-family: Times New Roman, Times, Serif">&#9746;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:EntityCurrentReportingStatus">Yes</ix:nonNumeric> <span style="font-family: Times New Roman, Times, Serif">&#9746;</span>&#160;&#160;No
<span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (&#167; 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:EntityInteractiveDataCurrent">Yes</ix:nonNumeric> <span style="font-family: Times New Roman, Times, Serif">&#9746;</span>&#160;&#160;No
<span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of &#8220;large
accelerated filer,&#8221; &#8220;accelerated filer,&#8221; and &#8220;emerging growth company&#8221; in Rule 12b-2 of the Exchange Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="white-space: nowrap; width: 25%"><span style="font-size: 10pt"><ix:nonNumeric contextRef="c0" format="ixt-sec:entityfilercategoryen" name="dei:EntityFilerCategory">Large accelerated filer</ix:nonNumeric> </span></td> <td style="white-space: nowrap; width: 25%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9746;</span></td> <td style="white-space: nowrap; width: 25%"><span style="font-size: 10pt">Accelerated filer </span></td> <td style="white-space: nowrap; width: 25%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9744;</span></td></tr> <tr style="vertical-align: top"> <td style="white-space: nowrap"><span style="font-size: 10pt">Non-accelerated filer </span></td> <td style="white-space: nowrap"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9744;</span></td> <td style="white-space: nowrap"><span style="font-size: 10pt">Emerging Growth Company </span></td> <td style="white-space: nowrap"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:EntityEmergingGrowthCompany"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9744;</span></ix:nonNumeric></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If an emerging growth company that prepares its
financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="background-color: white">Indicate
by check mark whether the registrant has filed a report on and attestation to its management&#8217;s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.&#160;<ix:nonNumeric contextRef="c0" format="ixt:fixed-true" name="dei:IcfrAuditorAttestationFlag"><span style="font-family: Times New Roman, Times, Serif">&#9746;</span></ix:nonNumeric>&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by any of the registrant&#8217;s executive officers during
the relevant recovery period pursuant to &#167;240.10D-1(b). <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 15%; text-align: center"><span style="font-size: 10pt">U.S. GAAP <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></span></td> <td style="width: 1%; text-align: center">&#160;</td> <td style="width: 25%; text-align: center">&#160;</td> <td style="width: 43%"><span style="font-size: 10pt"><span style="-sec-ix-hidden: hidden-fact-1">International Financial Reporting</span><br/>
Standards as issued by the International<br/>
Accounting Standards Board <span style="font-family: Times New Roman, Times, Serif">&#9746;</span></span></td> <td style="width: 1%; text-align: center">&#160;</td> <td style="width: 15%; text-align: center"><span style="font-size: 10pt">Other <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></span></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If &#8220;Other&#8221; has been checked in response
to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Item 17 <span style="font-family: Times New Roman, Times, Serif">&#9744;</span>&#160;&#160;Item
18 <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Yes <span style="font-family: Times New Roman, Times, Serif">&#9744;</span>&#160;&#160;No
<ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:EntityShellCompany"><span style="font-family: Times New Roman, Times, Serif">&#9746;</span></ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="font-size: 1pt; border-top: Black 1pt solid; border-bottom: Black 2pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 2 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="margin: 0pt">&#160;</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>TABLE OF CONTENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; width: 90%; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_001"><span style="font-size: 10pt"><b>CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS</b></span></a></td>
    <td style="vertical-align: bottom; width: 10%; text-align: center"><span style="font-size: 10pt"><b>ii</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_002"><span style="font-size: 10pt"><b>CERTAIN TERMS AND CONVENTIONS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>iv</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt">&#160;</td>
    <td style="vertical-align: bottom; text-align: center">&#160;</td></tr>
  <tr style="vertical-align: top; background-color: white">
    <td style="padding-left: 9pt; text-align: center"><a href="#a_003"><span style="font-size: 10pt"><b>PART I</b></span></a></td>
    <td style="padding-left: 9pt; text-align: center">&#160;</td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_004"><span style="font-size: 10pt"><b>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>1</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_005"><span style="font-size: 10pt"><b>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>1</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_006"><span style="font-size: 10pt"><b>ITEM 3. KEY INFORMATION</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>1</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_007"><span style="font-size: 10pt"><b>ITEM 4. INFORMATION ON THE COMPANY</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>26</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_008"><span style="font-size: 10pt"><b>ITEM 4A. UNRESOLVED STAFF COMMENTS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>93</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_009"><span style="font-size: 10pt"><b>ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>93</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_010"><span style="font-size: 10pt"><b>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>139</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_011"><span style="font-size: 10pt"><b>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>156</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_012"><span style="font-size: 10pt"><b>ITEM 8. FINANCIAL INFORMATION</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>161</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_013"><span style="font-size: 10pt"><b>ITEM 9. THE OFFER AND LISTING</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>166</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_014"><span style="font-size: 10pt"><b>ITEM 10. ADDITIONAL INFORMATION</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>166</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_015"><span style="font-size: 10pt"><b>ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>176</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_016"><span style="font-size: 10pt"><b>ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>178</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt">&#160;</td>
    <td style="vertical-align: bottom; text-align: center">&#160;</td></tr>
  <tr style="vertical-align: top; background-color: #CCEEFF">
    <td style="padding-left: 9pt; text-align: center"><a href="#a_017"><span style="font-size: 10pt"><b>PART II</b></span></a></td>
    <td style="padding-left: 9pt; text-align: center">&#160;</td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_018"><span style="font-size: 10pt"><b>ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>179</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_019"><span style="font-size: 10pt"><b>ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>179</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_020"><span style="font-size: 10pt"><b>ITEM 15. CONTROLS AND PROCEDURES</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>179</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_021"><span style="font-size: 10pt"><b>ITEM 16. RESERVED</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>180</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_022"><span style="font-size: 10pt"><b>ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>180</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_023"><span style="font-size: 10pt"><b>ITEM 16B. CODE OF ETHICS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>180</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_024"><span style="font-size: 10pt"><b>ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>180</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_025"><span style="font-size: 10pt"><b>ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>181</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_026"><span style="font-size: 10pt"><b>ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>181</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_027"><span style="font-size: 10pt"><b>ITEM 16F. CHANGE IN REGISTRANT&#8217;S CERTIFYING ACCOUNTANT</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>181</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_028"><span style="font-size: 10pt"><b>ITEM 16G. CORPORATE GOVERNANCE</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>182</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_029"><span style="font-size: 10pt"><b>ITEM 16H. MINE SAFETY DISCLOSURE</b></span></a></td>
    <td style="text-align: center"><span style="font-size: 10pt"><b>182</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_030"><span style="font-size: 10pt"><b>ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS</b></span></a></td>
    <td style="text-align: center"><span style="font-size: 10pt"><b>182</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt">&#160;</td>
    <td style="vertical-align: bottom; text-align: center">&#160;</td></tr>
  <tr style="vertical-align: top; background-color: white">
    <td style="padding-left: 9pt; text-align: center"><a href="#a_031"><span style="font-size: 10pt"><b>PART III</b></span></a></td>
    <td style="padding-left: 9pt; text-align: center">&#160;</td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_032"><span style="font-size: 10pt"><b>ITEM 17. FINANCIAL STATEMENTS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>183</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_033"><span style="font-size: 10pt"><b>ITEM 18. FINANCIAL STATEMENTS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>183</b></span></td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#a_034"><span style="font-size: 10pt"><b>ITEM 19. EXHIBITS</b></span></a></td>
    <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>183</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt">&#160;</td>
    <td style="text-align: center">&#160;</td></tr>
  <tr style="background-color: #CCEEFF">
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    <td style="text-align: center"><span style="font-size: 10pt"><b>184</b></span></td></tr>
  <tr style="background-color: white">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt">&#160;</td>
    <td style="text-align: center">&#160;</td></tr>
  <tr style="background-color: #CCEEFF">
    <td style="vertical-align: top; padding-left: 9pt; text-align: justify; text-indent: -9pt"><a href="#newf_001"><span style="font-size: 10pt"><b>INDEX TO FINANCIAL STATEMENTS</b></span></a></td>
    <td style="text-align: center"><span style="font-size: 10pt"><b>F-1</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 3; Options: NewSection; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="a_001"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This annual report on Form
20-F contains various &#8220;forward-looking statements&#8221; within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the U.S Private Securities Litigation
Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking statements
reflect our current view with respect to future events and financial results. Statements which use the terms &#8220;anticipate,&#8221;
&#8220;believe,&#8221; &#8220;expect,&#8221; &#8220;plan,&#8221; &#8220;intend,&#8221; &#8220;estimate&#8221;, &#8220;may&#8221;, &#8220;will&#8221;
and similar expressions are intended to identify forward looking statements. Such statements reflect our current views with respect to
future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels
of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed
or implied by the forward-looking statements, including, but not limited to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px">&#9679;</td>
    <td>the degree of our success in our plans to leverage our global footprint to grow our sales; &#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: top">
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  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px; text-align: justify">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px; text-align: justify">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">While we believe our forward-looking
statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties
materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the
risks discussed in Item 3 &#8211; &#8220;Key Information&#8221; under the caption &#8220;Risk Factors&#8221; and cautionary statements
appearing elsewhere in this annual report in order to review conditions that we believe could cause actual results to differ materially
from those contemplated by the forward-looking statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You should not rely upon forward-looking
statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking
statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this annual report, to conform these statements to actual results or to changes in our expectations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><b>Risk Factors Summary</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white"><i>The
following is a summary of the principal risks that could materially adversely affect our business, results of operations, and financial
condition, all of which are more fully described below. This summary should be read in conjunction with the other information discussed
in this Item 3.D, and should not be relied upon as an exhaustive summary of the material risks facing our business. Please carefully consider
all of the information discussed in this Item 3.D. &#8220;Risk Factors&#8221; and elsewhere in this annual report for a more thorough
description of these and other risks.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><b>Summary of Risks Related
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -16.2pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -16.2pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -16.2pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="text-align: justify"><span style="font-size: 10pt">Security vulnerabilities in our software solutions could lead to reduced revenue or to liability claims.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="text-align: justify"><span style="font-size: 10pt">We are subject to risks that are characteristic of the insurance market, including catastrophes, potential capital markets crashes, and consolidation.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px; text-align: justify">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Summary of Risks Related to Our International Operations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><b>Summary of Risks Related
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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  <tr style="vertical-align: top">
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    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">We may be liable to our clients for damages caused by a violation of intellectual property rights.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><b>Summary of Risks Related
to Our Status as Israeli Company and Our Israeli Operations </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">A reduction of government spending
in Israel on IT services may reduce our revenues and profitability; and any delay in the annual budget approval process may negatively
impact our cash flows.</span></td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Israeli government tax benefits
we receive may be terminated if we cease to qualify for them.</span></td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Our Israeli research and development
grants impose various limitations on us, including restrictions on our ability to transfer manufacturing operations or technology outside
of Israel.</span></td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Political, economic, and military
conditions in Israel could negatively impact our business.</span></td>
</tr></table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_002"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>CERTAIN TERMS AND CONVENTIONS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Unless the context requires otherwise, all references
in this annual report to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Formula&#8221; </i>refer to Formula Systems (1985) Ltd. alone; </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;we,&#8221; &#8220;our,&#8221; &#8220;ours,&#8221; &#8220;our company,&#8221; &#8220;our Group&#8221; and &#8220;us&#8221; </i>refer to Formula, together with its subsidiaries and its affiliate company, unless otherwise indicated. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our operations are currently
conducted through our subsidiaries&#8212;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Matrix&#8221;,</i>
which refers to Matrix IT Ltd. and its subsidiaries;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 6; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: LowerRoman; Name: PageNo -->iv<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Sapiens&#8221;, </i>which
refers to Sapiens International Corporation N.V. and its subsidiaries;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Magic Software&#8221;,
</i>which refers to Magic Software Enterprises Ltd. and its subsidiaries;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Michpal&#8221;, </i>which
refers to Michpal Micro Computers (1983) Ltd. and its subsidiaries;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;InSync&#8221;, </i>which
refers to InSync Staffing Solutions, Inc. and its subsidiaries;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Ofek Aerial Photography&#8221;,
</i>which refers to Ofek Aerial Photography Ltd.;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Zap Group&#8221;,
</i>which refers to Zap Group Ltd. and its subsidiaries; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Shamrad&#8221;, </i>which
refers to Shamrad Electronics (1977) Ltd. (which we acquired in October 2022); and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">and our affiliated company&#8212;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;TSG,&#8221; </i>which
refers to TSG Advanced IT Systems, Ltd., in which we hold a 50% share interest<i>.</i></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Companies Law&#8221; </i>refer to the Israeli Companies Law, 5759-1999.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;dollars&#8221; or &#8220;$&#8221; </i>are to U.S. dollars;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;NIS&#8221; </i>are to New Israeli Shekels; </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;ADSs&#8221; </i>refer to our American Depositary Shares, each of which represents one ordinary share, par value NIS 1 per share, of our company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;ordinary shares&#8221; </i>refer to our ordinary share, par value NIS 1 per share, and include ordinary shares that are represented by ADSs;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Nasdaq&#8221; </i>refer to the Nasdaq Stock Market, on which the ADSs are listed for trading;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;TASE&#8221; </i>refer to the Tel Aviv Stock Exchange, on which the ordinary shares are listed for trading; </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;SEC&#8221; </i>refer to the U.S. Securities and Exchange Commission;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;Israeli CPI&#8221; </i>refer to the Israeli consumer price index;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;IFRS&#8221;</i> refer to International Financial Reporting Standards, as issued by the IASB; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>&#8220;IASB&#8221;</i> refer to the International Accounting Standards Board.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our consolidated financial
statements appearing in this annual report are prepared in U.S. dollars and in accordance with IFRS.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Statements made in this annual
report concerning the contents of any contract, agreement or other document are summaries of such contracts, agreements or documents and
are not complete descriptions of all of their terms. If we have filed any of these documents as an exhibit to this annual report or to
any previous filling with the SEC, you may read the document itself for a complete recitation of its terms.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All trademarks appearing in
this annual report are the property of their respective holders.</p><div>




</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 7; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: LowerRoman; Name: PageNo -->v<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="a_003"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>PART I</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_004"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
AND ADVISERS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_005"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_006"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 3. KEY INFORMATION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>[Reserved] </b></span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Capitalization and Indebtedness</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Reasons for the Offer and Use of Proceeds</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>D.</b></span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Investing in our ordinary
shares, including ordinary shares represented by ADSs, involves a high degree of risk and uncertainty. You should carefully consider the
risks and uncertainties described below before investing in our ordinary shares or ADSs. Our business prospects, operating results and
financial condition could be seriously harmed due to any of the following risks. Additional risks and uncertainties that we are not aware
of or that we currently believe are immaterial may also adversely affect our business prospects, financial condition, and results of operations.
The trading prices of our ordinary shares and ADSs could decline as a result of the realization of any of these risks, in which case you
may lose part or all of your investment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>




</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 8; Options: NewSection; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->1<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Risks Related to Our Business, Our Industry
and Our Financial Condition</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The implementation of our M&amp;A growth
strategy, which requires the integration of our multiple acquired companies and their respective businesses, operations and employees
with our own,&#160;and their respective businesses, operations and employees with our own, involves significant risks, and the failure
to integrate successfully may adversely affect our future results.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the past decade we have
completed a significant number of important acquisitions. In particular, we have acquired the following companies in the following fiscal
periods: in early 2023, we acquired 70% of the share capital of Zebra AGR Technologies Ltd.; in 2022, we acquired 100% of the share capital
of RDT Equipment and Systems (1993) Ltd, Shamrad Electronic (1997) Ltd, I.T Cognitive Ltd, The Goodkind Group, LLC., Intrabases SAS and
70% of the share capital of Formally Smart Form System Ltd; in 2021, we acquired the entire share capital of Zap Group Ltd., EnableIT
LLC., and Menarva Software Solutions Ltd., 60% of the of the share capital of 9540 Y.G. Soft I.T Ltd., 60% of the of the share capital
of SQ Service Quality Ltd., 75% of the share capital of A.A Engineering Ltd., 75% of the of the share capital of I.T.D. Group Ltd., and
60% of the of the share capital of AVB Technologies Ltd.; in the fourth quarter of 2020, we acquired Tia Technology (which, along with
sum.cumo, has been renamed or will be renamed Sapiens Denmark and Sapiens Germany, respectively), Thor Denmark Holding ApS, and RightStar
Inc.; in the third quarter of 2020, we acquired Delphi Technology Inc. (which has been merged into Sapiens America), Stockell Information
Systems, Inc, Gestetnertec Ltd. (51%) and Mobisoft Ltd (70%); in the second quarter of 2020, we acquired Tiful Gemel Ltd. (75%), Magic
Hands B.V, Liram Financial Software Ltd. (70%) and Aptonet Inc, and in the first quarter of 2020, we acquired sum.como GmbH and Ofek Aerial
Photography (80%).&#160; These acquisitions are part of our integrated M&amp;A growth strategy, which is centered on three key factors:
growing our customer base, expanding our geographic footprint and adding complementary solutions to our portfolio&#8212; all while we
seek to ensure our continued high quality of services and product delivery. Any failure to successfully integrate the business, operations
and employees of our acquired companies, or to otherwise realize the anticipated benefits of these acquisitions, could harm our results
of operations. Our ability to realize these benefits will depend on the timely integration and consolidation of organizations, operations,
facilities, procedures, policies and technologies, and the harmonization of differences in the business cultures between these companies
and their personnel. Integration of these businesses will be complex and time-consuming, will involve additional expense and could disrupt
our business and divert management&#8217;s attention from ongoing business concerns. The challenges involved in integrating these acquired
entities and other former acquisitions include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -16.2pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td><span style="font-size: 10pt">Preserving customer and other important relationships</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td><span style="font-size: 10pt">Integrating complex, core products and services that we acquire with our existing products and services</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td><span style="font-size: 10pt">Integrating financial forecasting and controls, procedures and reporting cycles</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td><span style="font-size: 10pt">Combining and integrating information technology, or IT, systems</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Integrating employees and related HR systems and benefits, maintaining employee morale and retaining key employees</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Potential confusion that we may have in our dealings with customers and prospective customers as to the products we are offering to them and potential overlap among those products</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td><span style="font-size: 10pt">Investment of significant management time and attention towards the integration process</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The benefits we expect to
realize from these acquisitions are, necessarily, based on projections and assumptions about the combined businesses of our Group, and
assume, among other things, the successful integration of these acquired entities into our business and operations. Our projections and
assumptions concerning our acquisitions may be inaccurate, however, and we may not successfully integrate the acquired companies and our
operations in a timely manner, or at all. We may also be exposed to unexpected contingencies or liabilities of the acquired companies.
If we do not realize the anticipated benefits of these transactions, our growth strategy and future profitability could be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If we do not successfully develop and deploy
new technologies to address the updated needs of our customers, our business and results of operations could suffer.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our success has been based
in part on our ability to design software solutions that enable our customers to facilitate, improve and automate traditional processes
to make them easier for end-customers, by utilizing advanced technologies, such as digital engagement, low-code/no-code, API layer, advanced
analytics and cloud computing. We spend substantial amounts of time and money researching and developing new technologies and enhanced
versions of existing features to meet our customers&#8217; and potential customers&#8217; rapidly evolving needs. There is no assurance
that our enhancements to our solutions or our new solutions&#8217; features, capabilities, or offerings, will be compelling to our customers
or gain market acceptance. If our research and development investments do not accurately anticipate customer demand or if we fail to develop
our solutions in a manner that satisfies customer preferences in a timely and cost-effective manner, we may fail to retain our existing
customers or increase demand for our solutions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 9; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->2<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Introduction of new products
and services by competitors or the development of entirely new technologies to replace existing offerings could make our solutions obsolete
or adversely affect our business, financial condition, and results of operations. We may experience difficulties with software development,
design, or marketing that delay or prevent our development, introduction, or implementation of new solutions, features, or capabilities.
We have in the past experienced delays in our internally planned release dates of new features and capabilities, and there can be no assurance
that new solutions, features, or capabilities will be released according to schedule. Any delays could result in adverse publicity, loss
of revenue or market acceptance, or claims by customers brought against us, any of which could harm our business. Moreover, the design
and development of new solutions or new features and capabilities to our existing solutions may require substantial investment, and we
have no assurance that such investments will be successful. If customers do not widely adopt our new solutions, experiences, features,
and capabilities, we may not be able to realize a return on our investment and our business, financial condition, and results of operations
may be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Our new and existing solutions and changes to our
existing solutions could fail to attain sufficient market acceptance for many reasons, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -16.2pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">Our failure to predict market demand accurately in terms of product functionality and to supply offerings that meet that demand in a timely fashion;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">Product defects, errors, or failures or our inability to satisfy customer service level requirements;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">Negative publicity or negative private statements about the security, performance, or effectiveness of our solutions or product enhancements;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Delays in releasing to the market our new offerings or enhancements to our existing offerings, including new product modules;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Introduction or anticipated introduction of competing solutions or functionalities by our competitors;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">Inability of our solutions or product enhancements to scale and perform to meet customer demands;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Receiving qualified or adverse opinions in connection with security or penetration testing, certifications or audits, such as those related to IT controls and security standards and frameworks or compliance;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">Poor business conditions for our customers, causing them to delay software purchases;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">Reluctance of customers to purchase proprietary software solutions; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Reluctance of customers to purchase products incorporating open source software.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If we are not able to continue
to identify challenges faced by our customers and develop, license, or acquire new features and capabilities for our solutions in a timely
and cost-effective manner, or if such enhancements do not achieve market acceptance, our business, financial condition, results of operations,
and prospects may suffer and our anticipated revenue growth may not be achieved.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Because we derive, and expect
to continue to derive, a material portion of our revenue from implementation of our solutions, along with post-implementation services
such as ongoing support and maintenance and professional services, market acceptance of these solutions, and any enhancements or changes
thereto, is important to our success.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our development cycles are often lengthy,
and we may not have the resources available to complete development of new, enhanced or modified solutions. We may incur significant expenses
before we generate revenues, if any, from our solutions.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Because certain of our solutions
are complex and require rigorous testing, development cycles can be lengthy, taking us up to two years to develop and introduce new, enhanced
or modified solutions. Moreover, development projects can be technically challenging and expensive. The nature of these development cycles
may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate
revenues, if any, from such expenses. We may not have, in the future, sufficient funds or other resources to make the required investments
in product development. Furthermore, we may invest substantial resources in the development of solutions that do not achieve market acceptance
or commercial success. Even where we succeed in our sales efforts and obtain new orders from customers, the complexity involved in delivering
our solutions to such customers makes it more difficult for us to consummate delivery in a timely manner and to recognize revenue and
maximize profitability. Failure to deliver our solutions in a timely manner could result in order cancellations, damage our reputations
and require us to indemnify our customers. Any of these risks relating to our lengthy and expensive development cycle could have a material
adverse effect on our business, financial conditions and results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>




</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 10; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->3<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Our sales cycle is variable and often lengthy, depending upon
many factors outside our control, which requires us to expend significant time and resources prior to generating associated revenues.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The typical sales cycle for
certain of our solutions and services is lengthy and unpredictable, requires pre-purchase evaluation by a significant number of persons
in our customers&#8217; organizations, and often involves a significant operational decision by our customers. Our sales efforts sometimes
involve educating our customers, industry analysts and consultants about the use and benefits of our solutions, including the technical
capabilities of those solutions and the efficiencies achievable by organizations deploying our solutions. Customers typically undertake
a significant evaluation process, which frequently involves not only our solutions, but also those of our competitors, and can result
in a lengthy sales cycle. Our sales cycle for new customers is sometimes one to two years and can extend even longer in some cases. We
often spend substantial time, effort and money in our sales efforts without any assurance that such efforts will produce any sales.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Macro-economic headwinds caused by inflation,
rising interest rates, global supply problems and fluctuations in currency exchange rates may adversely impact our revenues, profitability
and cash flows.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">Our business depends on
various elements, including, the economic health of our current and prospective clients, worldwide economic conditions, and with respect
to Sapiens, the overall demand within the global insurance technology sector. Sapiens markets and sells its insurance software solutions
and services primarily in the European and North American regions, as well as, to a smaller extent, in various parts of the rest of the
world. Adverse economic conditions in those markets, including due to rising inflation, increased interest rates and decreased economic
output, may reduce overall demand for its insurance software solutions and services. These factors could also delay or lengthen sales
cycles, and inhibit international expansion of our subsidiaries and/or affiliates, and may also lead to longer collection cycles for payments
due from customers, as well as result in an increase in customer bad debt. In addition, the weakening of European currencies in comparison
to the U.S. dollar has been adversely impacting in a material manner, and may continue to adversely impact, Sapiens&#8217; revenues and
results of operations as measured in U.S. dollars. While the implications of these macroeconomic trends for Sapiens&#8217; business, results
of operations and overall financial position remain uncertain over the long term, the headwinds that are being created by these trends
are creating challenges for Sapiens&#8217; business in the short term. In 2022, Sapiens experienced a slower growth rate in revenues,
profitability and cash flows as a result of those headwinds. Please see &#8220;Risks Relating to our International Operations-Our international
operations expose us to risks associated with fluctuations in foreign currency exchange rates that have been adversely affecting, and
could continue to adversely affect, our business&#8221; for a discussion of the headwinds created by currency exchange rates.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition to exerting the
foregoing impact, macro-economic headwinds may amplify a number of risks for us, including, but not limited to, the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">our ability to increase sales
of new, enhanced solutions to existing customers may be hindered due to more cautious purchasing and investment strategies by corporate
customers;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">reduced economic activity, which
could lead to a prolonged recession, could negatively impact customer discretionary spending on insurance solutions, which in turn could
substantially impact our business operations and financial condition in an adverse manner;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">our customer success efforts,
our ability to enter into new markets and to acquire new customers may be impeded, in part due to lengthening of our sales cycles;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">there may be an increase in
our credit losses reserves as customers face economic hardship and collectability becomes more uncertain, including due to the risk of
bankruptcies;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">our ability to retain, attract
and recruit employees may be adversely impacted if our growth rate and profitability decrease;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">our ability to complete acquisitions
may be hampered if we need to seek financing for such acquisitions; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">our ability to raise capital
may be hurt.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The full impact of economic
headwinds on our business and our future performance may also have the effect of heightening any of our other risk factors described in
this annual report, and is difficult to predict how long those trends will continue, so there is some level of risk that any guidance
we provide to the market may turn out to be incorrect.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Investment in highly skilled research and
development, product implementation, customer support and other personnel is a critical factor in our ability to develop and enhance our
solutions and support our customers, but that personnel may nevertheless be hard to retain and an increase in that investment may furthermore
reduce our profitability.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a provider of proprietary
software solutions that rely upon technological advancements, we rely heavily on our research and development activities to remain competitive.
We consequently depend in large part on the ability to attract, train, motivate and retain highly skilled information technology professionals
for our research and development team, as well as software programmers and communications engineers, and product implementation experts,
particularly individuals with knowledge and experience in the insurance industry. Because our software solutions are highly complex and
are generally used by our customers to perform critical business functions, we also depend heavily on other skilled technology professionals
to provide ongoing support to our customers. Skilled technology professionals are often in high demand and short supply.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our research and development,
product delivery, and general and administrative, activities are conducted at locations where the competition for skilled technology professionals
is particularly intense. While there has been strong competition for qualified human resources in the high-tech industry historically,
the industry experienced record growth and activity in 2021, both at the earlier stages of venture capital and growth equity financings,
and at the exit stage of initial public offerings and mergers and acquisitions. This flurry of growth and activity has caused a sharp
increase in job openings in both high-tech companies and research and development centers, as well as the intensification of competition
between employers to attract qualified employees in those jurisdictions. Employee attrition&#8212; for all fields and professions, and
for all levels of management&#8212; has accompanied this strong competition, and High-Tech companies such as ours that are based in Israel
and these other jurisdictions are currently facing a shortage of skilled human capital, including engineering, research and development,
sales and customer support personnel. Many of the companies with which we compete for qualified personnel may have greater resources than
we do, and we may not succeed in recruiting additional experienced or professional personnel, retaining personnel or effectively replacing
current personnel who may depart with qualified or effective successors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If we are unable to hire or
retain qualified research and development personnel and other technology professionals to develop, implement and modify our solutions,
we may be unable to meet the needs of our customers. Even if we succeed at retaining the necessary skilled personnel in our research and
development and customer support efforts, our investments in our personnel and product development efforts increase our costs of operations
and thereby reduce our profitability, unless accompanied by increased revenues. As a result of the intense competition for qualified human
resources, the High-Tech market in which we operate has experienced and may continue to experience significant wage inflation. Accordingly,
our efforts to attract, retain and develop personnel may also result in significant additional expenses, which could adversely affect
our profitability. Given the highly competitive industry in which we operate, we may not succeed in increasing our revenues in line with
our increasing investments in our personnel and research and development efforts.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Furthermore, as we seek to
expand the marketing and offering of our products and services into new territories, it requires the retention of new, additional skilled
personnel with knowledge of the particular market and applicable regulatory regime. Such skilled personnel may not be available at a reasonable
cost relative to the additional revenues that we expect to generate in those territories, or may not be available at all. In particular,
wage costs in lower-cost markets where we have recently added personnel, such as India, are increasing and we may need to increase the
levels of our employee compensation more rapidly than in the past to remain competitive. The transition of projects to new locations may
also lead to business disruptions due to differing levels of employee knowledge and organizational and leadership skills. Although we
have never experienced an organized labor dispute, strike or work stoppage, any such occurrence, including with unionization efforts,
could disrupt our business and operations and harm our financial condition. In addition, we may need to attract and train additional IT
professionals at a rapid rate in order to serve several new customers or implement several new large-scale projects in a short period
of time. If the current adverse macroeconomic headwinds develop into a full-fledged downturn in economic conditions and we need to lay
off some of those employees, that will result in our loss of the time and resources that we had invested in training them, and our loss
of their accumulated know-how.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Failure to manage our growth&#8212; both organic and non-organic&#8212;could
effectively harm our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In recent years, we experienced,
and expect to continue to experience in the future, growth in our international operations that has placed, and will continue to place,
a significant strain on our operational and financial resources and our personnel. To manage our anticipated future growth effectively,
we must continue to maintain and may need to enhance our information technology infrastructure, financial and accounting systems and controls
and manage expanded operations and employees in geographically distributed locations. We also must attract, train and retain a significant
number of additional qualified sales and marketing personnel, professional services personnel, software engineers, technical personnel
and management personnel. Our failure to manage our growth effectively could have a material adverse effect on our business, results of
operations and financial condition. Our growth could require significant capital expenditures and may divert financial resources from
other projects, such as the development of new services or product enhancements. For example, since it may take as long as six months
to hire and train a new member of our professional services staff, we make decisions regarding the size of our professional services staff
based upon our expectations with respect to customer demand for our products and services. If these expectations are incorrect, and we
increase the size of our professional services organization without experiencing an increase in sales of our products and services, we
will experience reductions in our gross and operating margins and net income. If we are unable to effectively manage our growth, our expenses
may increase more than expected, our revenues could decline or grow more slowly than expected and we may be unable to implement our business
strategy. Our growth may also be accompanied by greater exposure to litigation, including suits by clients, vendors, employees or former
employees, as the sizes of our workforce and our overall international operations increase. All such litigation carries with it related
costs and could divert our management&#8217;s attention from ongoing business concerns. We also intend to continue to expand into additional
international markets which, if not technologically or commercially successful, could harm our financial condition and prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The market for software solutions and related
services is highly competitive and dynamic, and we need to adapt quickly to trends in order to retain or grow our market share.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The market for software solutions
and related services, including for business solutions for the insurance and financial services industry, in which we compete, is highly
competitive and continuously evolving.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our competitors include, with
respect to Magic Software and Matrix IT:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">multinational IT service providers, including the services arms of global technology providers;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">accounting firms and consultancies that provide consulting and other IT services and solutions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">solution or service providers that compete with us in a specific geographic market, industry or service area, including advertising agencies, engineering services providers and technology start-ups and other companies that can scale rapidly to focus on or disrupt certain markets and provide new or alternative products, services or delivery models; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to Sapiens&#8217;
insurance software solutions, our competitors generally consist of:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">global software providers with their own IP;</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">local/domestic software vendors with their own IP, operating in a designated geographic market and/or within a designated segment of the insurance industry;</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">BPO providers (as described below in this risk factor) who offer end-to-end outsourcing of insurance carriers&#8217; business, including core software administration (although BPO providers want to buy comprehensive software platforms to serve as part of the BPO proposition from vendors and may seek to purchase our solutions for this purpose);</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">internal IT departments, who often prefer to develop solutions in-house; and</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">new insurtech companies with niche solutions.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our failure to adapt to changing
market conditions and to compete successfully with established or new competitors could have a material adverse effect on our results
of operations and financial condition. Many of our smaller competitors have been acquired by larger competitors, which provides those
smaller competitors with greater resources and potentially a larger client base for which they can develop solutions. Our customers or
potential customers may prefer suppliers that are larger than us, are better known in the market or that have a greater global reach.
In lieu of being acquired by larger competitors, current and potential competitors have established, and may establish in the future,
cooperative relationships among themselves, or with third parties to increase their abilities to address the needs of our existing, or
prospective, customers. As a result, our competitors may be able to adapt more quickly than us to new or emerging technologies and changes
in customer requirements, and may be able to devote greater resources to the promotion and sale of their products. As a means of adapting
to competition, we and some of our competitors have developed systems to allow customers to outsource their core systems to external providers
(known as BPO). We are seeking to partner with BPO providers, but there can be no assurance that such BPO providers will adopt our solutions
rather than those of our competitors. Determinations by current and potential customers to use BPO providers that do not use our solutions
may result in the loss of such customers and limit our ability to gain new customers.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A number of our competitors
also have operational advantages relative to us, as they are generally private companies that are not required to report results of operations
on a regular basis, and can consequently benefit from the ability to take more risky actions in the hope of building up strong brand name
recognition, such as payment of higher salaries as a recruitment tool, sale of products at cheaper prices, and very rapid growth of sales
and marketing teams, even if those actions result in operating losses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To compete in the rapidly
changing environment, and win the competition for end-customers, we also need to offer a coherent digital and data propositions, allowing
our insurance provider customers to better interact with their own customers in a digital and omni-channel manner. If we fail to adapt
and accelerate the development of our digital and data offerings, that may adversely impact our ability to compete in some of our target
markets. Consolidation in the insurance industry in which some of our clients operate also increases competitiveness for us by reducing
the number of potential clients for whose business we and our competitors compete. The high level of continuity with which insurance and
other financial services clients remain with their providers of software-related services also increases general competitiveness by tying
clients to their service providers and thereby shrinking the market of potential clients.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Customers switching to cloud-based solutions
may lead to a decrease in demand for our products.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our competitiveness in the
market is also tied to our ability to adapt quickly to the movement towards cloud-based solutions. Our ability to provide solutions that
may be deployed in the cloud has required, and may continue to require, considerable investment in resources, including technical, financial,
legal, sales, information technology and operational systems. Market acceptance of cloud offerings is affected by a variety of factors,
including but not limited to: security, service availability, reliability, availability of tools to automate cloud migration, scalability,
integration with public cloud platforms, customization, availability of qualified third-party service providers to assist customers in
transitioning to cloud-based solutions, performance, current license terms, customer preference, customer concerns with entrusting a third
party to store and manage their data, public concerns regarding privacy and the enactment of restrictive laws or regulations. We may not
meet our financial and strategic objectives if the pace at which we transform our solutions to be cloud-compatible is slower than our
customers&#8217; adoption of cloud-based solutions. To address the challenges in transitioning our customers to the cloud, we continue
to invest in innovation and feature development, simplified cloud migration, and performance and reliability, as well as other cloud customer
success and sales initiatives. There can be no assurance, however, that these initiatives will improve our ability to capture or retain
customers that prefer cloud-based solutions. If we are unable to win over those new customers or retain those existing customers, we may
experience a negative impact on our overall financial performance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This movement towards cloud-based
solutions is occurring in the insurance and financial services sectors in which our subsidiary Sapiens operates, and also in other sectors
in which our subsidiaries operate. The rising trend of Matrix&#8217;s and Magic Software&#8217;s customers to switch to cloud-based solutions,
is, on the one hand, a business opportunity for us to expand our cloud-based offerings, yet, on the other hand, also carries with it the
risk of those customers consuming less of the other services provided by us. For example, in the marketing and software support solutions
sector, Matrix and Magic Software have many opportunities for marketing new software solutions products and related services, new solutions
which are cloud-based. Yet, in many cases these will be an alternative to our traditional software solutions products, which are also
being promoted by Matrix and Magic Software. As long as the decrease in demand for Matrix&#8217;s and Magic Software&#8217;s services,
due to customers switching to cloud based solutions, is greater than the increase in demand for Matrix&#8217;s and Magic Software&#8217;s
cloud based solutions, the business results of Matrix and Magic Software may be harmed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Additionally, the gross profit
derived by Matrix and by Magic Software from their cloud-based solutions may be lower than the gross profit that they derive from their
traditional solutions, which were replaced by the cloud-based solutions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may be required to increase or decrease
the scope of our operations in response to changes in the demand for our products and services, and if we fail to successfully plan and
manage changes in the size of our operations, our business will suffer.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the past, we have both
grown and contracted our operations, in some cases rapidly, to profitably offer our products and services in a continuously changing market.
If we are unable to manage these changes, or to plan and manage any future changes in the size and scope of our operations, our business
may be negatively impacted.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Restructurings and cost reduction
measures that we have implemented in the past have reduced the size of our subsidiaries&#8217; operations and workforce. Reductions in
personnel can result in significant severance, administrative and legal expenses, and may also adversely affect or delay various sales,
marketing and product development programs and activities. These cost reduction measures have included, and may in the future include,
employee separation costs and consolidating and/or relocating certain of our subsidiaries&#8217; operations to different geographic locations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Acquisitions, organic growth
and absorption of significant numbers of customers&#8217; employees in connection with managed services projects have, from time to time,
increased our subsidiaries&#8217; headcount. During periods of expansion, our subsidiaries may need to serve several new customers or
implement several new large-scale projects in short periods of time. This may require our subsidiaries to attract and train additional
IT professionals at a rapid rate, as well as quickly expand their facilities, which may be difficult to successfully implement.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If existing customers are not satisfied
with our solutions and services and either do not make subsequent purchases from us or do not continue using such solutions and services,
or if our relationships with our largest customers are impaired, our revenue could be negatively affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We depend to an extent on repeat product and service revenues from
our base of existing customers. For example, five of Sapiens&#8217; largest customers accounted for, in the aggregate, 15.5% and 14.9%
of its revenues in the years ended December 31, 2022 and 2021, respectively. Two of Magic Software&#8217;s largest clients accounted together
for 20.6% and 21.2% of its revenues in the years ended December 31, 2022 and 2021, respectively, and five of Magic Software&#8217;s largest
clients accounted for 26.4% and 27.5% of its revenues in the years ended December 31, 2022 and 2021, respectively. If our existing customers
are not satisfied with our solutions and services, they may not enter into new project contracts with us or continue using our technologies.
A significant decline in our revenue stream from existing customers, including due to termination of agreement(s), would have an adverse
effect on our business, results of operations and financial condition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We are in part dependent on a limited number
of core product families, and a decrease in revenues from these products would adversely affect our business, results of operations and
financial condition; our future success will be partially dependent on the acceptance of future releases of our core product offerings,
and if we are unsuccessful with these efforts, our business, results of operations and financial condition will be adversely affected.&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We (through our Magic Software
subsidiary) derive a portion of our revenues and profits from sales of application and integration platforms and vertical software solutions
and from related professional services, software maintenance and technical support. Our future growth depends in substantial part on our
ability to effectively develop and sell new products developed by us or acquired from third parties as well as add new features to existing
products and new software service offerings. A decrease in revenues from our principal products and related services would adversely affect
our business, results of operations and financial condition.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our future success depends
in part on the continued acceptance of our application platforms and integration products and our vertical packaged software solutions.
The continued acceptance of our platforms and software solutions will be dependent in part on the continued acceptance and growth of the
cloud market, including rich internet applications, or RIAs, mobile and software as a service, or SaaS, for which certain of them are
particularly useful and advantageous. We will need to continue to enhance our products to meet evolving requirements and if new versions
of such products are not accepted, our business, results of operations and financial condition may be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our business sometimes involves long-term,
large, complex implementation projects across the globe, which involve uncertainties, mainly during the implementation period, such as
changes to the estimated project costs and changes in project schedule. Such changes may cause disputes between us and our customers,
whether or not due to failure on our part, and may in some cases result in cancellation of those projects. Such cancellation can adversely
impact our revenues, profitability and/or, in some cases, our relationship with the relevant customer.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our business is, in part,
characterized by relatively large, complex implementation projects or engagements that can have a material impact on our total revenue
and cost of revenue from quarter to quarter. A material percentage of our expenses, particularly employee compensation, are relatively
fixed. Therefore, variations in the timing of the initiation, estimated scope of work, progress or completion of projects or engagements
can cause significant variations in operating results from quarter to quarter.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This is particularly the case
for fixed-price contracts, where our delivery requirements sometimes span more than one year. For a highly complex, fixed-price project
that requires customization, we may not be able to accurately estimate our actual costs of completing the project. We are sometimes dependent
on the assistance of third-parties (such as our customers&#8217; vendors or IT employees, or our system integrator partners) in implementing
such projects, which may not be provided in a timely manner. If our actual cost-to-completion of a project significantly exceeds the estimated
costs, we could experience a loss on the related contract, which (when multiplied by multiple projects) could have an adverse effect on
our results of operations, financial position and cash flow.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Similarly, delays in implementation
projects (whether fixed price or not) may affect our revenue and cause our operating results to vary. Some of our solutions are delivered
over periods of time ranging from several months to a few years. Payment terms for those solutions are generally based on periodic payments
or on the achievement of milestones. Any delays in payment or in the achievement of milestones may have an adverse effect on our results
of operations, financial position or cash flows.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For non-fixed price contracts,
we generally provide our customers with up-front estimates regarding the duration, budget and costs associated with the implementation
of their project. Due to the complexities described above, however, we may not meet those upfront estimates and/or the expectations of
our customers, which could lead to a dispute with a client. In the past, these disputes have sometimes arisen with significant customers
of Sapiens that have accounted for a significant portion of its revenues, and the settlement of these disputes reduced its revenues and
operating profit relative to its prior estimates. In 2022 and 2021, certain customers of Sapiens canceled projects with us at the stage
of implementation, resulting in the loss of potential future revenues from those customers. We expect that we may have similar cancellations
by our customers in the future, during the implementation phase. These cancellations, if coupled with disputes with significant customers
in the future, whether or not due to failure on our part, could result in lost revenues, lower profit margins, legal claims against us
and even the refund of the customers&#8217; money and could harm our reputation, thereby adversely affecting our ability to attract new
customers and to sell additional solutions and services to existing customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may be liable to our clients for damages
caused by a violation of intellectual property rights, the disclosure of other confidential information, including personally identifiable
information, system failures, errors or unsatisfactory performance of services, and our insurance policies may not be sufficient to cover
these damages.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We often have access to, and
are required to collect and store, sensitive or confidential client information, including personally identifiable information. Some of
our client agreements do not limit our potential liability for breaches of confidentiality, infringement indemnity and certain other matters.
Furthermore, breaches of confidentiality may entitle the aggrieved party to equitable remedies, including injunctive relief. If any person,
including any of our employees and subcontractors, penetrates our network security or misappropriates sensitive or confidential client
information, including personally identifiable information, we could be subject to significant liability from our clients or from our
clients&#8217; customers for breaching contractual confidentiality provisions or privacy laws. Despite measures we take to protect the
intellectual property and other confidential information or personally identifiable information of our clients, unauthorized parties,
including our employees and subcontractors, may attempt to misappropriate certain intellectual property rights that are proprietary to
our clients or otherwise breach our clients&#8217; confidences. Unauthorized disclosure of sensitive or confidential client information,
including personally identifiable information, or a violation of intellectual property rights, whether through employee misconduct, breach
of our computer systems, systems failure or otherwise, may subject us to liabilities, damage our reputation and cause us to lose clients.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Many of our contracts involve
projects that are critical to the operations of our clients&#8217; businesses and provide benefits to our clients that may be difficult
to quantify. Any failure in a client&#8217;s system or any breach of security could result in a claim for substantial damages against
us, regardless of our responsibility for such failure. Furthermore, any errors by our employees in the performance of services for a client,
or poor execution of such services, could result in a client terminating our engagement and seeking damages from us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, while we have
taken steps to protect the confidential information that we have access to, including confidential information we may obtain through usage
of our cloud-based services, our security measures may be breached. If a cyber-attack or other security incident were to result in unauthorized
access to or modification of our customers&#8217; data or our own data or our IT systems or in disruption of the services we provide to
our customers, or if our products or services are perceived as having security vulnerabilities, we could suffer significant damage to
our business and reputation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we attempt to limit
our contractual liability for consequential damages in rendering our services, these limitations on liability may not apply in all circumstances,
may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. There may be instances when liabilities
for damages are greater than the insurance coverage we hold and we will have to internalize those losses, damages and liabilities not
covered by our insurance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Changes in privacy regulations may impose
additional costs and liabilities on us, limit our use of information, and adversely affect our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Personal privacy has become
a significant issue in the United States, Europe, and many other countries where we operate. Many government agencies and industry regulators
continue to impose new restrictions and modify existing requirements about the collection, use, and disclosure of personal information.
Changes to laws or regulations affecting privacy and security may impose additional liability and costs on us and may limit our use of
such information in providing our services to customers. If we were required to change our business activities, revise or eliminate services
or products, or implement burdensome compliance measures, our business and results of operations may be harmed. Additionally, we may be
subject to regulatory enforcement actions resulting in fines, penalties, and potential litigation if we fail to comply with applicable
privacy laws and regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In particular, our European
activities are subject to the European Union General Data Protection Regulation, or GDPR, which has created additional compliance requirements
for us. GDPR broadens the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to
report on data breaches within 72 hours and be bound by more stringent rules for obtaining the consent of individuals on how their data
can be used. GDPR became enforceable on May 25, 2018 and non-compliance may expose entities such as our company to significant fines or
other regulatory claims. In the United States, our operations in various states, such as New York and California, are now subject to expanded
privacy regulations. In California, we are subject to the California Consumer Privacy Act, or CCPA, a statute that went into effect on
January 1, 2020. The CCPA imposes enhanced disclosure requirements for us regarding our interactions with customers who are residents
of California, such as comprehensive privacy notices for consumers when we, or our agents, collect their personal information. We may
be further required to ensure third-party compliance, as under the CCPA we could be liable if third parties that collect, process or retain
personal information on our behalf violate the CCPA&#8217;s privacy requirements. The sanctions for non-compliance could include fines
and/or civil lawsuits.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">While we have invested in,
and intend to continue to invest in, reasonably necessary resources to comply with these standards, to the extent that we fail to adequately
comply, that failure could have an adverse effect on our business, financial conditions, results of operations and cash flows.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Significant disruptions of our information
technology systems or breaches of our data security could adversely affect our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A significant invasion, interruption,
destruction or breakdown of our information technology, or IT, systems and/or infrastructure by persons with authorized or unauthorized
access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational
damage from cyber-attacks, which may compromise our systems and lead to data leakage internally. Both data that has been input into our
main IT platform, which covers records of transactions, financial data and other data reflected in our results of operations, as well
as data related to our proprietary rights (such as research and development, and other intellectual property- related data), are subject
to material cyber security risks. From time to time, we experience cyber-attacks and other security incidents of varying degrees, though
none which individually or in the aggregate has led to costs or consequences which have materially impacted our operations or business.
Sapiens experienced attacks in or about April 2020, which resulted in a ransom payment and a brief interruption of service availability
to customers, prior to restoration of secure computing operations. The amount paid in connection with, and the consequences of, the foregoing
did not have a material adverse effect on Sapiens&#8217; or our business or operations. In response, we and Sapiens implemented further
controls and planned for other preventative actions to further strengthen our systems against future attacks. We also have in place disclosure
controls that require the reporting of a cyber attack internally, which help to ensure that our senior management team has relevant information
concerning such an attack in a timely manner upon its discovery. However, we cannot assure you that such measures will provide absolute
security, that we will be able to react in a timely manner, or that our remediation efforts following past or future attacks will be successful.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Outside parties have furthermore
in the past, and may also in the future, attempt to fraudulently induce our subsidiaries&#8217; employees to disclose sensitive, personal
or confidential information via illegal electronic spamming, phishing or other tactics. This existing risk is compounded in the aftermath
of the COVID-19 pandemic, as some of our subsidiaries have implemented in their offices a hybrid model where a large portion of their
workforce spends a portion of their time working in their offices and a portion of their time working from home. Unauthorized parties
may also attempt to gain physical access to our subsidiaries&#8217; facilities in order to infiltrate their or our information systems
or attempt to gain logical access to our subsidiaries&#8217; products, services, or information systems for the purpose of exfiltrating
content and data. These actual and potential breaches of our and our subsidiaries&#8217; security measures and the accidental loss, inadvertent
disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our subsidiaries,
their employees or their customers, including the potential loss or disclosure of such information or data as a result of hacking, fraud,
trickery or other forms of deception, could expose us, our subsidiaries, their employees or their customers to a risk of loss or misuse
of this information. This may result in litigation and liability or fines, our or our subsidiaries&#8217; compliance with costly and time-intensive
notice requirements, governmental inquiry or oversight or a loss of customer confidence, any of which could harm our subsidiaries&#8217;
business or damage our or their brand and reputation, thereby requiring time and resources to mitigate these impacts.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, we and our subsidiaries,
including Sapiens, rely on third party vendors and their employees for the implementation of our solutions, which heightens our exposure
to potential cyber incidents. In particular, that reliance raises the following cyber risks, among others:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">When third-party vendors handle
sensitive information, they can become a target for cybercriminals who aim to steal that data.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Third-party software or systems
could introduce malware, viruses, or other malicious code into the networks of our subsidiaries, causing significant damage.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Cybercriminals can infiltrate
the supply chain of a third-party vendor to gain access to their systems and data, potentially compromising our organization as well.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Third-party employees with access
to the systems or data of any of our subsidiaries can intentionally or unintentionally cause damage or data leaks.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Third-party vendors may not
comply with data protection regulations or cybersecurity standards, which could result in legal penalties or reputational damage for
us and our subsidiaries.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">If a third-party vendor experiences
a cyber incident or data breach, it could interrupt its services, affecting Sapiens as well.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our subsidiaries have invested
in advanced detection, prevention and proactive systems to reduce these risks. Based on independent audits, we believe that our subsidiaries&#8217;
level of protection is in keeping with the industry standards of peer technology companies. Our subsidiaries also maintain a disaster
recovery solution, as a means of assuring that a breach or cyber-attack does not necessarily cause the loss of their information. They
furthermore review their protections and remedial measures periodically in order to ensure that such measures are adequate. Our subsidiaries
devote resources to address security vulnerabilities through enhancing security and reliability features in their systems, code hardening,
conducting rigorous penetration tests, deploying updates to address security vulnerabilities, providing resources such as mandatory security
training for their workforce and improving their incident response time, but security vulnerabilities cannot be totally eliminated. The
cost of these steps could reduce our subsidiaries&#8217; or our operating margins.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Despite these protective systems
and remedial measures, techniques used to obtain unauthorized access are constantly changing, are becoming increasingly more sophisticated
and often are not recognized until after an exploitation of information has occurred. We and our subsidiaries may be unable to anticipate
these techniques or implement sufficient preventative measures, and we therefore cannot assure you that our and our subsidiaries&#8217;
preventative measures will be successful in preventing compromise and/or disruption of our or their information technology systems and
related data. We furthermore cannot be certain that our or our subsidiaries&#8217; remedial measures will fully mitigate the adverse financial
consequences of any cyber-attack or incident. If we or our subsidiaries do not make the appropriate level of investment in our or their
technology systems or if such systems become out-of-date or obsolete and we or they are not able to deliver the quality of data security
that meet our or their independent security control certification requirements, our consolidated business could be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>Security vulnerabilities in our software solutions could lead
to reduced revenue or to liability claims.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Maintaining the security of
the software solutions and related services that we offer is a critical issue for us and our customers. Security researchers, criminal
hackers and other third parties regularly develop new techniques to penetrate our customers&#8217; end points, information systems and
network security measures. Cyber threats are constantly evolving and becoming increasingly sophisticated and complex, making it increasingly
difficult to detect and successfully defend against them. Unauthorized parties have, in the past, infiltrated Sapiens&#8217; internal
IT systems, gaining access to certain proprietary information. If they were to similarly breach the security related to, and misuse, software
solutions that we offer, they might access the authentication, payment and personal information of our customers. In addition, cyber-attackers
(which may include individuals or groups, as well as sophisticated groups such as nation-state and state-sponsored attackers, which can
deploy significant resources to plan and carry out exploits) also develop and deploy viruses, worms, credential stuffing attack tools
and other malicious software programs, some of which may be specifically designed to attack the solutions and services that we offer.
Software and operating system applications that we develop have contained and may contain defects in design or manufacture, including
bugs, vulnerabilities and other problems that could unexpectedly compromise the security of the software or impair a customer&#8217;s
ability to operate or use our solutions. The costs to prevent, eliminate, mitigate, or alleviate cyber- or other security problems, bugs,
viruses, worms, malicious software programs and security vulnerabilities are significant, and our efforts to address these problems, including
notifying affected parties, may not be successful or may be delayed and could result in interruptions, delays, cessation of service and
loss of existing or potential customers. It is impossible to predict the extent, frequency or impact these problems may have on us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Actual and potential breaches
of our security measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive,
personal or confidential data about our customers, including the potential loss or disclosure of such information or data as a result
of hacking, fraud, trickery or other forms of deception, could expose our customers to a risk of loss or misuse of this information. This
may result in litigation and liability or fines, our compliance with costly and time-intensive notice requirements, governmental inquiry
or oversight or a loss of customer confidence, any of which could harm our business or damage our brand and reputation, thereby requiring
time and resources to mitigate these impacts.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">From time to time we have
identified, and in the future we may identify other, vulnerabilities in some of our solutions and services. We devote significant resources
to address security vulnerabilities through engineering more secure solutions, enhancing security and reliability features in our solutions
and services, code hardening, conducting rigorous penetration tests, deploying updates to address security vulnerabilities, regularly
reviewing our solutions&#8217; security controls, reviewing and auditing our solutions against independent security control frameworks
(such as ISO 27001, SOC 2 and PCI), providing resources such as security training for our customers&#8217; workforces and improving our
incident response time, but security vulnerabilities cannot be totally eliminated. The cost of these steps could reduce our subsidiaries&#8217;
or our operating margins, and we may be unable to implement these measures quickly enough to prevent cyber-attackers from gaining unauthorized
access into our solutions. Despite our preventative efforts, actual or perceived security vulnerabilities in our solutions may harm our
subsidiaries&#8217; or our reputation or lead to claims against our subsidiaries (and have in the past led to such claims) or us, and
could lead some customers to stop using certain systems or services, to reduce or delay future purchases of solutions or services, or
to use competing solutions or services. If we do not make the appropriate level of investment in our solutions or if our solutions become
out-of-date or obsolete and we are not able to deliver the quality of data security our customers require, our business could be adversely
affected. Customers may also adopt security measures designed to protect their existing computer systems from attack, which could delay
their adoption of our new solutions. Moreover, delayed sales, lower margins or lost customers resulting from disruptions caused by cyber-attacks
and implementation of preventative measures could adversely affect our financial results, share price and reputation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Errors or defects in our software solutions
could inevitably arise and harm our profitability and our reputation with customers, and could even give rise to claims against us.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The quality of our solutions,
including new, modified or enhanced versions thereof, is critical to our success. Since our software solutions are complex, they may contain
errors that cannot be detected at any point in their testing phase. While we continually test our solutions for errors or defects and
work with customers to identify and correct them, errors in our technology may be found in the future. Quality assurance is complicated
because it is difficult to simulate the breadth of operating systems, user applications and computing environments that our customers
use, and our solutions themselves are increasingly complex. Errors or defects in our technology have resulted in terminated work orders
and could result in delayed or lost revenue, diversion of development resources and increased services, termination of work orders, damage
to our brand and warranty and insurance costs in the future. In addition, time-consuming implementations may also increase the number
of services personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business, results of
operations and financial condition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, since our customers
rely on our solutions to operate, monitor and improve the performance of their business processes, they are sensitive to potential disruptions
that may be caused by the use of, or any defects in, our software. As a result, we may be subject to claims for damages related to software
errors in the future. Liability claims could require us to spend significant time and money in litigation or to pay significant damages.
Regardless of whether we prevail, diversion of our subsidiaries&#8217; key employees&#8217; time and attention from our business, the
incurrence of substantial expenses and potential damage to our reputation might result. While the terms of our sales contracts typically
limit our exposure to potential liability claims and we carry errors and omissions insurance against such claims, there can be no assurance
that such insurance will continue to be available on acceptable terms, if at all, or that such insurance will provide us with adequate
protection against any such claims. A significant liability claim against us could have a material adverse effect on our business, results
of operations and financial position.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Incorrect or improper use of our products
or our failure to properly train customers on how to implement or utilize our products could result in customer dissatisfaction and negatively
affect our business, results of operations, financial condition and growth prospects.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Some of our products are more
complex than others and are deployed in a wide variety of network environments. The proper use of our solutions requires training of the
customer. If our solutions are not used correctly or as intended, inadequate performance may result. Additionally, our customers or third-party
partners may incorrectly implement or use our solutions. Our solutions may also be intentionally misused or abused by customers or their
employees or third parties who are able to access or use our solutions. Similarly, our solutions are sometimes installed or maintained
by customers or third parties with smaller or less qualified IT departments, potentially resulting in sub-optimal installation and, consequently,
performance that is less than the level anticipated by the customer. Because our customers rely on our software, services and maintenance
support to manage a wide range of operations, the incorrect or improper use of our solutions, our failure to properly train customers
on how to efficiently and effectively use our solutions, or our failure to properly provide implementation or maintenance services to
our customers, has resulted in terminated work orders and may result in termination of work orders, negative publicity or legal claims
against us in the future. Also, as we continue to expand our customer base, any failure by us to properly provide these services will
likely result in lost opportunities for follow-on sales of our software and services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, if there is substantial
turnover of customer personnel responsible for implementation and use of our products, or if customer personnel are not well trained in
the use of our products, customers may defer the deployment of our products, may deploy them in a more limited manner than originally
anticipated or may not deploy them at all. Further, if there is substantial turnover of the customer personnel responsible for implementation
and use of our products, our ability to make additional sales may be substantially limited.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Catastrophes may adversely impact the insurance
industry, preventing us from expanding or maintaining our existing customer base and increasing our revenues.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens&#8217; customers include
insurance carriers that have experienced, and will likely experience in the future, catastrophic losses that adversely impact their businesses.
Catastrophes can be caused by various events, including, amongst others, hurricanes, tsunamis, floods, windstorms, earthquakes, hail,
tornados, explosions, severe weather and fires, or the spread of pandemics of disease, such as the coronavirus. Moreover, acts of terrorism
or war could cause disruptions in Sapiens&#8217; or our customers&#8217; businesses or the economy as a whole. The risks associated with
natural disasters and catastrophes are inherently unpredictable, and it is difficult to predict the timing of such events or estimate
the amount of loss they will generate. In the event a future catastrophe adversely impacts Sapiens&#8217; or our current or potential
customers, they or we may be prevented from maintaining and expanding their or our customer base and from increasing their or our revenues
because such events may cause customers to postpone purchases of new products and professional service engagements or discontinue projects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The increasing amount of identifiable intangible
assets and goodwill recorded on our consolidated statements of financial position may lead to significant impairment charges in the future.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The amount of goodwill and
identifiable intangible assets on our consolidated balance sheet has increased significantly over the last five years from approximately
$781.3 million as of December 31, 2017 to $1,148.9 million as of December 31, 2022 because of our acquisitions, and may increase further
following future acquisitions. We regularly review our long-lived assets, including identifiable intangible assets and goodwill, for impairment.
Goodwill and indefinite life intangible assets are subject to impairment review at least annually. Other long-lived assets are reviewed
when there is an indication that impairment may have occurred. Impairment testing, subject to downturns in our operating results and financial
condition, may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our
results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Decreases in the capital markets may adversely
impact the industries in which we operate, thereby preventing us from expanding or maintaining our existing customer base and increasing
our revenues.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our customers include life
insurance carriers and other financial industry participants that have invested some of their funds in the capital markets. Those carriers
may experience in the future major losses in those capital market investments that may cause disruptions to their businesses or to the
economy as a whole. Any such major disruption, may cause those existing or potential new customers to postpone purchases of new products
or professional service engagements, or discontinue existing projects, which, in turn, may prevent us from increasing our revenues, or
from maintaining or expanding or our customer base.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>There may be consolidation in the insurance
or other markets in which we operate, which could reduce the use of our products and services and adversely affect our revenues.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Mergers or consolidations
among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenues even if
these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with
or are acquired by other entities that are not our customers, or that use fewer of our products and services, they may discontinue or
reduce their use of our products and services. Any of these developments could materially and adversely affect our results of operations
and cash flows.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our and our investees&#8217; credit facility
agreements with banks and other financial institutions, and our investees&#8217; debentures, are subject to a number of restrictive covenants
which, if breached, could result in acceleration of our obligation to repay our debt.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the context of our and our subsidiaries&#8217; and affiliate&#8217;s
engagements with banks and other financial institutions for receiving various credit facilities and under the terms governing our Series
A Secured Debentures and Series C Secured Debentures, Matrix Series B Debentures and Sapiens&#8217; non-convertible unsecured Series B
Debentures, we have undertaken to comply with a number of conditions and limitations on the manner in which we can operate our business.
These include limitations on our ability to undergo a change of control, distribute dividends, incur debt or a floating charge on our
assets, or undergo an asset sale or other change that results in a fundamental change in our operations. These credit facilities, agreements
and deed of trusts that we have entered into with the trustees for the holders of each of our debentures also require us to comply with
certain financial covenants. Those covenants include maintenance of certain financial ratios related to shareholders&#8217; equity, total
rate of debt and liabilities, minimum outstanding balance of total cash and short-term investments, and operating results that are customary
for companies of comparable size, and maintenance of a minimum rating level for the debentures. These limitations and covenants may force
us to pursue less than optimal business strategies or forego business arrangements which could have been financially advantageous to us
and, by extension, to our shareholders. The deeds of trust of each of our debentures furthermore provides for an upwards adjustment in
the interest rate payable under the debentures in the event that our debentures&#8217; rating is downgraded below a certain level. A breach
of the financial covenants for more than two successive quarters or a substantial downgrade in the rating of any of our debentures (below
BBB-) would constitute an event of default that could result in the acceleration of our obligation to repay the debentures, which accelerated
repayment may be difficult for us to effect. In addition, the Formula Series A Secured Debentures and Series C Secured Debentures are
secured by certain of the shares of Formula&#8217;s publicly held subsidiaries&#8212; Matrix, Sapiens and Magic Software. A breach of
the restrictive covenants could result in the acceleration of our obligations to repay Formula&#8217;s or its subsidiaries&#8217; debt.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>To the extent it returns in a significant manner in regions in
which our or our subsidiaries&#8217; revenues are primarily generated, including in India where many of Sapiens&#8217; employees are located,
the global COVID-19 pandemic, or any other pandemic, may adversely affect our operating results in a material manner.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">Wide-spread viruses and
epidemics, such as the recent COVID-19 pandemic, to the extent it returns in full-force, could negatively affect our customers&#8217; spending
on our products and services. For example, with respect to Sapiens, in 2022, 41.6%, 13.6%, 35.5% and 9.3% of its revenues were generated
from North America, the United Kingdom, the rest of Europe and the rest of the world, respectively. With respect to Magic Software, in
2022, 54.4%, 36.2%, 6.9% and 2.5% of its revenues were generated from North America, Israel, Europe and the rest of the world, respectively.
In addition, a significant portion of our revenue are generated from customers in the financial services industry, including banking and
insurance. Negative economic conditions created by a pandemic may cause its customers in general, and in that industry in particular,
to reduce their IT spending. In general, our customers may delay or cancel projects, choose to focus on in-house development efforts or
seek to lower their costs by renegotiating maintenance and support agreements. Additionally, customers may be more likely to make late
payments in worsening economic conditions, which could require us to increase our collection efforts and incur additional associated costs
to collect expected revenues. Moreover, with respect to Sapiens, to the extent that the purchase of licenses for its software are perceived
by customers and potential customers to be discretionary, its revenues may be disproportionately affected by delays or reductions in general
IT spending. If economic conditions generally, or in the industries in which we operate specifically, worsen from present levels, the
results of our operations could be adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">To the extent the COVID-19
pandemic returns in full-force, in any wave or via any variant of the virus, including in India, where a significant percentage of Sapiens&#8217;
worldwide employees are located, that may also adversely impact our operating results, as the resulting closures, restrictions and health
problems for our workers may compromise our ability to service our customers in various regions of the world.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Risks Related to Intellectual Property</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Assertions by third parties of infringement
or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and
results of operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The software industry is characterized
by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property
rights. In particular, leading companies in the software industry own large numbers of patents, copyrights, trademarks and trade secrets,
which they may use to assert claims against us. From time to time, third parties, including certain of these leading companies, may assert
patent, copyright, trademark or other intellectual property claims against us, our customers and partners, and those from whom we license
technology and intellectual property.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we believe that our
products and services do not infringe upon the intellectual property rights of third parties, we cannot assure you that third parties
will not assert infringement or misappropriation claims against us with respect to current or future products or services, or that any
such assertions will not require us to enter into royalty arrangements or result in costly litigation, or result in us being unable to
use certain intellectual property. We cannot assure you that we are not infringing or otherwise violating any third party intellectual
property rights. Infringement assertions from third parties may involve patent holding companies or other patent owners who have no relevant
product revenues, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing
intellectual property rights claims against us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any intellectual property
infringement or misappropriation claim or assertion against us, our customers or partners, and those from whom we license technology and
intellectual property could have a material adverse effect on our business, financial condition, reputation and competitive position regardless
of the validity or outcome. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without
merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources
on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble
damages and attorneys&#8217; fees, if we are found to have willfully infringed on a party&#8217;s intellectual property; cease making,
licensing or using our products or services that are alleged to infringe or misappropriate the intellectual property of others; expend
additional development resources to redesign our products or services; enter into potentially unfavorable royalty or license agreements
in order to obtain the right to use necessary technologies or works; and to indemnify our partners, customers, and other third parties.
Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant
royalty payments and other expenditures. Any of these events could seriously harm our business, results of operations and financial condition.
In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be costly to resolve and divert the
time and attention of our management and technical personnel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Although we apply measures to protect our
intellectual property rights and our source code, there can be no assurance that the measures that we employ to do so will be successful.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt">In accordance with industry
practice, we rely on a combination of contractual provisions and intellectual property law to protect our proprietary technology. We believe
that due to the dynamic nature of the computer and software industries, copyright protection is less significant than factors such as
the knowledge and experience of our management and personnel, the frequency of product enhancements and the timeliness and quality of
our support services. We seek to protect the source code of our products as trade secret information and as unpublished copyright works.
We also rely on security and copy protection features in our proprietary software. We distribute our products under software license agreements
that grant customers a personal, non-transferable license to use our products and contain terms and conditions prohibiting the unauthorized
reproduction or transfer of our products. In addition, while we attempt to protect trade secrets and other proprietary information through
non-disclosure agreements with employees, consultants and distributors, not all of our employees have signed invention assignment agreements.
Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. Our failure to
protect our rights, or the improper use of our products by others without licensing them from us could have a material adverse effect
on our results of operations and financial condition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt"><b><i>We and our customers
rely on technology and intellectual property of third parties, the loss of which could limit the functionality of our products and disrupt
our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>




</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin: 0pt 0; text-align: justify">We use technology and intellectual property licensed
from unaffiliated third parties in certain of our products, and we may license additional third-party technology and intellectual property
in the future. Any errors or defects in this third-party technology and intellectual property could result in errors that could harm our
brand and business. In addition, licensed technology and intellectual property may not continue to be available on commercially reasonable
terms, or at all. The loss of the right to license and distribute this third party technology could limit the functionality of our products
and might require us to redesign our products. Further, although we believe that there are currently adequate replacements for the third-party
technology and intellectual property we presently use and distribute, the loss of our right to use any of this technology and intellectual
property could result in delays in producing or delivering affected products until equivalent technology or intellectual property is identified,
licensed or otherwise procured, and integrated. Our business would be disrupted if any technology and intellectual property we license
from others or functional equivalents of this software were either no longer available to us or no longer offered to us on commercially
reasonable terms. In either case, we would be required either to attempt to redesign our products to function with technology and intellectual
property available from other parties or to develop these components ourselves, which would result in increased costs and could result
in delays in product sales and the release of new product offerings. Alternatively, we might be forced to limit the features available
in affected products. Any of these results could harm our business and impact our results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>We could be required to provide the source code of our products
to our customers.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Some of our customers have
the right to require the source code of our products to be deposited into a source code escrow. Under certain circumstances, our source
code could be released to our customers. The conditions triggering the release of our source code vary by customer. A release of our source
code would give our customers access to our trade secrets and other proprietary and confidential information which could harm our business,
results of operations and financial condition. A few of our customers have the right to use the source code of some of our products based
on the license agreements signed with such clients (mostly with respect to older versions of our solutions), although such use is limited
for specific matters and cases, these clients are exposed to some of our trade secrets and other proprietary and confidential information
which could harm us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Some of our services and technologies may
use &#8220;open source&#8221; software, which may restrict how we use or distribute our services or require that we release the source
code of certain products subject to those licenses.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt">Some of our services and
technologies may incorporate software licensed under so-called &#8220;open source&#8221; licenses, including, but not limited to, the
GNU General Public License and the GNU Lesser General Public License. In addition to risks related to license requirements, usage of open
source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide
warranties or controls on origin of the software. Additionally, open source licenses typically require that source code subject to the
license be made available to the public and that any modifications or derivative works to open source software continue to be licensed
under open source licenses. These open source licenses typically mandate that proprietary software, when combined in specific ways with
open source software, become subject to the open source license. If we combine our proprietary software with open source software, we
could be required to release the source code of our proprietary software.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.3pt">We take steps to ensure that
our proprietary software is not combined with, and does not incorporate, open source software in ways that would require our proprietary
software to be subject to an open source license. However, few courts have interpreted open source licenses, and the manner in which these
licenses may be interpreted and enforced is therefore subject to some uncertainty. Additionally, we rely on multiple software programmers
to design our proprietary technologies, and although we take steps to prevent our programmers from including open source software in the
technologies and software code that they design, write and modify, we do not exercise complete control over the development efforts of
our programmers and we cannot be certain that our programmers have not incorporated open source software into our proprietary products
and technologies or that they will not do so in the future. In the event that portions of our proprietary technology are determined to
be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all
or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate
the value of our services and technologies and materially and adversely affect our business, results of operations and prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Risks Relating to Our International Operations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our international operations expose us to
risks associated with fluctuations in foreign currency exchange rates that have been adversely affecting, and could continue to adversely
affect, our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Many of our subsidiaries derive
revenues from international operations that are conducted in local currencies. Those operations are conducted in currencies that include
the U.S. dollar, British pound sterling, or GBP, Euro, NIS, Danish Krone, or DKK, and Swedish Krona, or SEK.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In some territories, like
in Israel, India, and Poland, our cost of operations in local currency is higher than the revenues derived from such operations. In other
territories, such as in the United Kingdom and Europe, revenues are higher than our cost of operations in local currency. Because exchange
rates between the NIS, GBP, Euro, Indian Rupee, or INR, and the Polish Zloty, or PLN, against the US dollar fluctuate continuously, exchange
rate fluctuations and especially larger periodic devaluations could negatively affect our revenue and profitability. In 2022, the GBP
and Euro depreciated relative to the U.S. dollar by 14% and 13% (based on the average exchange rates over the course of 2022 as compared
to 2021), respectively, thereby decreasing the U.S. dollar value of the revenues that we generated in those other currencies and having
a material adverse impact on our revenues and results of operations. Any continuation of that trend in future periods would have a similar
adverse impact.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In certain locations, we engage
in currency-hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our financial position
and results of operations. However, there can be no assurance that any such hedging transactions will materially reduce the effect of
fluctuation in foreign currency exchange rates on such results. In addition, if for any reason exchange or price controls or other restrictions
on the conversion of foreign currencies were imposed, our financial position and results of operations could be adversely affected. For
additional information relating to the exchange rates between different relevant currencies, see &#8220;Item 5. Operating and Financial
Review and Prospects&#8212; Overview&#8212; Our Functional and Reporting Currency.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our international sales and operations subject
us to additional risks that can adversely affect our business, results of operations and financial condition.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are continuing to expand
our international operations as part of our growth strategy. In fiscal years 2022 and 2021, approximately 39% and 37%, respectively, of
our revenues were derived from outside of Israel. Our current international operations and our plans to further expand our international
operations subject us to a variety of risks, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -16.2pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td><span style="font-size: 10pt">Increased exposure to fluctuations in foreign currency exchange rates.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Increased exposure to global macroeconomic headwinds
    being caused by inflation and rising interest rates.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Complexity in our tax planning, and increased exposure to changes in tax regulations in various jurisdictions in which we operate, which could adversely affect our operating results and hinder our ability to conduct effective tax planning.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td><span style="font-size: 10pt">Longer payment cycles and difficulties in enforcing contracts and collecting accounts receivable.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td><span style="font-size: 10pt">The need to localize our products and licensing programs for international customers.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td><span style="font-size: 10pt">Lack of familiarity with and unexpected changes in foreign regulatory requirements.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td><span style="font-size: 10pt">The burden of complying with a wide variety of foreign laws and legal standards.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As we continue to expand our
business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated
with our international operations. Any of these risks could harm our international operations and reduce our international sales, adversely
affecting our business, results of operations, financial condition and growth prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>International operations in the insurance
industry, in which a significant portion of our business is concentrated, are accompanied by additional costs related to adaptation to
regulations in specific territories.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As we seek to expand the marketing
and offering of our products into new territories, because insurance regulations vary by legal jurisdiction, the investment required to
adapt our solutions to the legal and language requirements of such territories may prevent or delay us from effectively expanding into
such territories. Such adaptation process requires the retention of new, additional skilled personnel with knowledge of the particular
market and applicable regulatory regime. Such skilled personnel may not be available at a reasonable cost relative to the additional revenues
that we expect to recognize in those territories or may not be available at all. However, since insurance carriers are regularly required
to adopt their systems and software to comply with the changing regulations, this provides an additional revenue source for Sapiens by
providing related services for compliance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 23; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt"><b><i>Our business may be
materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or
the uncertainty surrounding their potential effects, could adversely affect our results of operations and share price.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a multinational corporation,
we are subject to income taxes, withholding taxes and indirect taxes in numerous jurisdictions worldwide. Significant judgment and management
attention and resources are required in evaluating our tax positions and our worldwide provision for taxes. In the ordinary course of
business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations
and effective tax rates could be adversely affected by changes in the relevant tax, accounting, and other laws, regulations, principles
and interpretations. This may include recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory
rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, changes in foreign currency exchange
rates, or changes in the valuation of our deferred tax assets and liabilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may be audited in various
jurisdictions, and such jurisdictions may assess additional taxes against us. If we experience unfavorable results from one or more such
tax audits, there could be an adverse effect on our tax rate and therefore on our net income. Although we believe our tax estimates are
reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and
accruals, which could have a material adverse effect on our operating results or cash flows in the period or periods for which a determination
is made. Additionally, we are subject to transfer pricing rules and regulations, including those relating to the flow of funds between
us and our affiliates, which are designed to ensure that appropriate levels of income are reported in each jurisdiction in which we operate.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>As we continue to expand our business in
emerging markets, such as India, we face increasing challenges that could adversely impact our results of operations, reputation and business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Approximately 46% of our subsidiary
Sapiens&#8217; employees are currently located in India. Our significant presence in India, in particular Sapiens&#8217; Research &amp;
Development personnel and Sapiens&#8217; personnel for the delivery of its professional services, poses a number of challenges. These
challenges are related to more volatile economic conditions, poor protection of intellectual property, inadequate protection against crime
(including counterfeiting, corruption and fraud), lack of due process, and inadvertent breaches of local laws or regulations. In addition,
local business practices may be inconsistent with international regulatory requirements, such as anti-corruption and anti-bribery laws
and regulations (including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act) to which we are subject. It is possible that
some of our employees, subcontractors, agents or partners may violate such legal and regulatory requirements, which may expose us to criminal
or civil enforcement actions, including penalties and suspension or disqualification from U.S. federal procurement contracting. If we
fail to comply with such legal and regulatory requirements, our business and reputation may be harmed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Conducting business in India
involves unique challenges, including potential political instability; threats of terrorism; the transparency, consistency and effectiveness
of business regulation; corruption; the protection of intellectual property; and the availability of sufficient qualified local personnel.
Any of these or other challenges associated with operating in India may adversely affect our business or operations. Terrorist activity
in India and Pakistan has contributed to tensions between those countries and our operations in India may be adversely affected by future
political and other events in the region.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Risks Related to our Traded Securities and
Consolidated Holdings</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>There is limited trading volume for our
ADSs and ordinary shares, which reduces liquidity for our shareholders, and may furthermore cause the stock price to be volatile, all
of which may lead to losses by investors.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There has historically been
limited trading volume for our ADSs and ordinary shares, respectively, both on the Nasdaq Global Select Market and the TASE, as well as
for our publicly traded investees Matrix (whose shares are traded on the TASE) and Sapiens and Magic Software (whose shares are both traded
on the Nasdaq Global Select Market and the TASE), such that trading has still not reached the level that enables shareholders to freely
sell their shares in substantial quantities on an ongoing basis and thereby readily achieve liquidity for their investment. As a further
result of the limited volume, our or our publicly traded investees ordinary or common shares have experienced significant market price
volatility in the past and may experience significant market price and volume fluctuations in the future, in response to factors such
as announcements of developments related to our investees businesses, announcements by competitors of our investees, quarterly fluctuations
in our financial results and general conditions in the industry in which we through our investees compete.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The market price of our ordinary shares
and ADSs may be volatile and you may not be able to resell your shares at or above the price you paid, or at all. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The stock market in general
has experienced during recent years extreme price and volume fluctuations. The market prices of securities of technology companies have
been extremely volatile and have experienced fluctuations that have often been unrelated or disproportionate to the operating performance
of those companies. These broad market fluctuations have affected and are expected to continue to affect the market price of our ordinary
shares and ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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price of our ordinary shares traded on the TASE, under the symbol &#8220;FORTY,&#8221; and the high and low closing market price of our
ADSs traded on the Nasdaq Global Select Market under the symbol &#8220;FORTY,&#8221; during each of the last five years, plus the early
part of 2023, are summarized in the table below:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(*)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The U.S. dollar price of our ordinary shares on the Tel Aviv Stock Exchange was determined by dividing the closing price of an ordinary share in NIS on the relevant date by the representative exchange rate of the NIS against the U.S. dollar as reported by the Bank of Israel on the same date.</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-size: 10pt">(**)</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The market price of our ordinary
shares and ADSs may fluctuate substantially due to a variety of factors, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">sales of our shares by existing shareholders;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the loss of any of our key personnel;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">other events or factors in any of the markets in which we operate, including those resulting from war, incidents of terrorism, natural disasters or responses to such events; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">general trends of the stock markets.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, global and local
economic, political, market and industry conditions and military conflicts and in particular, those specifically related to the State
of Israel, may affect the market price of our ordinary shares and ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Significant fluctuations in our annual and
quarterly results, which make it difficult for investors to make reliable period-to-period comparisons, may also contribute to volatility
in the market price of our ordinary shares and American Depositary Shares.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our quarterly and annual revenues,
gross profit, net income and results of operations have fluctuated significantly in the past, and we expect them to continue to fluctuate
significantly in the future. The following events may cause fluctuations:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">general global economic conditions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">acquisitions and dispositions;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the size, time and recognition of revenue from significant contracts;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">timing of product releases or enhancements;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">timing of contracts;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">timing of completion of specified milestones and delays in implementation;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">changes in the proportion of service and license revenues;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">price and product competition;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">market acceptance of our new products, applications and services;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">increases in selling and marketing expenses, as well as other operating expenses;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">currency exchange rate fluctuations; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">consolidation of our customers.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A substantial portion of our
expenses, including most product development and selling and marketing expenses must be incurred in advance of when revenue is generated.
If our projected revenue does not meet our expectations, we are likely to experience an even larger shortfall in our operating profit
relative to our expectations. The gross margins of our individual subsidiaries vary both among themselves and over time. As a result,
changes in the revenue mix from these subsidiaries may affect our quarterly operating results. In addition, we may derive a significant
portion of our net income from the sale of our investments or the sale of our proprietary software technology. These events do not occur
on a regular basis and their timing is difficult to predict. As a result, we believe that period-to-period comparisons of our historical
results of operations are not necessarily meaningful and that you should not rely on them as an indication for future performance. Also,
it is possible that our quarterly and annual results of operations may be below the expectations of public market analysts and investors.
If this happens, the prices of our ordinary shares and ADSs will likely decrease.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The market prices of our ordinary shares
and ADSs may be adversely affected if the market prices of our publicly traded investees decrease.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A significant portion of our
assets is comprised of equity securities of directly held publicly traded companies. Our publicly traded investees are currently Matrix,
Sapiens and Magic Software. The share prices of these publicly traded companies have been extremely volatile and have been subject to
fluctuations due to market conditions and other factors which are often unrelated to operating results and which are beyond our control.
Fluctuations in the market price and valuations of our holdings in these companies may affect the market&#8217;s valuation of the price
of our ordinary shares and ADSs and may also thereby impact our results of operations. If the value of our assets decreases significantly
as a result of a decrease in the value of our interest in our publicly traded investees, our business, operating results and financial
condition may be materially and adversely affected and the market price of our ordinary shares and ADSs may also fall as a result.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our securities are traded on more than one
market and this may result in price variations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Formula&#8217;s ordinary shares
are traded on the TASE and its ADSs are traded on the Nasdaq Global Select Market. Trading in those ordinary shares and ADSs on those
markets takes place in different currencies (dollars on the Nasdaq Global Select Market and NIS on the TASE), and at different times (resulting
from different time zones, different weekly trading days and different public holidays in the United States and Israel). The trading prices
of our ordinary shares and ADSs on these two markets may differ due to these and other factors (see the risk factor titled &#8220;The
market price of our ordinary shares and ADSs may be volatile and you may not be able to resell your shares at or above the price you paid,
or at all&#8221; above for data related to the differences in trading prices on Nasdaq as compared to on the TASE). On the other hand,
any decrease in the trading price of our ordinary shares or ADSs, as applicable, on one of these markets could likely affect&#8212; and
cause a decrease in&#8212; the trading price on the other market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 26; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->19<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our largest shareholder, Asseco Poland S.A.,
can significantly influence the outcome of matters that require shareholder approval.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Asseco Poland S.A., or Asseco,
our largest shareholder, currently owns approximately 25.6% of our outstanding share capital and therefore has effective voting power
over in excess of one-quarter of our outstanding ordinary shares (which excludes shares that we have repurchased that lack voting rights
and shares subject to restrictions that are voted in proportion to the votes of our other shares). Therefore, Asseco can significantly
influence the outcome of those matters requiring shareholder approval, including the election of directors and approval of significant
corporate transactions. This voting power may have the effect of delaying or preventing a change in control which may otherwise be favorable
to our minority shareholders. In addition, potential conflicts of interest may arise in the event that we or any of our investees enters
into any agreements or transactions with affiliates of Asseco. Although Israeli law imposes certain procedures (including the requirement
to obtain shareholder approval, which in certain cases includes a &#8220;majority of the minority&#8221;) for approval of certain related
party transactions, we cannot assure you that these procedures will eliminate the possible detrimental effects of these conflicts of interest.
If certain transactions are not approved in accordance with required procedures under applicable Israeli law, these transactions may be
void or voidable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>If we are unable to maintain effective internal
control over financial reporting in accordance with Sections 302 and 404(a) of the Sarbanes-Oxley Act of 2002, the reliability of our
financial statements may be questioned and our share price may suffer.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are subject to a range
of requirements relating to internal controls over financial reporting. Despite our internal control measures, we may still be subject
to financial reporting errors or even fraud, which may not be detected. A control system, which is increasingly based on computerized
processes, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met.
In addition, the benefit of each control must be considered relative to its cost, and the design of a control system must reflect such
reasonable resource constraints. Implementation of changes or updates to our control systems, including implementation of our investees
enterprise resource planning (ERP) systems at additional sites, may encounter unexpected difficulties. These inherent limitations include
the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further,
controls can be circumvented by individual acts, by collusion of two or more persons or by management override of the controls. Over time,
a control may be inadequate because of changes in conditions or the degree of compliance with applicable policies or procedures may deteriorate.
Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities,
and could adversely affect our operating results, investor confidence in our reported financial information and the market price of our
ordinary shares and ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Further to that risk, as part of its assessment of the adequacy of
internal controls over financial reporting for the year ended December 31, 2022, the management of one of our subsidiaries, Magic Software,
identified a material weakness in its internal control over financial reporting, whereas, Magic Software management team determined that
Magic Software did not have adequate trained resources to retain sufficient and precise documentation as evidence for performing business
processes controls (including automated and IT-dependent manual), management review controls, and evidence to demonstrate completeness
and accuracy of information prepared by entity (&#8220;IPE&#8221;). As a result, Magic Software could not monitor and oversee the completion
of its assessment of the design and operating effectiveness of internal control over financial reporting in a timely manner. These inadequacies
led to the conclusion that Magic Software&#8217;s disclosure controls and procedures were not effective, and that there was a material
weakness in Magic Software&#8217;s internal control over financial reporting, as of December 31, 2022. In light of that conclusion, Magic
Software&#8217;s management has expressed its commitment to the remediation of the foregoing material weakness, as well as the continued
improvement of Magic Software&#8217;s internal control over financial reporting. The subject inadequacies did not rise to a sufficiently
material level to cause our consolidated internal controls over financial reporting to be deemed deficient, given Magic Software&#8217;s
size relative to that of the consolidated Group. Nevertheless, if management of Magic Software or any of our other subsidiaries or investees
were to discover additional deficiencies in internal controls that would rise, individually or in the aggregate, above the threshold of
materiality for our consolidated Group, that could cause (i) a loss in the reliability of, or (ii) the potential required restatement
of, our financial statements, or (iii) investigation or sanctions by regulatory authorities, among other potential adverse consequences,
and could cause a decrease in the trading price of our ordinary shares and ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The enactment of legislation implementing
changes in taxation of international business activities, the adoption of other&#160;corporate tax reform policies, or changes in tax
legislation or policies could impact our future financial position and results of&#160;operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There can be no assurance
that our effective tax rate of 23% for the year ended December 31, 2022 will not change over time as a result of changes in corporate
income tax rates or other changes in the tax laws the jurisdictions in which we operate. Any changes in tax laws could have an adverse
impact on our financial results. Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many
tax jurisdictions where we have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions
are under heightened scrutiny and tax reform legislation is being proposed or enacted in a number of jurisdictions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For example, there is growing
pressure in many jurisdictions and from multinational organizations such as the Organization for Economic Cooperation and Development
(OECD) and the EU to amend existing international taxation rules in order to align the tax regimes with current global business practices.
Specifically, in October 2015, the OECD published its final package of measures for reform of the international tax rules as a product
of its Base Erosion and Profit Shifting (BEPS) initiative, which was endorsed by the G20 finance ministers. Many of the initiatives in
the BEPS package required and resulted in specific amendments to the domestic tax legislation of various jurisdictions and to existing
tax treaties. We continuously monitor these developments. Although many of the BEPS measures have already been implemented or are currently
being implemented globally (including, in certain cases, through adoption of the OECD&#8217;s &#8220;multilateral convention&#8221; (to
which Israel is also a party) to effect changes to tax treaties which entered into force on July 1, 2018 and through the European Union&#8217;s
&#8220;Anti Tax Avoidance&#8221; Directives), it is still difficult in some cases to assess to what extent these changes our tax liabilities
in the jurisdictions in which we conduct our business or to what extent they may impact the way in which we conduct our business or our
effective tax rate due to the unpredictability and interdependency of these potential changes. In January 2019, the OECD announced further
work in continuation of the BEPS project, focusing on two &#8220;pillars.&#8221; On October 8, 2021, 136 countries approved a statement
known as the OECD BEPS Inclusive Framework, which builds upon the OECD&#8217;s continuation of the BEPS project. The first pillar is focused
on the allocation of taxing rights between countries for in-scope large multinational enterprises (with revenue in excess of Euro 20 Billion
and profitability of at least 10%) that sell goods and services into countries with little or no local physical presence. We do not expect
to be within the scope of the first Pillar. The second pillar is focused on developing a global minimum tax rate of at least 15 percent
applicable to in-scope multinational enterprises (with revenue in excess of Euro 750 million). Israel is one of the 136 jurisdictions
that has agreed in principle to the adoption of the global minimum tax rate. Given these developments, it is generally expected that tax
authorities in various jurisdictions in which we operate may increase their audit activity and may seek to challenge some of the tax positions
we have adopted. It is difficult to assess if and to what extent such challenges, if raised, might impact our effective tax rate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Further, there are proposals
in the United States to introduce further amendments to the federal tax regime applicable to corporations. As of the date of filing, it
remains unclear what legislation, if any, would be enacted. If the draft legislation currently being discussed is enacted, it could create
the potential for added volatility in our provision for income taxes and might have an adverse impact on our future income tax provision
and tax rate.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Risks Related to Operations in Israel and Other
Specific Geographic Locations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Political, economic, and military conditions
in Israel could negatively impact our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">We are incorporated under
the laws of, and our headquarters and principal research and development facilities are located in the State of Israel. Additionally,
the corporate headquarters of some of our subsidiaries, as well as directors, executives, and a portion of employees (including key employees),
are located in or residents of Israel. In 2021 and 2022, respectively, approximately 63% and 61% of our consolidated revenues were generated
from the Israeli market. As a result, political, economic and military conditions in Israel and the Middle East directly affect our operations.
Since the establishment of the State of Israel, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any
armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, harm our results
of operations and make it more difficult for us to raise capital.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although the recent Abraham
Accords have enhanced Israel&#8217;s relations with certain countries in the Middle East, an ongoing state of hostility, varying in degree
and intensity, has caused security and economic problems for Israel. In addition, several countries still restrict business with Israel
and with companies doing business in Israel. These political, economic and military conditions in Israel&#8212;if adverse&#8212; as well
as the foregoing business restrictions, could have a material adverse effect on our business, financial condition, results of operations
and future growth.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Conflicts in North Africa
and the Middle East, including in Syria, which borders&#160;Israel, have resulted in continued&#160;political uncertainty and violence
in the region. Efforts to improve Israel&#8217;s relationship with the Palestinian Authority have failed to result in a permanent solution,
and there have been numerous periods of hostility in recent years during which Hamas, a terrorist group that controls the Gaza Strip,
has attacked Israel with rockets. In addition, Iran continues to take a hostile stance towards Israel, having proceeded with development
of a nuclear program and having promised the destruction of Israel periodically. Such instability may affect the economy, could negatively
affect business conditions and, therefore, could adversely affect our operations. To date, these matters have not had any material effect
on our business and results of operations; however, the regional security situation and worldwide perceptions of it are outside our control
and there can be no assurance that these matters will not negatively affect our business, financial condition and results of operations
in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Many of our employees (including
executive officers) in Israel are obligated to perform military reserve duty, currently consisting of approximately 30 days of service
annually (or more for reserves officers or non-officers with certain expertise). Additionally, these employees are subject to being called
to active duty at any time upon the outbreak of hostilities. While we have operated effectively under these requirements, no assessment
can be made as to the full impact of these requirements on our business or work force and no prediction can be made as to the effect on
us of any expansion of these obligations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">In addition to security
concerns, the Israeli government is currently pursuing certain changes to Israel&#8217;s judicial system and legislation. In response to the
foregoing proposed changes, some individuals, organizations and institutions, both within and outside of Israel, have commented that the
proposed changes may negatively impact the business environment in Israel, including due to increased currency fluctuations and downgrades
in credit rating. On April 14, 2023, Moody&#8217;s downgraded Israel&#8217;s credit outlook from positive to stable, however it maintained
an A1 rating on Israel&#8217;s overall credit rating. Such negative developments may have an adverse effect on our business and results
of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;<b><i>As some of our revenues are derived
from the Israeli government sector, a reduction of government spending in Israel on IT services may reduce our revenues and profitability;
and any delay in the annual budget approval process may negatively impact our cash flows. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Matrix and Magic Software
subsidiaries perform work for a wide range of Israeli governmental agencies and related subcontractors. Any reduction or elimination for
political or economic reasons (such as in the case of COVID-19) of total Israeli government spending may reduce our revenues and profitability.
In addition, the Government of Israel has experienced significant delays in the approval of its annual budget in recent years. Such delays
in the future could negatively affect our cash flows by delaying the receipt of payments from the government of Israel for services performed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Political relations could limit our ability
to sell or buy internationally</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We could be adversely affected
by the interruption or reduction of trade between Israel and its trading partners. Some countries, companies and organizations continue
to participate in a boycott of Israeli firms, other firms doing business with Israel as well as Israeli-owned companies operating in other
countries. There can be no assurance that restrictive laws, policies or practices directed towards Israel or Israeli businesses will not
have an adverse impact on our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Israel&#8217;s economy may become unstable.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">From time to time Israel&#8217;s
economy may experience inflation or deflation, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts,
civil and political unrest and budgetary constraints. For these and other reasons, in the past the government of Israel has intervened
in the economy employing fiscal and monetary policies, import duties, foreign currency restrictions, controls of wages, prices and foreign
currency exchange rates and regulations regarding the lending limits of Israeli banks to companies considered to be in an affiliated group.
The Israeli government has periodically changed its policies in these areas. Recurrence of previous destabilizing factors could make it
more difficult for us to operate our business as we have in the past and could adversely affect our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our business may be materially affected
by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding
their potential effects, could adversely affect our results of operations and share price.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a multinational Group,
we are subject to income taxes, withholding taxes and indirect taxes in numerous jurisdictions worldwide. Significant judgment and management
attention and resources are required in evaluating our tax positions and our worldwide provision for taxes. In the ordinary course of
business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations
and effective tax rates could be adversely affected by changes in the relevant tax, accounting, and other laws, regulations, principles
and interpretations. This may include recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory
rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, changes in foreign currency exchange
rates, or changes in the valuation of our deferred tax assets and liabilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may be audited in various
jurisdictions, and such jurisdictions may assess additional taxes against us. If we experience unfavorable results from one or more such
tax audits, there could be an adverse effect on our tax rate and therefore on our net income. Although we believe our tax estimates are
reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and
accruals, which could have a material adverse effect on our operating results or cash flows in the period or periods for which a determination
is made. Additionally, we and our subsidiaries are subject to transfer pricing rules and regulations, including those relating to the
flow of funds between each of us and our respective affiliates, which are designed to ensure that appropriate levels of income are reported
in each jurisdiction in which we operate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The tax benefits that will be available
to certain of our Israeli subsidiaries and our Israeli affiliate will require us to continue to meet various conditions and may be terminated
or reduced in the future, which could increase our costs and taxes.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Some of our Israeli subsidiaries
derive and expect to continue to derive significant benefits from various programs, including Israeli tax benefits relating to our &#8220;Preferred
Technological Enterprise&#8221;, or PTE, and our &#8220;Special Preferred Technological Enterprise,&#8221; or SPTE, programs. To be eligible
for tax benefits as a PTE or SPTE, these Israeli subsidiaries must continue to meet certain conditions including, with respect to Sapiens,
consolidated group revenue at the level of Asseco (its and our controlling shareholder) of at least NIS 10 billion. If they do not meet
the conditions stipulated in the Israeli Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law and the regulations
promulgated thereunder, as amended, for the PTE, any of the associated tax benefits may be cancelled and they would be required to repay
the amount of such benefits, in whole or in part, including interest and consumer price index, or CPI, linkage (or other monetary penalties).
Further, in the future these tax benefits may be reduced or discontinued. While we believe that certain of our Israeli subsidiaries have
met and continue to meet the conditions that entitle then to previously-obtained Israeli tax benefits, there can be no assurance that
the Israeli Tax Authority will agree (for example, with respect to Sapiens, in case the overall revenue at the Asseco group level is lower
than NIS 10 billion, or if Asseco no longer controls Sapiens).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The Israeli government grants that Sapiens,
one of our subsidiaries, has received require it to meet several conditions and restrict its ability to manufacture products and transfer
know-how developed using such grants outside of Israel and require it to satisfy specified conditions.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">One of our Israeli subsidiaries
(an Israeli subsidiary of Sapiens) received grants in the past from the government of Israel through the Israeli National Authority for
Technological Innovation, or the Innovation Authority (formerly operating as Office of the Chief Scientist of the Ministry of Economy
of the State of Israel, or the OCS), for the financing of a portion of its research and development expenditures in Israel with respect
to Sapiens legacy technology. In consideration for receiving grants from the Innovation Authority, that subsidiary is obligated to pay
the Innovation Authority royalties from the revenues generated from the sale of products (and related services) developed (in whole or
in part) using the Innovation Authority funds, in an amount that is up to 100% to 150% of the aggregate amount of the total grants that
it received from the Innovation Authority, plus annual interest for grants received after January 1, 1999. The subsidiary must fully and
originally own any intellectual property developed using the Innovation Authority grants and any right derived therefrom unless transfer
thereof is approved in accordance with the provisions of the Israeli Encouragement of Research, Development and Technological Innovation
Law, 5744-1984, or the Innovation Law (formerly known as the Encouragement of Industrial Research and Development Law, 5744-1984, or the
Research Law), and related regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When a company develops know-how,
technology or products using grants provided by the Innovation Authority, the terms of these grants and the Innovation Law restrict the
transfer of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside
of Israel. Even after the repayment of such grants in full, our subsidiary will remain subject to the restrictions set forth under the
Innovation Law, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Transfer of know-how outside of Israel</i>. Any transfer of the know-how that was developed with the funding of the Innovation Authority, outside of Israel, requires prior approval of the Innovation Authority, and the payment of a redemption fee.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Local manufacturing obligation</i>. The terms of the grants under the Innovation Law require that the manufacturing of products resulting from Innovation Authority-funded programs be carried out in Israel, unless a prior written approval of the Innovation Authority is obtained (except for a transfer of up to 10% of the production rights, for which a notification to the Innovation Authority is sufficient).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Certain reporting obligations</i>. Sapiens, as any recipient of a grant or a benefit under the Innovation Law, is required to file reports on the progress of activities for which the grant was provided as well as on its revenues from know-how and products funded by the Innovation Authority. In addition, our subsidiary is required to notify the Innovation Authority of certain events detailed in the Innovation Law.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Therefore, if aspects of our
subsidiary&#8217;s technologies are deemed to have been developed with Innovation Authority funding, the discretionary approval of an
Innovation Authority committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing
rights related to those aspects of such technologies. Our subsidiary may not receive those approvals. Furthermore, the Innovation Authority
may impose certain conditions on any arrangement under which it permits our subsidiary to transfer technology or development out of Israel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The transfer of Innovation
Authority-supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value
of the transferred technology or know-how, the amount of Innovation Authority support, the time of completion of the Innovation Authority-supported
research project and other factors. Furthermore, the consideration available to shareholders in a transaction involving the transfer outside
of Israel of technology or know-how developed with the Innovation Authority&#8217;s funding (such as a merger or similar transaction)
may be reduced by any amounts that are required to be paid to the Innovation Authority.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Israeli subsidiary received
grants from the Innovation Authority prior to an extensive amendment to the Research Law that came into effect as of January 1, 2016,
or the Amendment, which may also affect the terms of existing grants. The Amendment provides for an interim transition period (which has
not yet expired), after which time our subsidiary&#8217;s grants will be subject to terms of the Amendment. Under the Research Law, as
amended by the Amendment, the Innovation Authority is provided with a power to modify the terms of existing grants. Such changes, if introduced
by the Innovation Authority in the future, may impact the terms governing our subsidiary&#8217;s grants.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>As we continue to expand our business in
emerging markets, such as India, we face increasing challenges that could adversely impact our results of operations, reputation and business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Approximately
forty-six percent (46%) of Sapiens&#8217; employees and approximately 4% of Magic Software employees are currently located in India. Our
significant presence in India, in particular Sapiens&#8217; Research &amp; Development personnel and its personnel for the delivery of
its professional services, poses a number of challenges. Those challenges are related to more volatile economic conditions, poor protection
of intellectual property, inadequate protection against crime (including counterfeiting, corruption and fraud), lack of due process, and
inadvertent breaches of local laws or regulations. In addition, local business practices may be inconsistent with international regulatory
requirements, such as anti-corruption and anti-bribery laws and regulations (including the U.S. Foreign Corrupt Practices Act and the
U.K. Bribery Act) to which we are subject. It is possible that some of Sapiens&#8217; employees, subcontractors, agents or partners may
violate such legal and regulatory requirements, which may expose it to criminal or civil enforcement actions, including penalties and
suspension or disqualification from U.S. federal procurement contracting. If Sapiens fails to comply with such legal and regulatory requirements,
our business and reputation may be harmed.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Conducting
business in India involves unique challenges, including potential political instability; threats of terrorism; the transparency, consistency
and effectiveness of business regulation; corruption; the protection of intellectual property; and the availability of sufficient qualified
local personnel. Any of these or other challenges associated with operating in India may adversely affect our business or operations.
Terrorist activity in India and Pakistan has contributed to tensions between those countries and our operations in India may be adversely
affected by future political and other events in the region.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>It may be difficult to serve process and
enforce judgments against our directors and officers in the United States or in Israel.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are organized under the
laws of the State of Israel. All of our executive officers and directors are nonresidents of the United States, and a substantial portion
of our assets and the assets of these persons are located outside of the United States. Therefore, it may be difficult to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">effect service of process within the United States on us or any of our executive officers or directors;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">enforce court judgments obtained in the United States including those predicated upon the civil liability provisions of the United States federal securities laws, against us or against any of our executive officers or directors, in the United States or Israel; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">bring an original action in an Israeli court against us or against any of our executive officers or directors to enforce liabilities based upon the United States federal securities laws.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Israeli courts may refuse
to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which
to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law
is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert
witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There
is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing
a judgment against us in Israel, an investor may not be able to collect any damages awarded by either a U.S. or foreign court.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Provisions of Israeli law may delay, prevent
or make difficult an acquisition of us, which could prevent a change of control and therefore depress the price of our shares.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Companies Law regulates
mergers and requires that tender offers for acquisitions of shares above specified thresholds be approved via special shareholder approvals.
The Companies Law furthermore requires shareholder approvals for transactions involving directors, officers or significant shareholders
and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential
transactions unappealing to us or to some of our shareholders. These provisions of Israeli corporate and tax law may have the effect of
delaying, preventing or complicating a merger with, or other acquisition of, us. This could cause our ordinary shares to trade at prices
below the price for which third parties might be willing to pay to gain control of us. Third parties who are otherwise willing to pay
a premium over prevailing market prices to gain control of us may be unable or unwilling to do so because of these provisions of Israeli
law. Asseco&#8217;s control of a significant percentage of our outstanding ordinary shares may also discourage potential acquirers from
paying a premium to our shareholders pursuant to a change of control transaction. Please see the risk factor above titled &#8220;Our largest
shareholder, Asseco Poland S.A., can significantly influence the outcome of matters that require shareholder approval.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Your rights and responsibilities as a shareholder
are governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are incorporated under
Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our memorandum of association, amended
and restated articles of association, which we sometimes refer to as our articles, and Israeli law. These rights and responsibilities
differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder
of an Israeli company has a duty to act in good faith in exercising the rights thereof and fulfilling the obligations thereof toward the
company and other shareholders and to refrain from abusing the power thereof in the company, including, among other things, in voting
at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable in shareholder votes
at the general meeting with respect to, among other things, amendments to a company&#8217;s articles of association, increases in a company&#8217;s
authorized share capital, mergers and acquisitions and transactions involving interests of officers, directors or other interested parties
which require the shareholders&#8217; approval. In addition, a controlling shareholder of an Israeli company or a shareholder who knows
that he or she possesses the power to determine the outcome of a vote at a meeting of our shareholders, or who has, by virtue of the company&#8217;s
articles of association, the power to appoint or prevent the appointment of an office holder in the company, or any other power with respect
to the company, has a duty of fairness toward the company. The Companies Law does not establish criteria for determining whether or not
a shareholder has acted in good faith.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>As a foreign private issuer whose ADSs are
listed on the Nasdaq Global Select Market, we may follow certain home country corporate governance practices instead of certain Nasdaq
requirements.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a foreign private issuer
whose ADSs are listed on the Nasdaq Global Select Market, we are permitted to follow certain home country corporate governance practices
instead of certain requirements of the Listing Rules of the Nasdaq Stock Market. A foreign private issuer that elects to follow a home
country practice instead of such requirements must submit to Nasdaq in advance a written statement from independent counsel in such issuer&#8217;s
home country certifying that the issuer&#8217;s practices are not prohibited by the home country&#8217;s laws. In addition, a foreign
private issuer must disclose in its annual reports filed with the SEC or on its website, each such requirement that it does not follow
and describe the home country practice followed by the issuer in lieu of any such requirement. In keeping with these leniencies, we have
elected to follow home country practice with regard to, among other things, composition of our board of directors, director nomination
procedure, compensation of officers, quorum at shareholders&#8217; meetings and timing of our annual shareholders&#8217; meetings. We
have furthermore elected to follow our home country law, in lieu of those rules of the Nasdaq Stock Market that require that we obtain
shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans,
an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances
of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. Accordingly, our shareholders
and ADS holders may not be afforded the same protection as provided under Nasdaq&#8217;s corporate governance rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our U.S. shareholders may suffer adverse
tax consequences if we are classified as a passive foreign investment company or as a &#8220;controlled foreign corporation&#8221;.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Generally, if for any taxable
year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be measured
in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income,
we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes under the Code. Based
on our gross income and gross assets, and the nature of our business, we believe that we were not classified as a PFIC for the taxable
year ended December 31, 2022. Because PFIC status is determined annually based on our income, assets and activities for the entire taxable
year, it is not possible to determine whether we will be characterized as a PFIC for the taxable year ending December 31, 2023, or for
any subsequent year, until we finalize our financial statements for that year. Furthermore, because the value of our gross assets is likely
to be determined in large part by reference to our market capitalization, a decline in the value of our ordinary shares may result in
our becoming a PFIC. Accordingly, there can be no assurance that we will not be considered a PFIC for any taxable year. Our characterization
as a PFIC could result in material adverse tax consequences for you if you are a U.S. investor, including having gains realized on the
sale of our ordinary shares treated as ordinary income, rather than a capital gain, the loss of the preferential rate applicable to dividends
received on our ordinary shares by individuals who are U.S. holders, and having interest charges apply to distributions by us and the
proceeds of share sales. Certain elections exist that may alleviate some of the adverse consequences of PFIC status and would result in
an alternative treatment (such as mark-to-market treatment) of our ordinary shares. Prospective U.S. investors should consult their own
tax advisers regarding the potential application of the PFIC rules to them. Prospective U.S. investors should refer to &#8220;Item 10.E.
Taxation&#8212;U.S. Federal Income Tax Considerations&#8221; for discussion of additional U.S. income tax considerations applicable to
them based on our treatment as a PFIC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Certain U.S. holders of our
ordinary shares may suffer adverse tax consequences if we or any of our non-U.S. subsidiaries are characterized as a &#8220;controlled
foreign corporation&#8221;, or a CFC, under Section 957(a) of the Code. A non-U.S. corporation is considered a CFC if more than fifty
percent of the voting power or the total value of the shares is owned, or is considered to be owned, by U.S. shareholders who each own
shares representing ten percent or more of the voting or total value of the shares of such non-U.S. corporation, who refer to as 10% U.S.
Shareholders. Generally, 10% U.S. Shareholders of a CFC are currently required to include in their gross income their pro-rata share of
the CFC&#8217;s &#8220;Subpart F income&#8221;, a portion of the CFC&#8217;s earnings, to the extent the CFC holds certain U.S. property,
and certain other new items under H.R. 1, originally known as the 2017 Tax Cuts and Jobs Act, or the TCJA. Such 10% U.S. Shareholders
are subject to current U.S. federal income tax with respect to such items, even if the CFC has not made an actual distribution to such
shareholders. &#8220;Subpart F income&#8221; includes, among other things, certain passive income (such as income from dividends, interests,
royalties, rents and annuities or gain from the sale of property that produces such types of income) and certain sales and services income
arising in connection with transactions between the CFC and a person related to the CFC. Certain changes to the CFC constructive ownership
rules introduced by the TCJA may cause one or more of our non-U.S. subsidiaries to be treated as CFCs and may also impact our CFC status.
This may result in negative U.S. federal income tax consequences for 10% U.S. Shareholders of our ordinary shares. The CFC rules are complex
and therefore no assurances can be given that we are not or will not become a CFC. Certain changes to the CFC constructive ownership rules
introduced by recent U.S. tax legislation could, under certain circumstances, cause us to be classified as a CFC. Current or prospective
10% U.S. Shareholders should consult their tax advisors regarding the U.S. tax consequences of acquiring, owning, or disposing our ordinary
shares and the impact of the TCJA, especially the changes to the rules relating to CFCs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>We may have difficulty protecting our interests
as a shareholder of Sapiens, which is a Cayman Islands company.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Following the completion of
the migration of its legal jurisdiction to the Cayman Islands in August 2018, Sapiens&#8217; corporate affairs are governed by its memorandum
of association, or the Memorandum, its articles of association, or the Articles, the Companies Act (as revised) of the Cayman Islands,
or the Companies Act and the common law of the Cayman Islands. The rights of Sapiens&#8217; shareholders&#8212; such as Formula&#8212;
and the fiduciary responsibilities of Sapiens&#8217; directors under the laws of the Cayman Islands are, in some respects, not as clearly
established under statutes or judicial precedent in the Cayman Islands as in jurisdictions in the United&#160;States. Therefore, we may
have more difficulty in protecting our interests than would shareholders of a corporation incorporated in a jurisdiction in the United
States, due to the comparatively less developed nature of Cayman Islands law in this area.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Companies Act permits
mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. Dissenting
shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by
the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a
merger or consolidation which is effected in compliance with these statutory procedures.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, there are statutory
provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in
number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths
in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy
at a meeting convened for that purpose. The convening of the meeting and subsequently the arrangement must be sanctioned by the Grand
Court of the Cayman Islands. A dissenting shareholder has the right to express to the court the view that the transaction ought not to
be approved.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When a takeover offer is made
and accepted by holders of 90.0% of the affected shares within four months, the offeror may, within a two-month period, notify the holders
of the remaining shares that it requires them to transfer such shares on the terms of the offer. An objection can be made to the Grand
Court of the Cayman Islands within one month of the notice, but this is unlikely to succeed unless there is evidence of fraud, bad faith
or collusion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If the arrangement and reconstruction
is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be
available to dissenting shareholders of a corporation incorporated in a jurisdiction in the United States, providing rights to receive
payment in cash for the judicially determined value of the shares. This may make it more difficult for you to assess the value of any
consideration you may receive in a merger or consolidation or to require that the offeror give you additional consideration if you believe
the consideration offered is insufficient.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Shareholders of Cayman Islands
exempted companies have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists
of shareholders. Sapiens&#8217; directors have discretion under the Company&#8217;s Memorandum and Articles to determine whether or not,
and under what conditions, its corporate records may be inspected by its shareholders, but are not obliged to make them available to its
shareholders (other than annual accounts, which are available for inspection prior to annual general meetings, and each shareholder&#8217;s
right to view the share register in respect of shares registered in its name). This may make it more difficult for a shareholder to obtain
the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection
with a proxy contest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Subject to limited exceptions,
under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Copies of Sapiens&#8217; Memorandum
and Articles, which serve as exhibits to its 2021 annual report, were annexed as Appendix A to the proxy statement for Sapiens&#8217;
2017 annual general meeting of shareholders, which was appended as Exhibit 99.1 to Sapiens&#8217; Report of Foreign Private Issuer on
Form 6-K furnished to the SEC on October 26, 2017. A table comparing certain Curacao law provisions to Cayman Islands law provisions was
annexed as Appendix B to that same proxy statement.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_007"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 4. INFORMATION ON THE COMPANY</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>History and Development of the Company</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Both our legal name and our
commercial name are Formula Systems (1985) Ltd. We were incorporated under the laws of the State of Israel on April 2, 1985 and are subject
to the Israeli Companies Law, 5759-1999. We maintain our principal executive offices at 1 Yahadut Canada Street, Or Yehuda 6037501, Israel
and our telephone number is +972-3-5389389. Our agent in the United States is Corporation Service Company and its address is 2711 Centerville
Road, Suite 400, Wilmington, DE 19808. Our Internet address is www.formulasystems.com. The information contained on that site is not a
part of this annual report and is not incorporated by reference herein. The SEC maintains an Internet site, http://www.sec.gov, which
contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The
information on that website is not part of this annual report and is not incorporated by reference herein. Except as described elsewhere
in this annual report, we have not had any important events in the development of our business since January 1, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Capital Expenditures and Divestitures</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since our inception, we have
acquired effective controlling interests, and have invested, in companies that are engaged in the IT solutions and services business.
We, together with our investees, are known as the Formula Systems Group.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have adopted a strategy
of seeking to create positive economic impact and long-term value for our shareholders and the companies we invest in. We believe that
this strategy provides us with capital to support the growth of our interest in our remaining subsidiaries, as well as provide us the
opportunity to pursue new acquisitions of, and investments in, other businesses, particularly businesses offering products, technologies
and services that are complementary to ours and are suitable for integration into our business, thereby increasing value for our shareholders
(and ADS holders). We expect to continue to develop and enhance the products, services and solutions of our investees, and to continue
to pursue additional acquisitions of, or investments in, companies that provide IT services and proprietary software solutions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our principal investment and
divestiture activities since the start of our 2020 fiscal year are described below. For additional information concerning our related
financing activities since the start of our 2020 fiscal year, see &#8220;Item 5. Operating and Financial Review and Prospects&#8212; B.
Liquidity and Capital Resources&#8212; Sources of Financing.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Investments by Formula in Existing Subsidiaries:
</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Changes in our percentage
ownership of Sapiens</i>. As of January 1, 2020, our percentage interest in Sapiens was approximately 47.8%. During the last three years,
mainly due to exercises of options by employees of Sapiens, but also due to Sapiens&#8217; follow-on public offering completed in October
2020, our direct interest in Sapiens&#8217; outstanding common shares was diluted to 44.0% and 43.64%, as of December 31, 2020 and 2021,
respectively. As a result of our acquisition of 285,672 of Sapiens common shares on February 2022, March 2022 and August 2022 for a total
consideration of $7.0 million (there were no such purchases in 2020 or 2021) our percentage ownership of Sapiens rose to 44.1% as of December
31, 2022. The source of funds for our purchase of Sapiens common shares in 2022 was our working capital. Our interest in Sapiens&#8217;
common shares as of March 31, 2023, stands at 44.1%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Changes in our
percentage ownership of Magic Software</i>. As of January 1, 2020, our percentage interest in Magic Software was 45.3%. Pursuant to
our acquisition of Magic Software ordinary shares, we invested an aggregate of $1.2 million in 2020, $1.1 million in 2021, and $5.8
million in 2022. Our interest in Magic Software&#8217;s ordinary shares as of December 31, 2022, stands at 46.3%. The source of
funds for those acquisitions has been our working capital. Our interest in Magic Software&#8217;s ordinary shares as of March 31,
2023 remains at 46.3%.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Changes in our percentage
ownership of Matrix</i>. As of January 1, 2020, our percentage interest in Matrix was 48.9%. During the last three years, mainly due
to exercises of options by employees of Matrix, our direct interest in Matrix&#8217;s outstanding share capital was diluted to 49.3%,
48.9%, and 48.7% as of December 31, 2020, 2021, and 2022, respectively. Our interest in Matrix&#8217;s ordinary shares as of March 31,
2023 stands at 48.2% following exercise of options by employees of Matrix during the first three-month period of 2023. We invested an
aggregate of $5.0 million in 2020 pursuant to our acquisitions of Matrix shares. There were no such purchases in 2021 or 2022. The source
of such funds has been our working capital.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Acquisition by Formula:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Shamrad
Electronic (1997) Ltd. </i>On October 2, 2022, we acquired all of the share capital of Shamrad, an Israeli private company, engaged in
the supply, integration and installation of computer communication infrastructures, announcement and alarm systems and electronic security
systems. Shamrad represents several companies in the field of security: ATI systems &#8211; sirens, Garrett &#8211; Metal detectors, Kopp
&#8211; Ferro Magnetic detectors for MRI rooms. The total consideration to be paid for the acquisition amounted to approximately NIS 9.4
million (approximately $2.7 million), with NIS 7.1 million (approximately $2.0 million) paid in Cash, or approximately NIS 8.6 million
(approximately $2.4 million) net of acquired cash. Acquisition-related costs were immaterial. For further information, please see Note
3(i)(a) to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Zap Group</i>.
In April 2021, Formula acquired all of the issued and outstanding share capital of Zap Group from Apax Partners for consideration of approximately
NIS 244.2 million in cash, with up to an additional NIS 60 million of consideration (for a total maximum purchase price of approximately
NIS 304.2 million) contingent upon Zap Group meeting certain EBITDA targets during the first two years following the acquisition. As of
December 31, 2022 we do not believe Apax Partners would be entitled to such any amount out of the contingent amount. Zap Group is Israel&#8217;s
largest group of consumer websites which manages more than 20 leading consumer websites from diverse content worlds with a total of more
than 17 million visits per month, including Zap Price Comparison website, Zap Yellow Pages (the largest business index in Israel) and
Zap Rest (Israel&#8217;s restaurants index). The websites managed and offered by Zap Group provide small and medium-sized businesses in
Israel with a broad and rich advertising platform and offer consumers a user-friendly search experience with a variety of advanced tools,
which enable them to make rational purchase decisions in the best and most effective way. For further information, please see Note 3(i)(b)
to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Ofek Aerial
Photography. </i>On March 13, 2020, Formula completed the acquisition of an 80% share interest in Ofek Aerial Photography, or Ofek, and
also received an option to acquire the remaining 20% of the equity in the future,&#160;for total consideration of approximately NIS 27.7
million (or NIS 14.3 million, net of acquired cash). Ofek is one of the leading companies in Israel in the fields of aerial and satellite
mapping, geographic data collection and processing, and provides services in numerous geographic applications. Ofek employs approximately
100 employees, all situated at Ofek&#8217;s headquarters in Netanya, Israel. We and the minority shareholder of Ofek hold mutual call
and put options, respectively, for the remaining 20% interest in Ofek, exercisable for 36 months following the third year anniversary
of the transaction (April 30, 2020 is considered the date of the transaction for purposes of that provision). For further information,
please see Note 3(i)(b) to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Acquisitions by Sapiens:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of I.T. Cognitive
Ltd.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2022 Sapiens acquired
the entire share capital of I.T. Cognitive Ltd. (today: Sapiens Cognitive Ltd.) for a purchase price of $3.5 million. For further information,
please see Note 3(ii) to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2021, Sapiens did not effect
any material acquisitions of businesses or technologies.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Tia
Technology</i>. On November 30, 2020, Sapiens acquired&#160;Tia Technology, now known as Sapiens Denmark, a vendor of digital
software solutions, from the global investment organization&#160;EQT Mid Market, for total consideration of $75.3 million in cash
(or $73.0 million net of acquired cash).&#160;During 2021, Sapiens and the sellers of Sapiens Denmark agreed on final working
capital adjustments related to the purchase price for this acquisition, which resulted in the payment of $0.8 million from those
sellers to Sapiens. Sapiens Denmark is headquartered in Denmark and&#160;has nearly 70 customers globally, primarily in Denmark,
Norway, Sweden, Finland, South Africa and the Baltics. It offers comprehensive software solutions, primarily for Property &amp;
Casualty insurers as well as Life and Pension, Health, and several innovative extension modules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Sapiens
Japan Co.</i> In the fourth quarter of 2020, Sapiens acquired the remaining 10% of Sapiens Japan Co, for a total consideration of approximately
15 million Japanese Yen (approximately $147,000). Following that acquisition, Sapiens owns all of the share capital of Sapiens
Japan Co.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Digital
License. </i>In the fourth quarter of 2020, Sapiens purchased from Cognitive Ltd. a source code license which provides it the ability
to pursue the acceleration of its digital offering. The total consideration was $2.8 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Delphi.
</i>On July 27, 2020, Sapiens acquired Delphi, a leading vendor of software solutions for P&amp;C carriers, with a focus on the medical
professional liability (MPL)/healthcare professional liability (HCPL) markets (sometimes referred to as &#8220;medical malpractice&#8221;).
Delphi is headquartered in Boston, Massachusetts, and offers core products for MPL, including policy administration, claims management,
and financial and risk management. The consideration in the transaction was approximately $19.6 million in cash (or $13.3 million net
of acquired cash). Acquisition-related costs amounted to $0.3 million. On January 1, 2023, we merged Delphi into Sapiens Americas Corporation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Tiful Gemel</i>.
On June 1, 2020, Sapiens acquired 75% of the outstanding shares of Tiful Gemel Ltd., an Israeli company&#160;which provides software solutions
and managed services related to pension and provident funds in the Israeli market, for total cash consideration of $1.3 million. In addition,
under the share purchase agreement for this acquisition, Sapiens is committed to acquire the remainder of Tiful Gemel&#8217;s outstanding
shares on June 1, 2023 for $0.45 million. On July 8, 2021, Sapiens completed the acquisition of an additional 20% of the outstanding shares
of Tiful Gemel for a total amount of $0.4 million.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of sum.cumo.</i>
On February 6, 2020, Sapiens acquired sum.cumo (to be renamed Sapiens Germany), a German-based technology provider that offers digital,
consumer-centric solutions mainly to the insurance sector, for a purchase price of $22.5 million in cash. An additional $1.8 million was
paid to sum.cumo&#8217;s senior executives as part of an existing agreement between sum.cumo and its former shareholders. In addition,
Sapiens issued 173,005 restricted shares units worth approximately $4.4 million to sum.cumo&#8217;s senior management, for which vesting
is subject to performance criteria. Sum.cumo&#8217;s senior executives may be entitled to future payments of up to $2.8 million that are
subject to both earn out-based and retention-specific criteria over the four years following the acquisition.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Acquisitions and Divestitures by Matrix:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Zebra AGR
Technologies Ltd. </i>On January 1, 2023, Matrix acquired 70% of the share capital of Zebra AGR Technologies Ltd. (&#8220;Zebra&#8221;),
which is engaged in the distribution of software products for about 20 international software manufacturers in the fields of information
security and communication. Zebra will be consolidated in the financial statements of Matrix starting from the first quarter of 2023.
Zebra provides distribution services, including consulting, logistics, financing, marketing, and professional services, with an authorized
support and training center. Matrix paid NIS 53 million (approximately $15.1 million) for this acquisition.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of RDT
Equipment and Systems (1993) Ltd. </i>On June 19, 2022, Matrix IT, through Matrix Integration and Infrastructure Ltd., Matrix
IT&#8217;s wholly owned subsidiary, acquired all of the share capital of RDT for cash consideration of NIS 44 million (approximately
$12.7 million), or NIS 41 million (approximately $11.9 million) net of acquired cash. As part of the purchase agreement, the
sellers may be entitled to additional future consideration contingent upon RDT meeting certain future operating profit targets. As
of the acquisition date, Matrix IT estimates the future value of the contingent consideration at NIS 14.8 million (approximately
$4.3 million). RDT provides services in the field of multimedia systems. RDT markets software solutions and systems for a wide range
of technologies, including control and automation solutions, test and measurement equipment, advanced technological solutions for
testing data communication, EMC products, radio frequency (RF) and microwaves components, and serves, among other things, as a
representative in Israel for dozens of international software and hardware vendors. For further information, please see Note
3(iv)(b) to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Divestiture of Infinity
Labs R&amp;D Ltd</i>. On April 24, 2022, Matrix IT concluded the sale of 45.2% of the issued and share capital of Infinity Labs R. &amp;
D. Ltd. (&#8220;Infinity&#8221;) for a total consideration of NIS 154.5 million (approximately $46.2 million). Following the transaction
Matrix IT remaining interest in Infinity&#8217;s outstanding share capital amounts to 4.9% of Infinity&#8217;s outstanding share capital.
As a result of the transaction, we recognized a capital gain (before tax), in the amount of approximately NIS 148.1 million (approximately
$44.3 million), including NIS 16.7 million (approximately $5.0 million) recorded with respect to the revaluation of the Matrix IT remaining
share interest in Infinity. In accordance, as of the second quarter of 2022, Infinity&#8217;s financial results of operations were not
consolidated in our financial statements and the remaining share interest of 4.9% in Infinity&#8217;s outstanding share capital was measured
at fair value with subsequent changes in the fair value of the investment recognized in profit or loss. Matrix distributed the capital
gain (net of tax) to its shareholders as a dividend. For further information, please see Note 3(iv)(a) to our consolidated financial
statements included in Item 18 of this annual report.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of AVB Technologies
Ltd.</i> On October 5, 2021, Matrix, through Matrix Integration and Infrastructure Ltd., Matrix&#8217;s wholly owned subsidiary, acquired
60% of the share capital of AVB Technologies Ltd. for NIS 4.6 million (approximately $1.4 million). As part of the purchase agreement,
additional consideration will be paid, subject to the achievement of certain operating profit targets, to be based on Matrix&#8217;s calculation.
According to our calculation, the value of the additional consideration for the business acquisition is estimated at NIS 2.1 million (approximately
$0.6 million). AVB Technologies Ltd. provides services in the field of multimedia systems. AVB Technologies Ltd.&#8217;s services vary
and include constructing multimedia systems for meeting rooms and video conference rooms, state of the art digital display solutions,
video walls, command and control management rooms, advanced audio solutions and advanced display solutions. For further information, please
see Note 3(iv)(c) to our consolidated financial statements included in Item 18 of this annual report.</p><div>




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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;Acquisition of I.T.D.
Group Ltd</i>. On April 29, 2021, Matrix acquired 75% of the share capital of the I.T.D. Group Ltd., or I.T.D. Group, for NIS 5.75 million
(approximately $1.8 million). As part of the purchase agreement, additional consideration was agreed to, subject to I.T.D. Group achieving
certain operating profit targets. According to our calculation, the value of the additional consideration for the business acquisition
is NIS 0.2 million. Matrix also holds a future call option to purchase the additional 25% of I.T.D. Group&#8217;s share capital. I. T.D.
Group is a leading provider of software development, regulation and cybersecurity services for the healthcare industry in Israel, assisting
companies to design and develop innovative solutions, services, and desktop, mobile, and cloud-based apps; ensure rock-solid cybersecurity
and privacy in compliance with HIPAA/GDPR standards; and manage FDA/CE submissions. For further information, please see Note 3(iv)(d)
to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of SQ Service
Quality Ltd</i>. On April 5, 2021, Babcom Centers Ltd., a subsidiary of Matrix, acquired 60% of the share capital of S.Q. Service Quality
Ltd. for NIS 4 million (approximately $1.2 million). As part of the purchase agreement, additional consideration was agreed to, subject
to the achievement of operating profit targets, to be based upon Matrix&#8217;s estimate.. We and the minority shareholder of SQ Service
Quality Ltd. hold mutual call and put options for the remaining 40% interest in SQ Service Quality Ltd.. SQ Service Quality Ltd. has been
active for more than a decade; it accompanies organizations and companies in service quality improvement processes. For further information,
please see Note 3(iv)(e) to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of A. A. Engineering
Ltd</i>. On April 5, 2021, Dana Engineering Ltd. (a subsidiary of Matrix) acquired 75% of the share capital of A.A Engineering Ltd., or
A.A. Engineering, for NIS 10.5 million (approximately $3.2 million). As part of the purchase agreement, the sellers may be entitled to
future additional consideration, contingent upon A.A Engineering achieving certain future operating profit targets. As of the acquisition
date, Matrix estimated the future value of the contingent consideration at NIS 0.5 million (approximately $0.1 million). Matrix holds
a call option for the remaining 25% share interest in A.A Engineering. Since 1973, A.A Engineering specializes in planning, management,
coordination and supervision work in civil engineering projects serving a wide range of customers, both from institutions and public bodies
and from leading companies in the Israeli economy. For further information, please see Note 3(iv)(f) to our consolidated financial statements
included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of RightStar
Inc. </i>On November 16, 2020, Matrix acquired all of the share capital of RightStar Inc., or RightStar, a U.S.-based company and a seller
and an integrator of BMC and Atlassian Jira solutions, for total consideration of approximately NIS 12.2 million (approximately $3.6 million),
of which $3.0 million was paid in cash and $0.5 million was paid on January 15, 2021. The sellers may also be entitled to contingent consideration,
estimated as of the acquisition date at $1.0 million, upon RightStar meeting various operating profit targets.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Gestetnertec
Ltd.</i> On July 9, 2020, Matrix I.T. Integration and Infrastructure, Matrix&#8217;s wholly owned subsidiary company, acquired 51% of
the share capital of Gestetnertec Ltd., or Gestetnertec, for NIS 49.8 million in cash (approximately $14.5 million). Gecstetnertec provides
various solutions in the printing and documents generation field, and provides different solutions, including 3D printing solutions. We
and the minority shareholder hold mutual call and put options, respectively, for the remaining 49% interest in Gestetnertec.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of the Remainder
of Network Infrastructure Technologies (NIT). </i>In January 2020, Matrix acquired the remaining 40% of the share capital of Network Infrastructure
Technologies (NIT), increasing its share capital interest in NIT from 60% to 100%, for total cash consideration of $4.5 million (approximately
NIS 15.3 million), which was paid upon closing.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Acquisitions by Magic Software:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Appush
Ltd (formerly known as Vidstart Ltd.)</i>. On January 27, 2022 (the &#8220;Appush Acquisition Date&#8221;), Magic Software acquired 50.1%
of Appush Ltd. (formerly known as Vidstart Ltd.) (&#8220;Appush&#8221;), a provider of a video advertising platform that offers personalized
automated methods and real-time smart optimization, helping its clients achieve high yields in the competitive digital ecosystem. According
to the share purchase agreement, Magic software is committed to purchase the remainder of Appush&#8217;s shares in two tranches: 30%
on April 1, 2022 and 19.9% on April 1, 2023. Magic Software&#8217;s commitment to purchase all of the outstanding share capital of Appush
as of the closing date was accounted for as a financial liability measured at fair value in the amount of $10.5 million. As of the closing
date the estimated total consideration for the acquisition of all of the outstanding share capital of Appush amounted to $21.5 million,
or approximately $19.9 million, net of acquired cash (of which $11.0 million was paid in cash at closing, or approximately $9.5 million
net of acquired cash). The fair value of the financial liability referring to the purchase of the remaining 49.9% interest in Appush
amounted as of December 31, 2022 to approximately $8.6 million. For further information, please see Note 3(iii)(a) to our consolidated
financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of The Goodkind
Group, LLC. </i>On August 23, 2022, Magic Software acquired 100% of TGG outstanding share capital for a total consideration of $11.6 milliom
or approximately $11.5 million net of acquired cash (of which approximately $8 million was paid upon closing, or approximately $7.9 million).
TGG provides permanent and temporary staffing services in various sectors including: Information Technology, Accounting &amp; Finance,
Digital Media, Marketing, Human Resource, Financial Services. With On-Site programs and sourcing models TGG solutions includes functions
which differs from standard staffing companies. TGG provides assistance in the areas of compensation design and development, employee
opinion surveys, employment policies and practices, performance management, regulatory and compliance issues and succession planning.
The remainder constitutes a deferred payment payable in 2023 (approximately $2.8 million) and 2024 (approximately $0.9 million). For further
information, please see Note 3(iii)(b) to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin: 0pt 0; text-align: justify"><i> Acquisition of Intrabases SAS. </i>On July
1, 2022, Magic Software acquired Intrabases SAS, a provider of IT professional services based in Nantes, France. The consideration of
the transaction is comprised solely from a cash consideration in an amount of approximately $3.4 million, or approximately $3.0 million
net of acquired cash. For further information, please see Note 3(iii)(c ) to our consolidated financial statements included in Item
18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During 2022 Magic Software concluded additional two separate asset
purchase agreements. The total consideration paid for these acquisitions amounted to approximately $1.8 million. For further information,
please see Note 3(iii)(d) to our consolidated financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of EnableIT.
</i>On April 1, 2021, Magic Software acquired the entire share capital of EnableIT, LLC, or EnableIT, a U.S.-based services company that
specializes in IT staffing and recruiting, for total consideration of $6.0 million, of which $4.0 million was paid upon closing and the
remaining $2.0 million was to be paid in two equal installments&#8212; on April 1, 2022 and 2023. On April 1, 2022, Magic Software paid
the first $1.0 million payment. For further information, please see Note 3(iii)(e) to our consolidated financial statements included in
Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Menarva.
</i>On April 1, 2021, Magic Software acquired the entire share capital of Menarva Ltd., or Menarva, an Israeli-based services company
which specializes in software solutions for non-profit organizations for a total estimated consideration of up to $5.6 million, of which,
$3.0 million was paid upon closing, and the remaining $2.6 million was to be due in two equal installments, on April 1, 2022 and 2023,
depending on the operational results of Menarva in 2021 and 2022. On April 1, 2022, Magic Software paid an additional amount of $1.055
million in respect of the purchase price. For further information, please see Note 3(iii)(f) to our consolidated financial statements
included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Y.G. Soft
IT Ltd.</i> On January 1, 2021, Magic Software, through one of its Israeli subsidiaries, acquired 60% of the shares of 9540 Y.G. Soft
IT Ltd., or Soft IT, an Israel-based services company which specializes in outsourcing of software development services for a total consideration
of up to $1.2 million. $0.4 million was paid upon closing, $0.3 million and $0.3 million were paid in July 2021 and April 2022, respectively,
and with the remaining amount constitutes a contingent payment that is contingent upon the future operating results of IT Soft. The estimated
fair value of the contingent consideration amounted to $0.6 million as of the acquisition date. We and Soft IT&#8217;s minority shareholder
hold mutual call and put options for the remaining 40% interest. For further information, please see Note 3(iii)(g) to our consolidated
financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Stockell
Inc. </i>On September 2, 2020, Magic Software acquired all of the share capital of Stockell, a U.S.-based services company, specializing
in IT staffing and recruiting, for total consideration of $7.7 million, of which $6.3 million was paid upon closing and the remaining
$1.5 million was due 12 months following the closing date. In December 2021 and following a few discrepancies in the sellers&#8217; disclosures,
we paid as final consideration and amount of $0.76 million to settle the remainder of the purchase price.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Acquisition of Aptonet
Inc. </i>On May 7, 2020, Magic Software acquired all of the share capital of Aptonet, a U.S.-based services company that specializes in
IT staffing and recruiting, for a total consideration of $4.7 million, of which $3.7 million was paid upon closing and the remaining $&#160;1.0
million will be paid in two installments, six and twelve months following the closing date. During 2020 and 2021, we paid the remainder
of the consideration in two equal installments of $0.5 million each. For further information, please see Note 3(iii)(d) to our consolidated
financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisition
of Mobisoft Ltd and Magic Hands B.V. </i>On July 1, 2020 and in June 2020 Magic Software acquired 70% of the outstanding share capital
of Mobisoft and all of the outstanding share capital of Magic Hands, respectively. The acquisition of each of Mobisoft and Magic Hands
individually, and both of them in the aggregate, was not material. These entities have been consolidated in our financial results since
their respective acquisition dates. The aggregate consideration paid for the acquisition of both Mobisoft and Magic Hands was $11.3 million.
Magic Software and the seller of Mobisoft both hold mutual options to purchase and sell (respectively) the remaining 30% interest in
Mobisoft, which may be exercised during the three-year period beginning following the third-year anniversary of the acquisition. Mobisoft&#8217;s
and Magic Hands&#8217; results of operations have been included in our consolidated financial statements since their respective acquisition
dates.&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisition
of Additional Stake in Comblack</i>. On April 15, 2020, Magic Software acquired an additional stake of 10.17% in its subsidiary Comblack
IT Ltd., or Comblack, an Israeli-based company that specializes in software professional and outsource management services for mainframes
and complex large-scale environments, for total cash consideration of approximately $3.6 million, of which $3 million was paid upon closing
and the remaining is being paid over a period of up to 18 months. In addition to the cash consideration, we have in place a contingent
consideration mechanism according to which an additional amount may be paid in the event Comblack meets certain income thresholds. In
April 2022, based on Comblack&#8217;s operating results in 2020 and 2021, we paid an additional $1.7 million as final consideration with
respect to the contingent consideration. Magic Software currently holds an 80.2% stake in Comblack. Comblack holds a put option in respect
of its remaining 19.8% holding.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisitions
by Michpal Micro Computers (1983) Ltd:</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisition
of Formally Smart Form System Ltd., or Formally. </i>On February 16, 2022, Michpal acquired 70% of the share capital of Formally, for
a total consideration of NIS 44.8 million (approximately $14.4 million) or NIS 43.8 million (approximately $14.1 million) net of acquired
cash. Michpal and the seller hold mutual call and put options, respectively, for the remaining 30% share interest in Formally. The options
can be exercised during every year starting from January 1, 2023 in 3 equal portions of 10% each and for a period of 3 years thereafter
(i.e. 10% of Formally outstanding share capital as of 1.1.23 and for a period of 3 years thereafter; 10% as of 1.1.24 and for a period
of 3 years thereafter and 10% as of 1.1.24 and for a period of 3 years thereafter). Formally is an Israeli-based company and the creator
of Formally Smart Form platform &#8211; a central server platform for managing knowledge and work processes, and for producing digital
forms combined with a legally-binding eSignature technology allowing customers to create impressive documents in minutes and get them
signed in a snap. Formally offers a variety of proprietary computerized and advanced tools for managing business processes trusted by
Israel&#8217;s largest financial, banking, and insurance enterprises. Its &#8220;no-code&#8221; platform, allows to convert outdated
forms into a digital process for any company freeing IT teams from ongoing maintenance issues and enables employees across the organization
to deliver new digital products quickly and efficiently. For further information, please see Note 3(iii)(a) to our consolidated financial
statements included in Item 18 of this annual report.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisition
of Liram Financial Software Ltd. </i>On May 17, 2020, Michpal acquired 70% of the share capital of Liram Financial Software Ltd., or
Liram, an Israeli provider of proprietary integrated specialized management systems in the field of financial accounting, taxation and
compliance, for accounting professionals (accountants and tax consultants), bookkeepers, controllers, and CFOs. Liram&#8217;s solutions
include specialized financial software solutions for preparation and reporting of financial statements, tax declarations, single-entry
and double-entry bookkeeping, fixed asset management and depreciation calculations (under the brand name Ram-Nihul) etc. Total cash consideration
amounted to NIS 15.3 million (approximately $4.3 million). In addition, Michpal and the minority shareholder of Liram hold mutual call
and put options, respectively, for the remaining 30% interest in Liram. Acquisition related costs were immaterial.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisition
by Zap Group:</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">In February 2022, Zap Group completed the acquisition of 49.9% of the
entire minority rights in its controlled partnership, Winhelp Ofran, a provider of digital advertising solutions for domestic travel businesses
in Israel, for consideration of NIS 11.0 million (or approximately $3.5 million).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
December 2022 Zap Group concluded the acquisition of 51% of the outstanding share capital of N.C Marketing and Advertising Ltd. (also
known as &#8220;Safra digital marketing&#8221;) and 51% of the outstanding share capital of Marcomit Ltd. (&#8220;Marcomit&#8221;). Safra
digital marketing is an Israeli company specializing in social media services including Facebook, Instagram and Tik-tok. Marcomit is
an Israeli company specializing in digital branding for large enterprises including advanced branding materials for media and digital
advertising. The total consideration paid for these acquisitions amounted to approximately $3.5 million, or $2.8 million net of acquired
cash. As part of the purchase agreements, the sellers of Safra digital marketing and Marcomit may be entitled to additional future consideration
contingent upon meeting certain future operating profit targets. The fair value of such contingent considerations, as of the acquisition
dates amounted to $0.7 million. In addition, Zap and the minority shareholders of Safra digital marketing and Marcomit hold mutual call
and put options for the remaining 49% interest. The fair value of the put options measured on the acquisition date amounted to approximately
$4.0 million. For further information, please see Note 3(vi) to our consolidated financial statements included in Item 18 of this annual
report.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisition
by Insync Staffing:</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Acquisition
of Bear Staffing Services Corporation</i>. On December 12, 2022, Insync Staffing acquired all of the outstanding share capital of Bear
Staffing, a corporation duly organized under the laws of the State of Florida for a total consideration of $7.7 million (excluding $8.6
million of acquired cash) with $5.3 million paid in cash at closing with $0.6 million paid in March 2023 and deferred payments of $1.0
million and $0.9 million, respectively due on the first and second anniversary of the closing date. Bear Staffing Corporation is a staffing
agency providing talent for industries such as manufacturing, distribution, and call centers. Since its inception, Bear Staffing Corporation
has provided more than 50,000 employees to over 2,000 employers across the United States. Leveraging leading-edge recruiting technology
and their recruiting model, Bear Staffing has been able to find, attract, place, and retain talent for their clients nationwide. As a
staffing agency that specializes in high-volume industries and skill sets, Bear Staffing&#8217;s objective is to provide targeted and
efficient staffing solutions to meet the specific needs of their clients. For further information, please see Note 3(vii) to our consolidated
financial statements included in Item 18 of this annual report.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px; font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>B.</b></span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Business
    Overview </b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>General</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
are a global information technology company that is principally engaged through our directly held investees in providing software consulting
services and computer-based business solutions, and in developing proprietary software products. We deliver our solutions in numerous
countries worldwide to customers with complex IT services needs, including a number of &#8220;Fortune 1000&#8221; companies.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
provide our investees with our management, technical expertise and marketing experience to help them create a consecutive positive economic
impact and long-term value, and direct their overall strategy through our active involvement. We carry out those activities at the level
of our investees rather than at our parent company level. Following our transition to IFRS during 2016, we consolidate the results of
all of the entities in which Formula holds an equity interest, other than our equity investee TSG.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
operate through our subsidiaries&#8212; Matrix, Sapiens, Magic Software, Michpal, Zap Group, InSync and Ofek Aerial Photography&#8212;
and through our equity investee TSG. We describe below the areas of our business activity:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>IT
Services</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
design and implement IT solutions and software systems which improve the productivity of our customers&#8217; existing IT assets, enable
them to effectively manage their operations and reduce their business risks in the face of changing business environments. In delivering
our IT services, we at times use proprietary software developed by members of the Formula Group. We provide our IT services across the
full system development life cycle, including definition of business requirements, developing customized software, implementing software
and modifying it based on the customer&#8217;s needs, system analysis, technical specifications, coding, testing, training, implementation
and maintenance. We perform our projects on-site or at our own facilities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Proprietary
Software Solutions</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
design, develop and market proprietary software solutions for sale in selected niche markets worldwide. We regularly seek opportunities
to invest in or acquire companies with attractive proprietary software solutions under development which we believe to have market potential.
All of our investments and acquisitions in this area have been in companies with products beyond the prototype stage. In addition, from
time to time, we selectively invest in companies with proven technology where we believe we can leverage our experience to enhance product
positioning and increase market penetration. We provide our management and technical and financial expertise, marketing experience and
financial resources to help bring these products to market. We also assist the members of our group to form teaming agreements with strategic
partners to develop a presence in international markets and to raise debt and capital.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>The
Formula Group</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Formula
is the parent company of investees, which, as noted above, we refer to collectively (together with Formula) as the Formula Group. As
of December 31, 2022, we held 90.1% of the shares of InSync, an 80% interest in Ofek Aerial Photography, a 48.7% interest in Matrix,
a 44.1% interest in Sapiens, a 46.3% interest in Magic Software, a 50% interest in TSG through our equity holdings, and the entire share
capital of Michpal, Zap Group and Shamrad (acquired in 2022). We have effective control of each of the companies in the Formula Group
other than TSG for purposes of consolidation under IFRS 10. We provide to all of our investees our management, technical and financial
expertise, and our marketing experience, thereby asserting a positive economic impact upon, and creating long-term value for, our investees.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
direct the overall strategy of our investees. While our investees each have independent management, we monitor their growth through our
active involvement in the following matters:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">strategic
    planning;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">marketing policies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">senior management recruitment;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">investment and budget policy;
    </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">financing policies; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">support for the process
    of raising debt and capital.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
promote the synergy and cooperation among our investees by encouraging the following:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">transfer of technology
    and expertise;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">leveling of human resources
    demand;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">combining skills for specific
    projects;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">formation of critical mass
    for large projects; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">marketing and selling the
    Formula Group&#8217;s products and services to its collective customer base.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We,
through our investees, offer a wide range of integrated software solutions and IT professional services, such as implementation and integration
projects of computing and software, outsourcing, software project management, software development, IT managed services, operating a
network of high-tech training and instruction centers, providing software testing and QA, depending on specific needs of the customer
and depending on the subject expertise necessary on a case by case basis, and design, develop and market proprietary software solutions
for sale in selected niche markets, both in Israel and worldwide. Formula&#8217;s Chief Executive Officer and Chief Financial Officer
serve as the Chief Executive Officer and Chief Financial Officer, respectively, of Magic Software as well, and Formula&#8217;s Chief
Executive Officer also serves as Chairman of the Board of each of Sapiens and Matrix.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Our
Subsidiaries</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Matrix</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
IT Ltd. is Israel&#8217;s leading IT services company as demonstrated in recent research reports of the Israeli IT market, published
by the research companies IDC and STKI. Matrix employs approximately 11,200 software, hardware, integration, engineering and training
personnel, which provide advanced IT services to hundreds of customers in the Israeli and the U.S markets. Matrix&#160;executes some
of the largest IT projects in Israel. It develops and implements leading technologies, software solutions and products. Matrix provides
infrastructure and consulting services, outsourcing, offshore, near-shore, training and assimilation services. Matrix represents and
markets leading software vendors. Among its customers are most of the leading Israeli organizations and companies in the industry, retail,
banking and finances, education and academe, Hi-tech and ISVs, telecom, defense, health and the government/public&#160;sectors. Matrix&#160;is
traded on the Tel Aviv Stock Exchange.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
solutions, services and products supplied by Matrix are designed to improve Matrix&#8217;s customers&#8217; competitive capabilities,
by providing a response to their unique IT needs in all levels of their operations.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Areas
of Operation</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
operates through its directly and indirectly held subsidiaries in the following principal areas:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Information Technologies
    (IT) Software solutions and services, Consulting &amp; Management in Israel.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Information Technologies
    (IT) Software solutions and services in the United States.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Computer and cloud infrastructure
    and integration solutions.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Software product marketing
    and support.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">-</span></td>
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  </table><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Information
Technologies (IT) Software solutions and services, Consulting &amp; Management in Israel</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
software solutions and services in Israel provided by Matrix IT consist mainly of providing tailored software solutions and upgrading
and expanding mainly existing large-scale software systems. These services include, among others, developing customized software, adapting
software to the customer&#8217;s specific needs, implementing software and modifying it based on the customer&#8217;s needs, outsourcing,
software project management, software testing and QA and integrating all or part of the above elements. Furthermore, the activity in
this segment includes project management consulting services and multi-disciplinary operational and engineering consulting services,
including supervision of complex engineering projects, all according to client specific needs as the scope of work invested in each element
varies from one customer to the other.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022, under this line of
business Matrix recorded revenues of approximately NIS 2.435 billion (approximately $725.9 million) compared to NIS 2.361 billion (approximately
$731.4 million) in 2021, an increase of approximately 3.15% when measured in NIS. Operating income in 2022 was approximately NIS 179.1
million (approximately $53.4 million) compared to approximately NIS186.7 million (approximately $57.9 million) in 2021, a decrease of
approximately 4.1% when measured in NIS. In 2022, activity in software solutions and value-added services in Israel accounted for approximately
52% of Matrix&#8217;s revenues and approximately 51% of its operating income. The increase in revenues alongside the decrease in operating
income were primarily attributable to the sale and deconsolidation of Infinity Labs R. &amp; D. Ltd. concluded in April, 2022, which operations
were characterized by high operating margins relative to other operations included under this business segment and by organic growth recorded
across most all other revenue streams under this business segment which experienced increase in operating expenses that were managed to
be saved in 2021 during the COVID term (such as fuel and travel). Moreover, in 2022, Matrix completed through its subsidiaries Aviv, Dana
Engineering, and Programa a series of large projects, including projects in the fields of transportation, environment, logistics and logistics
warehouses, supply chains. Some of these projects should continue to produce additional revenues in the coming years. Excluding the negative
impact resulted from the deconsolidation of Infinity Labs, Matrix software solutions and services in Israel recorded organic growth of
approximately 7.8% in revenues (when measured in NIS) and approximately 7.4% in operating income (when measured in NIS).</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Information
Technologies (IT) Software solutions and services in the United States</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
IT&#8217;s activities in this segment are performed by two lines of business &#8211; Matrix US Holdings and Xtivia. The two line of business
primarily provide software solutions and services of Governance Risk and Compliance (&#8220;GRC&#8221;) experts, including activities
on the following topics: risk management, management and prevention of fraud, anti-money laundering, trade surveillance as well as, specialized
advisory services in the area of compliance with financial regulation and operational services, as well as solutions and specialized
technological services in areas such as: portals, BI (Business Intelligence) DBA (Data Base Administration), CRM (Customer Relation Management)
and EIM (Enterprise Information Management). Furthermore, the activity in this segment includes dedicated solutions for the GovCon Government
contracting market, IT help desk services specializing in healthcare and software product distribution services particularly IBM, BMC
and Atlassian products to customers in the public-government sector in the U.S.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022, under this line of
business, Matrix recorded revenues of approximately NIS 434.3 million (approximately $129.4 million) compared to NIS 355.9 million (approximately
$110.3 million) in 2021, an increase of approximately 17% when measured in U.S dollar. Operating income in 2022 was approximately 60.2
million (approximately $17.9 million), compared to approximately NIS 37.7 million (approximately $11.7 million) in 2021, an increase of
approximately 54% when measured in U.S dollars. In 2022, the activity in the U.S. accounted for approximately 9% of Matrix IT&#8217;s
revenues and approximately 17% of its operating income. In 2022, Matrix&#8217;s operation in the United States showed significant growth,
with an increase of about 17% in revenues and a growth of over 54% in operating profit, which substantially improved Matrix&#8217;s overall
operating margin. Matrix continued to collaborate in the United States with NICE Actimize in the field of providing artificial intelligence-based
solutions to prevent money laundering and financial fraud. Likewise, it expanded its customer base in the U.S. including through the additions
of Brinks and the Metropolitan Transportation Authority in New York as customers.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Computer
and cloud infrastructure and integration solutions</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
IT&#8217;s activities in this segment, is primarily providing computer solutions to computer and communications infrastructures, marketing
and sale of computers and peripheral equipment to business customers, providing related services, and cloud computing solutions (through
the business specializing unit of the Company - Cloud Zone) and a myriad of services and products regarding office automation and printing
solutions, representation of global leading manufacturers of test and measurement equipment, communication and cyber and RF solutions,
projects and integration in the field of automation, calibration services in advanced technologies, provision of industrial video and
image processing solutions as well as Database services and Big data services (through the specialized business unit Data zone).. Matrix
infrastructure and integration solutions include solutions of IBM, Oracle Red Hat, Dell-Boomi and others. In 2022, under this line of
business, Matrix recorded revenues of approximately NIS 1,346 million (approximately $401.1 million), compared to approximately NIS 1,210
million (approximately $374.9 million) in 2021, an increase of approximately 11% when measured in NIS. Operating income in 2022 was approximately
NIS 76.6 million (approximately $22.8 million), compared to approximately NIS 61.7 million (approximately $19.1 million), an increase
of approximately 24% when measured in NIS and in line with the increase in revenues. In 2022, activity in computer and cloud infrastructure
and integration solutions accounted for approximately 29% of Matrix&#8217;s revenues and for approximately 22% of its operating income.
The increase in both revenues and operating income is mainly attributable to Matrix&#8217;s continued cultivation of cloud computing
annual recurring revenues (ARR) and to the first-time consolidation of RDT Equipment and Systems (1993) Ltd., completed In June 2022.
Furthermore, in 2022, the Nimbus project was launched, designed to accelerate the adoption of cloud computing in the public sector in
Israel. The base tender of this project was won by Amazon and Google and in the follow-up tender for the implementation of the project,
Matrix was chosen among other service providers.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Software
product marketing and support</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
IT&#8217;s activities in this segment include marketing, distributing and support for various software products, web world content management,
database and data warehouse mining, application integration, database and systems, data management and software development tools. In
2022, under this line of business, Matrix recorded revenues of approximately NIS 249.9 million (approximately $74.5 million) compared
to approximately NIS 258 million (approximately $79.9 million) in 2021, a decrease of approximately 3% when measured in NIS. Operating
income in 2022 was approximately NIS 15.7 million (approximately $4.7 million), compared to approximately NIS 25.3 million (approximately
$7.8 million) in 2021. In 2022, activity in software product marketing and support accounted for approximately 5% of Matrix&#8217;s revenues
and approximately 5% of its operating income. The decrease in both revenues and operating income were primarily attributable to the decrease
in margins which characterized the trend in this business segment and to the transition to subscription based selling model.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Training
and integration</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix&#8217;s
activities in this area consist of operating a network of training centers which provide advances courses for high-tech professionals,
courses for developers and professional training, and soft skills and management training, and providing training and instructions with
respect to computer systems. In recent years Matrix has also started outsourcing IT services based on graduates from its courses. In
2022, under this line of business, Matrix recorded revenues of approximately NIS 207.6 million (approximately $61.9 million), compared
to approximately NIS 174.9 million (approximately $54.2 million) in 2021, an increase of approximately 19% year over year when measured
in NIS. Operating income in 2022 was approximately NIS 18.9 million (approximately $5.6 million), compared to approximately NIS 17.9
million (approximately $5.5 million) in 2021, an increase of approximately 6% year over year, in line with the increase in revenues.
In 2022, activity in training and integration accounted for approximately 5% of Matrix&#8217;s revenues and for approximately 5% of its
operating income.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
provides solutions, services and products primarily to the following market sectors (or verticals): banking and finance, high-tech and
startups, industry and retail, government and the public sector, defense, transportation, healthcare, and education and academia.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
offers to each market sector a broad range of solutions and services, customized for the specific needs of that sector. Matrix operates
dedicated departments, each of which specializes in a particular sector. Each such department supplies customers in that sector with
a products and services offering providing a response to most of its IT requirements, based on an in-depth business understanding of
the challenges which are typical to that sector. Matrix established a separate division for each particular market sector, which manages
the operations relating to that sector.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Specialization
in the various sectors is reflected in the applications, professional and marketing aspects of each sector. Accordingly, the professional
and marketing infrastructure required to support each market sector is developed to address such sector&#8217;s specific needs.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition to the five sector-based areas of operations, Matrix operates three horizontal divisions providing specialist services for all
of the different sectors of operations as follows:</span></p><div>

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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Expertise centers &#8211;
    Matrix operates approximately 20 &#8220;expertise centers&#8221; (&#8220;Centers of Excellence&#8221;), in areas such as: Cloud Computing,
    Internet of Things (IOT), Digital, User Experience, Mobility (Mobile Technology), Analytical BI and Big Data, DevOps, Service Oriented
    Architecture (SOA), Customer Relations Management (CRM), Enterprise Resource Planning (ERP), eXtended Relationship Management (XRM),
    Open Source, Security &amp; Cyber, Machine Learning and Artificial Intelligence. These expertise centers are based on business vertical
    concept, which is targeted to yield significant added value to the company&#8217;s customers, including: group of professionals that
    are focused and have expertise in the related technologies, hands-on experience and expertise in the related technologies, methodologies,
    and best practices; and strategic management consulting center that provides customers with diverse consultation services on topics
    such as organization, strategy, complex project management in areas such as environmental planning, transportation and chain of supply,
    business development and technological development.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix Global - Quality
    assurance and related professional services under an offshore/&#8220;nearshore&#8221; model.</span></td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Management/engineering
    consulting services - Comprehensive management and engineering consulting services, from the stage of adoption of strategy through
    the stages of implementation and effecting of changes, including project management of complex projects, including engineering projects,
    engineering supervisory projects of a wide scope, and projects in the fields of planning and environmental, and transportation, as
    well as multiple-field engineering advisory services and advisory and implementation in the field of management of supply chain and
    management of operational logistics.</span></td></tr>
  </table><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
the context of its offshore/&#8220;nearshore&#8221; activities, Matrix conducts IT-related activities, including content development,
quality assurance, maintenance, customer call center services indexing and related activities that are performed in a specific region
or country where such activities can be conducted most inexpensively. Matrix offers its enterprise customers these types of solutions,
whether via its &#8220;nearshore&#8221; Talpiot project, via its offshore solutions that are based on its development centers in Bulgaria
and Macedonia or via back-office and call center services through Babcom Centers Ltd. (a company located in the Galilee, housing thousands
of educated and skillful men and women interested in developing a career near their homes). Periods of economic cautiousness (such as
the present time) provide an added incentive for these types of inexpensive economic solutions. This trend is likely to expand Matrix&#8217;s
operations in these areas in the context of its &#8220;Matrix Global&#8221; activities.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix&#8217;s
customers include large and medium size enterprises in Israel, including commercial banks, loan and mortgage banks, telecommunications
services providers, cellular operators, credit card companies, leasing companies, insurance companies, security agencies, hi-tech companies
and startups, the Israeli Defense Forces and government ministries and public agencies and media and publishing entities. The majority
of Matrix&#8217;s customers in the software solutions and value-added services business segment in Israel have a business relationship
with it for more than ten years. The COVID-19 pandemic, its extended duration and its economic impact, have adversely affected the Israeli
and global economy and consequently also negatively impacted the demand for IT services. However, recovery from the pandemic (due primarily
to the proliferation of vaccines in the last year) led, in 2021, to a restored and even increased level of demand compared to pre-pandemic
levels in most of our operations. In addition, while based on statistics cited by Gartner, a leading global research and advisory company,
global IT spending was expected to grow by 5%-6% in 2021, it actually grew by over 9%, and was expected to continue and grow by 5.1%
in 2022 (see https://www.gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five- point-1-percent-in-2022,
which is not incorporated by reference into this annual report). In practice, due to global events, including the war in Ukraine, the
closures in China and their effect on global economy, IT global activity in 2022 was weaker than the forecasts and in practice 2022 ended
(at the global level, according to Gartner&#8217;s estimate) with a decrease of about 0.2% (see https://www.gartner.com/en/newsroom/press-releases/2023-01-18-gartner-forecasts-worldwide-it-spending-to-grow-2-percent-in-2023,
which is not incorporated by reference into this annual report). Neutralizing exchange rate fluctuations impact, 2022 ended with a slight
increase of about 0.8%, and the year 2023 is expected to benefit from an increase of only 2.4%. In the analysis of the market according
to Gartner, a significant part of the decrease in growth compared to prior years is due to a very sharp decrease in investments in end
point devices (workstations, cellular devices), which reached a decrease of about 10.6% compared to 2021. When you neutralize the decrease
of the end points devices then it is an increase of about 2.3%, that is: less than half of the forecast. According to Forrester (see
https://www.forrester.com/report/european-tech-market-outlook-by-country-2021-to-2022/RES176894?ref_search=1051634_1645482187974, which
is not incorporated by reference into this annual report), global IT expenses increased in 2022 by approximately 0.3% (compared to a
forecast of approximately 6.7%) and are expected to increase in 2023 by approximately 4.7%.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">With
the exception of the Software product marketing and support , all other operating segments of Matrix showed significant improvement in
2022 compared to 2021. This included activities such as cloud services, information security, as well as projects in the fields of health,
digital, cyber and command and control. Over the course of 2022, Matrix launched several large projects, including the transfer of Discount
Bank to a smart campus, and a project to establish an innovative database for the Israel Central Bureau of Statistics. Matrix also assumed
the responsibility for the management of the technology and infrastructure of the National Police College, including the upgrade and
replacement of most of the ICT and cyber systems, while also providing advanced technology services to all departments of the college.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
training and implementation sector, which was directly and materially affected by COVID-19 government restrictions in 2020, benefited
from the transition to a hybrid training model in 2021 and in 2022, which allowed it to improve its productivity and offer flexibility
via videotaped courses. The hybrid learning model developed by Matrix opened up many possibilities for growth with the ability to transfer
courses to participants from all over the country, and also in the future, transfer courses abroad. In addition, Matrix developed self-learning
training systems in the technological field that are sold to private and corporate customers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Currently,
almost all of Matrix&#8217;s 11,200 employees work in a usual manner, including in an hybrid work model which combines work from home
with work at the office, while at the same time Matrix is working to reduce real estate occupancy and save on operating costs.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
market activity, the economic atmosphere both in Israel and worldwide, the unemployment level, government actions and the concern related
to global and/or local recession may all still adverse impact the Matrix results pf operations to the extent that they materialize, in
whole or in part.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Matrix
management regularly and closely continue to monitor the economic developments in Matrix business levels and act accordingly. Matrix
management estimate that these processes may have a mixed impact over Matrix operations, the exact scope of which cannot be estimated
at this date.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Sapiens</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Overview</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
is a leading global provider of software solutions for the insurance industry. Sapiens&#8217; extensive expertise is reflected in its
innovative software, solutions and professional services for property &amp; casualty (P&amp;C); reinsurance; life, pension &amp; annuity
(L&amp;A); workers&#8217; compensation (WC); medical professional liability (MPL); financial&amp; compliance (F&amp;C); and decision
modelling for both insurance and financial markets. Sapiens offers an end to end solutions for insurers core, data &amp; analytics and
digital operations, as well as stand-alone solutions which help them optimize and maximize their current investment. Importantly Sapiens&#8217;
wide array of professional services ensures that it not only makes a sale but accompany and guide its customers on their path to digital
transformation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2022, Sapiens continued the trend of growth, albeit at a more moderate pace than in 2021, as it continued to build upon its existing
business, including the three main acquisitions that it had carried out in 2020, and focused upon investing significantly in its solutions
over the course of the year.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
supplies decision management solutions tailored to a variety of financial services providers, so that business users across verticals
can quickly deploy business logic and comply with policies and regulations throughout their organizations.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;Sapiens&#8217;
platforms possess modern, modular architecture and are digital-driven, providing full coverage for all business aspects of policy management,
digital engagement and data analysis. They empower customers to respond to the rapidly changing insurance market and frequent regulatory
changes, while improving the efficiency of their core operations. These process enhancements increase revenue and reduce costs.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Overview
of Sapiens Software Solutions</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
software portfolio is comprised of:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Property &amp; Casualty
    </b>&#8211; a comprehensive software platform and solutions supporting a broad range of business lines, including personal, commercial,
    MPL and specialty lines, as well as reinsurance and workers&#8217; compensation (see below). Our core solutions are pre-integrated
    with our DigitalSuite, analytics and decision modeling solutions, all of which are also available stand-alone. Sapiens&#8217; portfolio
    includes Sapiens Cloud-first Platform for Property &amp; Casualty, which is comprised of a commonly shared Data and Digital solutions
    and two core suites: Sapiens CoreSuite for Property &amp; Casualty (for North America) and Sapiens IDITSuite for Property &amp; Casualty
    (for EMEA and APAC). We provide a flexible proposition where Insurers can choose between deploying our full core suite or one or
    more of our standalone components: policy, billing and claims. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 36pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Life, Pension &amp;
    Annuities </b>&#8211; a comprehensive, cloud-based, digital software platform, suite and complementary solutions for the management
    of a diversified range of products for life, pension &amp; annuities. Our core solutions are pre-integrated with our DigitalSuite,
    analytics and decision modeling solutions, all of which are also available stand alone. Our portfolio includes Sapiens Platform for
    Life, Pension &amp; Annuities, Sapiens CoreSuite for Life, Pension &amp; Annuities; Sapiens UnderwritingPro for Life &amp; Annuities;
    Sapiens ApplicationPro for Life &amp; Annuities; Sapiens IllustrationPro for Life &amp; Annuities; and Sapiens ConsolidationMaster
    for Life &amp; Pension.</span></td></tr>
  </table><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Digital
    </b>&#8211; Sapiens Cloud-based DigitalSuite enables insurers to incorporate a fully digital experience for customers, agents and
    employers, enhancing insurers&#8217; engagement with customers, enhancing their end-consumers&#8217; experience and fostering a rapid
    time to market for new digital initiatives. Sapiens Digital Suite is pre-integrated as part of Sapiens&#8217; comprehensive platforms
    or can be deployed stand-alone on top of any 3<sup>rd </sup>party core solution already in place. Comprised of innovative digital
    modules and content libraries to facilitate diverse customer journeys, DigitalSuite includes: low-code/no code Journey Composer,
    insurance-driven API Layer, and portal solutions for customers, agents and employers. Sapiens have also added an AI driven chat-bot
    solution (BotConnect) which knows to hand off to a live agent (LiveConnect) to facilitate omnichannel communications.</span></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Cloud-based
    </b>&#8211; Sapiens&#8217; solutions are running and deployed in public clouds of the leading global cloud vendors, providing our
    customers with them inherent benefits of a modern cloud-based application.</span></p></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Data and Analytics</b>
    &#8211; together with Sapiens&#8217; digital offering, Sapiens offers an advanced data and analytics platform, which includes: an
    analytics platform that drives analytics adoption across the organization with compelling, insightful dashboards and apps; a comprehensive
    BI solution with pre-configured reports, dashboards and scorecards; predictive analytics, which uses AI and Machine Learning to generate
    actionable insights based on different models across the insurance value chain.</span></td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Reinsurance &#8211;
    </b>a market-leading complete reinsurance software solutions for full financial control and auditing support. Sapiens&#8217; portfolio
    includes: Sapiens ReinsuranceMaster, Sapiens ReinsurancePro and Sapiens Reinsurance GO, providing solutions to various sizes of insurance
    companies.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Workers&#8217; Compensation
    &#8211; </b>Sapiens workers&#8217; compensation offerings handle comprehensive policy/billing and claims needs.&#160;Sapiens solution
    portfolio Sapiens CoreSuite for Workers&#8217; Compensation and Sapiens GO for Workers&#8217; Compensation, that can be deployed
    as a full suite or in a modular manner (policy / billing / claims), and is pre-integrated with Sapiens&#8217; DigitalSuite and its
    Analytics solutions.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Medical
    Professional Liability</b>&#160;(&#8220;MPL&#8221;) &#8211; Sapiens MPL offering provides a complete end-to-end solution for managing
    the insurance processes for the medical malpractice market, including policy management, billing and claims, all adjusted to the
    unique characteristics of this specific market. The Sapiens Digital and Data platforms are also pre-integrated to the MPL core solution
    and thus providing additional value add and benefits to Sapiens MPL customer base.</span></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Financial &amp; Compliance
    </b>&#8211; Sapiens offers financial &amp; compliance solutions comprised of both annual statement and insurance accounting software.
    This software includes Sapiens FinancialPro, Sapiens Financial GO, Sapiens StatementPro, Sapiens CheckPro and Sapiens Reporting Tools.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Decision Management
    </b>&#8211; Sapiens Decision is an enterprise-scale platform that enables institutions and &#8220;citizen developers&#8221; across
    verticals to centrally author, store and manage all organizational business logic. Organizations use it to track, verify and ensure
    that every decision is based on the most up-to-date rules and policies. Our Decision management products are offered across verticals
    (including commercial banking, investment banking, mortgage banking, insurance &#8211; for both P&amp;C and life, government, etc.).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Technology-Based </b>&#8211;
    tailor-made solutions (unrelated to the insurance or financial services market) based on Sapiens eMerge platform, which provides
    end-to-end, modular business solutions, ensuring rapid time to market.</span></td></tr>
  </table><div>

</div><p style="margin-top: 0; margin-bottom: 0">&#160;</p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens&#8217;
Marketplace and its Needs</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens&#8217;
Target Markets</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
operates in a large market undergoing significant transformation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">According
to the Gartner report, &#8220;Forecast: Enterprise IT Spending for the Insurance Market, Worldwide, 2019-2025, 2Q21Update&#8221; (a market
statistics research report by Gartner, a research and consulting firm, written by Rajesh Narayan, James Ingham, Inna Agamirzian, Rika
Narisawa and Gregor Petri that was published on July 2021 , and includes internal services, IT services, software, telecom services,
devices, and data centers systems, which we refer to herein as the &#8220;Gartner report&#8221;), Gartner forecasted global insurance
market IT spending to grow by 7.3% in 2022 and to reach nearly $250 billion in U.S. dollars. This industry is predicted to reach $311
billion by 2025, growing at a 7.5% compound annual growth rate (CAGR) from 2020 through 2025. This growth will be driven by an increase
in IT services spending and software spending at CAGRs of 9.2% and 12.3%, respectively, according to the Gartner Report. Gartner forecasts
total insurance IT spending on software in 2022 will be $63.8 billion (software includes application software (analytics and business
intelligence; back office/ERP and supply chain; front office/CRM; collaboration), infrastructure software (application development and
middleware; information management; storage management software; and system and network management), and vertical industry-specific applications.
Gartner forecasts global IT spending in insurance will increase by 7.8% in 2023 to reach $207.7 billion in constant U.S. dollars. From
2021 to 2026, the spending is forecast to grow at a CAGR of 8.1%, driven by the growth in IT services and software at a CAGR of 9.7%
and 12.4%, respectively. Total insurance IT spending on software in 2023 will be $52.9 billion.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
estimates that its current total addressable market for core insurance software solutions and the accompanied point solutions and the
corresponding part of IT services is approximately $40 billion, which it expects will grow as a result of insurance carriers&#8217; and
financial institutions&#8217; need to better address customers needs, via moderning software solutions from external providers, to overcome
operational challenges presented by the inefficiency of their legacy core.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
insurance market is a large, complex and highly regulated environment. Insurance carriers operate in a super-competitive and quickly
evolving ecosystem, which necessitates differentiating their value propositions. Additionally, providers operate under a rigid regulatory
regime that demands fast compliance. The insurance market is going through a rapid evolution process, driven by needs and demands of
their customers, complex and evolving ecosystems, digital distribution channels and new business models, all enabled by new technologies.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">To
efficiently manage their operations, insurance carriers require IT platforms that enable rapid introduction of changes via configurable,
user-driven activities, integration with internal and external systems, control and auditing of employees&#8217; work, support for omni-channel
distribution and clear visibility into the carrier&#8217;s business operations, through streamlining and intelligent usage of data.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">To
compete in the rapidly changing environment, and win the competition for end customers, insurance carriers require a coherent digital
proposition, allowing them to better interact with their customers in a digital and omni-channel manner. They are increasingly using
robotics, predictive analytics, AI and machine learning to automate processes and obtain stronger business insights. The cloud can also
be utilized for improved operations and scale.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Insurance
carriers are experiencing substantial operational challenges due to the inefficiency of their legacy policy administration systems and
their lack of digitalization. These legacy systems, which include both technical and functional limitations, acutely impact carriers&#8217;
ability to cope with growing challenges, such as the need for innovation, the shift of power to the consumer, and the dynamic and constantly
changing regulatory environment.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Property
&amp; Casualty Market</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Property
&amp; casualty insurance protects policyholders against a range of losses on items of value. P&amp;C insurance includes the <b>personal
segment</b>, which is insurance coverage for individuals, with products such as motor, home, personal property and travel; the <b>commercial
segment</b>, covering aspects of commercial activity, such as commercial property, car fleets, cyber and professional liability; and
<b>specialty lines</b>, covering unique domains, such as marine, art and credit insurance. This market also includes workers&#8217; compensation
for market carriers, administrators and state funds, and Medical Professional Liability for health care professionals.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">During
the past few years, the P&amp;C market has been characterized by a fast rate of digital adoption. New business and technology models
are adopted rapidly, to launch innovative business offerings. This requires advanced software solutions, both on the core layer, which
needs to be flexible and open, and with the variety of digital tools addressing customer experience needs.&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Life,
Pension &amp; Annuity Markets</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Life,
pension &amp; annuity providers offer their customers a wide range of products for long-term savings, protection, pension and insurance.
They assist policyholders with financial planning through life insurance, medical and investment products. Their products can be classified
into several areas, primarily investment and savings, risk and protection, pension and health-related products. These products can be
targeted to individuals, as well as group- and employee-benefit types of products.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
products in this field are long-term in nature. When insurance providers consider purchasing new platforms from Sapiens, the decision
is typically slower and involves multiple decision-makers throughout the organization.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Reinsurance
Market</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Reinsurance
is insurance that is purchased by an insurance company (ceded reinsurance) from another insurance company (assumed reinsurance) as a
means of risk management. The reinsurer and the insurer enter into a reinsurance agreement, which details the conditions upon which the
reinsurer would pay the insurer&#8217;s losses. The reinsurer is paid a reinsurance premium by the insurer and the insurer issues insurance
policies to its own policyholders. The insurer must maintain an accurate system of records to track its reinsurance contracts and treaties,
to avoid claims leakage.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Workers&#8217;
Compensation</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Workers&#8217;
compensation is one of the largest lines of business in the P&amp;C industry in North America. But future profitability is getting harder
to maintain, with medical and indemnity costs per lost time claim increasing at rates greater than inflation. Insurance organizations
require technology solutions that can adapt quickly to business and market conditions, offering high levels of accuracy and efficiency.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Financial
&amp; Compliance Market</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Financial
professionals face overwhelming challenges as they struggle to satisfy ever-changing regulatory requirements, while meeting the demands
of managerial reporting. The move towards globalization has introduced new currencies, and CEOs need more performance data for strategic
decision-making. Organizations require one partner to optimize efficiencies with solutions that can be implemented quickly.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Decision
Management Market</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Increasing
competition, regulatory burden, customer experience expectations and the proliferation of digital and product innovation requirements
have necessitated a shift in thinking and approach among organizations across verticals. By replacing conventional policy and process
management with the discipline known as &#8220;decision management,&#8221; financial institutions are bridging the gap between business
and IT, by enabling business users to rapidly frame requirements in formal business models that can be easily understood by all stakeholders.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
decision management processes affect overall corporate performance, including its impact on customers and competitors. Decision management
systems are a key performance component of every financial services organization, as they help the organization define, avoid and hedge
financial risk.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens&#8217;
Market Drivers</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Large
insurance and financial organizations must constantly invest in their IT systems to respond to key market drivers. They require the ability
to:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 36pt; text-align: justify; text-indent: -16.2pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Satisfy today&#8217;s sophisticated,
    tech-savvy and demanding end-customers &#8211; who demand the type of instant, personalized service they enjoy from Netflix or Amazon
    &#8211; via digitalization and innovative initiatives, providing a stronger customer experience and engagement.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 36pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Facilitate, improve and
    automate traditional insurance processes to make them easier for end-customers, by utilizing advanced technologies, such as digital
    engagement, mobile, artificial intelligence (AI) machine learning, and cloud computing.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Provide innovative business
    models, based on technology capabilities and digital operation (such as portals, web-based acquisition processes, advanced analytics,
    customer engagement platforms and data sources &#8211; including wearables, the Internet of Things and robo-advice).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Respond to complex and
    evolving regulatory standards (past and current standards include Solvency II, IFRS 17, Dodd-Frank legislation, GDPR, etc.)</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Support internal customers&#8217;
    growth and operations. This includes reducing the time to market of new products, expanding into new geographies, reducing costs
    and streamlining operations.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Rapidly
    launch new products and propositions to the market, within a short timeframe and using existing, pre-defined capabilities.</span></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Improve operational efficiency
    and focus on reducing operating costs and improving the total cost of ownership, focusing on automation, AI and data-driven processes
    to achieve that.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens&#8217;
Market Requirements</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
a result of the above, we believe the following are key considerations for insurance carriers that are considering upgrading their legacy
systems:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Dynamic business environment
    with constantly changing regulations</b> &#8211; insurance carriers still use outdated legacy systems that are costly and time-consuming
    to modify or upgrade. This has prevented them from innovating and growing. Carriers who use legacy systems may find it difficult
    to modify existing products, introduce new products and reach untapped market segments. Frequently changing global regulatory requirements
    necessitate specialized data and business rules, which makes change implementation particularly challenging.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Change in end-consumers&#8217;
    behavior and the shift of power to consumers</b> &#8211; insurance carriers must rapidly adapt to the shifting needs and behaviors
    of consumers, including the types and terms of insurance products offered, and how consumers access information. Insurance providers
    require systems with integration capability and support for multi-channel distribution, so they can reach their clients&#8217; customers
    and partners using multiple methods, including social media, across devices.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>A need to improve operational
    efficiency and reduce total cost of ownership </b>&#8211; Sapiens believes that a significant percentage of insurance carriers are
    still using inefficient and outdated processes that do not automate operations and workflows, and thus do not offer efficient process
    management. Many of these processes likely have high error rates. Additionally, the ongoing maintenance of legacy systems is expensive
    and technically difficult. A specialized IT staff with the requisite skills and experience needed to maintain these systems is difficult
    to find and then eventually replace. Insurers seek systems that are modern, digital, automated, efficient and easy to maintain, and
    can lower costs over the long term.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Increasing global and
    multi-national operation</b> &#8211; a rising number of insurers are accelerating their growth initiatives through global acquisitions.
    These insurers seek a single provider who can deliver solutions that will be used across markets, combining the support of local
    regulatory requirements and specific customer needs, while driving a generic corporate business approach and strategy across the
    globe, reducing costs and overhead.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Exploring new business
    models and innovative propositions</b> &#8211; carriers are increasingly looking to: join innovative ecosystems; adopt and use new
    technologies, and partner with insurtechs; bring modern and differentiating propositions to the market; reduce cost; enhance and
    speed customer engagement; and improve their business parameters and KPIs.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Going digital and shifting
    to Cloud</b> &#8211; digitalization holds significant potential for insurers, but only if they manage to efficiently digitalize their
    operations, support multi-channel distribution and ensure that agents and customers are able to access real-time, accurate data at
    any time and from anywhere &#8211; across devices. Same is true for Cloud transition, where more insurers are moving their IT systems
    to be managed in the Cloud.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Business
Decision Management Market Needs</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Many
large organizations, particularly in the financial services market, must comply with complex regulations. They operate in highly competitive
markets that require quick responses. Business logic drives most of the financial services transactions and is the backbone of an organization&#8217;s
policies and strategies, and its ability to successfully operate.&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">To
achieve efficiency, business owners must assume ownership of the business logic and possess the ability to define, modify, standardize
and reuse it across the organization. Business logic is defined today by business owners and compliance officers, but IT departments
translate the requirements into code. This process raises several key challenges: 1) the result does not always accurately reflect the
business requirements; 2) the new requirements might conflict with, or override, previous requirements; 3) the changes can take a long
time and, 4) the entire process is not fully audited. These gaps often create an inefficient and risk-exposed organization.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens&#8217;
Software Offerings</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
offerings not only enable our customers to effectively manage their core business functions &#8211; including policy administration,
claims and billing &#8211; they support insurers on their path to digital transformation. Sapiens&#8217; portfolio also provides a variety
of complimentary solutions for critical requirements such as reinsurance management, underwriting management, illustration software,
electronic applications and financial compliance tools. The latest versions of Sapiens&#8217; platforms possess modern, modular cloud-first
architecture and are digital-driven, providing full coverage for all business aspects of policy management, digital engagement and data
analysis. They empower customers to respond to the rapidly changing insurance market and frequent regulatory changes, while improving
the efficiency of their core operations. These enhancements increase revenue and reduce costs.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
provides a comprehensive digital &amp; analytics suite, which is pre-integrated in Sapiens core solutions, across P&amp;C, L&amp;A and
WC business, but also available stand-alone to insurers whether they utilize our core solutions or not. Sapiens DigitalSuite provides
a strong customer engagement and experience capabilities through a wide range of connectivity tools such as portals, chatbots, live-chats
and low-code/no-code digital business processes builders, are allowing insurance companies to rapidly go to mart with new propositions,
and to manage a data-driven operation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
offers its insurance customers a range of packaged software solutions that are:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Digital-led </b>&#8211;
    revealing their history and anticipating their future needs, while facilitating easy engagement across preferred interaction channels
    and multiple devices.</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Cloud-based - </b>our
    solutions are running and deployed in public clouds of the leading global cloud vendors, providing our customers with the inherent
    benefits of a modern cloud-based application<b>.</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Data-driven </b>&#8211;
    based on set of data analysis tools, from data-warehouse and reporting, through business intelligence and analytics, to predictive
    and advanced analytics &#8211; so our customers can become a data-driven operation.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Highly automated </b>&#8211;
    by using various technologies, from decision to robotics, we improve efficiency and offer agile customer engagement.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Comprehensive and proven</b>&#8211;
    support for insurance standards, regulations and processes, by providing field-proven functionality and best practices.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Configurable and rich
    functionality</b>&#8211;easily matches our customers&#8217; specific business requirements. Our flexible architecture and configurable
    structure allow quick functionality augmentation that permits our platform to be used across different markets, unique business requirements
    and regulatory regimes. We utilize our knowledge and extensive insurance best practices and feature business-led configuration, thus
    enabling a rapid adaptation of our solutions using smart configuration tools and no-code/low-code approach.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 18pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Open architecture and
    insurtech ecosystem </b>&#8211; provides easy integration to any external application under any technology, allowing streamlined
    connectivity to all satellite applications. This enhances the digital experience and omni-channel distribution, while maintaining
    total platform independence and system reliability. Easy interaction with various insurtech companies providing point-solutions that
    can be consumed by our platforms is enabled.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Component-based and
    scalable </b>&#8211; allows our customers to deploy platforms and solutions in a phased and modular approach, reducing risk and harm
    to the business, while supporting the growth plans and cost efficiency of the organization.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
packaged software solutions enable:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Rapid deployment of
    new insurance products </b>&#8211; via configurable software and using pre-defined templates, which create a competitive advantage
    in all the insurance markets we serve.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Improvement of operational
    efficiency and reduction of risk</b> &#8211; full insurance process automation, with configurable workflows, audit and control, streamlined
    insurance practices, and simple integration and maintenance.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Reduction of overhead
    for IT maintenance</b> &#8211; easy-to-integrate and simple-to-configure solutions with flexible and modern architecture, resulting
    in lower costs for ongoing maintenance, modifications, additions and integration.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Enhanced omni-channel
    distribution, communication and focus on the customers </b>&#8211; event-driven architecture, a proactive client management approach,
    rapid access to all levels of data, and a holistic view of clients and distributors.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Cloud-first as a preferred
    deployment model </b>&#8211; with the flexibility to also provide an on-premise deployment.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 51; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->44<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Support for digitalization
    </b>&#8211;insurers and financial services institutions who manage to efficiently digitalize their operations, support omni-channel
    distribution and ensure that agents and customers are able to access real-time, accurate data at any time and from anywhere &#8211;
    including tablets and mobile devices &#8211; will unlock massive potential.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Cloud services </b>&#8211;
    offering our customers access to a long-term engagement by providing comprehensive support for their daily IT operations, while allowing
    them to focus on their business KPIs.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Property &amp; Casualty Solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Platform for Property &amp; Casualty</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Sapiens Platform for Property &amp; Casualty is an end-to-end, cloud-based platform with advanced digital and analytics capabilities.
It can be implemented as a pre-integrated platform, or as standalone modules. The platform addresses all P&amp;C carrier needs across
all lines of business and distribution channels, offering a wealth of digital features. It is comprised of core (policy, billing and
claims), data (advanced analytics) and digital (a full suite) solutions.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
cloud-based Sapiens DigitalSuite offers an end-to-end, holistic and seamless digital experience for P&amp;C customers, agents, brokers,
customer groups and third-party service providers. The suite is pre-integrated with Sapiens&#8217; P&amp;C core and is comprised of digital
engagement and digital enablement components.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
Suites for Property and Casualty are tailored by region: North America versus EMEA &amp; Rest of World.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>North
America</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
CoreSuite for Property &amp; Casualty </i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
CoreSuite for Property &amp; Casualty is comprised of three fully integrated, core components that can also be deployed stand-alone:
Sapiens PolicyPro, Sapiens BillingPro and Sapiens ClaimsPro. CoreSuite is pre-integrated with additional components that can be selected,
including business intelligence, reinsurance and digital solutions, as well as various interfaces. This modular, automated, highly customizable
suite offers a single platform for personal, commercial and specialty lines of business (LoBs).&#160;This increases organizational efficiency&#160;by
reducing manual effort, generates competitive advantages and&#160;saves costs.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
PolicyPro</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Sapiens&#8217; PolicyPro solutions for property &amp; casualty come pre-integrated with the core system. They are easily integrated with
existing and external systems and applications. The solutions manage the end-to-end policy administration lifecycle of an insurance contract,
from initial quote, through rating and policy issuance. They also feature a complete range of policy issuance and amendment capabilities.
Agents, underwriters and customers use the solutions to quote, issue and administer policies. The offerings provide comprehensive policy
lifecycle support for all P&amp;C lines of business.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
BillingPro</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Sapiens&#8217; billingPro solution for P&amp;C enables carriers, MGAs and brokers to manage the full lifecycle of premium services, taxes
and fees, along with commission billing, collection and disbursements. P&amp;C carriers can integrate with third-party systems and data
repositories, enjoy best-in-class usability and automate processes throughout the billing lifecycle.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 52; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->45<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
ClaimsPro</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
claims solutions for property &amp; casualty provide simplified management and automated control of claims management handling and the
settlement process. They offer intelligent, rules-driven workflow with effective claim assignment, ensuring faster cycle times, as well
as rules-driven automatic claims payment.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>&#160;</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>EMEA
and Rest of World&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
IDITSuite for Non-life/General/Short Term Insurance</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Sapiens IDITSuite for Property &amp; Casualty is a cloud-based, component-based, standalone software solution suite that offers policy,
billing and claims and forms the core of the Sapiens Platform for Property &amp; Casualty. IDITSuite supports all end-to-end core operations
and processes for the non-life P&amp;C market from inception, to renewal and claims. This pre-integrated, fully digital suite offers
customer and agent portals, business intelligence and more. IDITSuite enables insurers to expand their offerings by testing new lines
of business, products and services using our flexible product factory.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
suite is modular and can integrate with your ecosystem&#8217;s components. Sapiens IDITSuite for Property &amp; Casualty includes multiple
lines of business in one policy for multiple insured objects and assets. It can support corporate agreements and master policy structures.
IDITSuite is designed with growth and change in mind, with extensive multi-company, multi-branding, multi-country, multi-currency and
multi-lingual capabilities. The IDITSuite management system is built on open technology and can be used across devices.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Also
available in different parts of the world:</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Diana
Solution for Property &amp; Casualty (Spain)</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Diana solution for Property &amp; Casualty tailored for the Iberian market, empowers insurance companies with a product engine, as well
as policy, billing, claims and reinsurance capabilities. A fourth-generation solution Diana supports all core operations and processes
for the P&amp;C market, and supports bank assurance, brokers and direct insurance. The suite is modular, flexible and customizable through
module workshops. Diana ecosystem is being enhanced through new features in micro services technology, like group policy management and
injury agreements. In 2022, Sapiens signed an agreement with Toyota Insurance Management Spain (Toyota Seguros) with the aim of transforming
and modernizing its business. As such, Toyota&#8217;s insurer will be implementing Sapiens DianaSuite to manage the core of its insurance
offering.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Fully
digital SCIP Core (DACH)</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">SCIP
CORE is a flexible, high-performance, cloud-capable and easily extensible inventory management platform. It offers all essential processes
for efficient contract and claims processing and can be flexibly configured and extended in a few weeks. SCIP CORE digitally enables
end customers, agents, claim handlers by using extensive self-services in different interfaces and portals.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;<i>Tia
Enterprise (Nordics)</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 53; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->46<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Tia
Enterprise (which we have or will rename Sapiens Denmark) is a component-based, software solution suite that offers policy, billing and
claims. Tia Enterprise can be hosted on-prem or in the cloud and can be extended through an API layer to incorporate ecosystem solutions
as well as a digital communications and enablement layer and advanced analytics/BI. Tia Enterprise supports all end-to-end core operations
and processes for the non-life market from inception, to renewal and claims.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>OASIS
for MPL</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">OASIS
is a fully integrated collection of components designed to embed core functionalities required in the MPL sector, including: underwriting,
policy management, claims management, financial management, BI and predictive analytics. The component-based platform delivers maximum
out of the box functionality and stationing which ensures OASIS can easily integrate within a legacy environment.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Life, Pension &amp; Annuity Solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Platform for Life, Pension &amp; Annuities</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Sapiens Platform for Life, Pension &amp; Annuities is a modern, digital insurance platform that includes core, data and digital solutions.
With the ability to deploy its offerings as a complete platform, or as standalone modules, Sapiens can address life providers&#8217;
needs across all their lines of business and distribution channels. Our mature platform is cloud and API-based, and features a strong
core and advanced analytics, as well as data enablement and full digital engagement capabilities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
CoreSuite for Life, Pension &amp; Annuities</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
CoreSuite for Life, Pension &amp; Annuities is designed to provide excellence in the administration of insurance business, facilitate
digital transformation and fast time-to-value for digital strategies, and create greater efficiency via legacy consolidation. It offers
insurers:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A single platform for individual
    and group business</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Transformation, enablement
    and execution for digital strategies</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Greater efficiency via
    improved automation, user experience and system consolidation</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
CoreSuite for Life, Pension &amp; Annuities suite supports the end-to-end administration of group and individual life, annuities, pension
and investment business &#8210; in a single system. The suite offers a 360-degree view of the customer from their policy administration
system, across all distribution channels and communication streams.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Many
insurers still use systems developed decades ago that cannot support today&#8217;s regulatory changes, digital marketplace and demanding
customers. Too many manual processes can lead to errors that impact customer experience. Our unique conversion approach reduces the risks
involved in migrating from existing legacy systems.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Complimentary
modules are available in North America:</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
UnderwritingPro for Life &amp; Annuities</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
UnderwritingPro for Life, Pension &amp; Annuities is a web-based solution for automated underwriting and new business case management
that is part of&#160;Sapiens&#8217; solution set for life insurers. It speeds new business processes for insurance carriers and their
channels, offering an intuitive user interface with critical updates and task assignments provided on a real-time dashboard. Sapiens
UnderwritingPro enables underwriters and case managers to work on multiple cases simultaneously.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
ApplicationPro for Life &amp; Annuities</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
ApplicationPro for Life &amp; Annuities is a digital insurance application software that helps carriers address critical business drivers,
such as decreasing time-to-issue and reducing policy acquisition costs, all in an extremely intuitive and easy-to-use package. Carriers
have a choice of a standalone eApplication system, or a more comprehensive solution that seamlessly integrates with&#160;Sapiens IllustrationPro
for Life &amp; Annuities&#160;and&#160;Sapiens UnderwritingPro for Life &amp; Annuities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
IllustrationPro for Life &amp; Annuities</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
IllustrationPro for Life &amp; Annuities is a point-of-sale solution, offering responsive product illustrations from any device. ACORD<sup>&#174;</sup>-compliant,
it offers straight-through processing, from point-of-sale to application e-submission, supported by a needs analysis suite. IllustrationPro
explains complex products in a compelling way. Its powerful calculation engines handle the most complex product illustrations, including
the appropriate historical and hypothetical references.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
ConsolidationMaster for Life &amp; Pension</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
ConsolidationMaster is a purpose-built, end-to-end, legacy, portfolio-focused system with a unique migration methodology that deals with
&#8220;dirty&#8221; data. The solution has over 500 product templates capable of supporting the compliant administration of legacy products
in any language and regulatory jurisdiction. ConsolidationMaster is designed to significantly cut the costs that are commonly associated
with legacy platforms.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Digital Offerings</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
DigitalSuite offers an end-to-end, holistic and seamless digital experience for customers, agents, brokers, risk managers, customer groups
and third-party service providers. The suite is pre-integrated with Sapiens&#8217; core solutions. The DigitalSuite is also available
stand-alone, and can be easily integrated with 3<sup>rd</sup> party core and ecosystem solutions through an advanced API layer. This
facilitates digital transformation and fast time-to-value for digital strategies. It enables life carriers to become engaged, agile organizations
with increased sales opportunities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
DigitalSuite was designed to enable our carrier customers to deliver on the future of user and customer expectations. DigitalSuite is
an offering that can react to market changes, support flexible interaction with dynamic APIs and offer a modern user experience. Our
DigitalSuite features component-based architecture, built on modern technologies and customer-centric design.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
DigitalSuite is comprised of innovative digital modules, which can be used together or stand-alone, and content libraries to facilitate
diverse customer journeys, omnichannel communications and include rich portal content: Sapiens AgentConnect, EmployerConnect and CustomerConnect.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">All
digital offerings are entirely supported in the cloud.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Digital API Layer and Conductor</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">This
highly scalable layer facilitates an open-communication, API-based platform that enables carriers to interact with insurtech companies,
ecosystem technology providers and business partners. By enabling seamless interaction with any service under any technology, Sapiens&#8217;
open architecture ensures that providers will easily choose the building blocks they need. They&#8217;ll be able to easily define new
APIs on the fly and seamlessly integrate all elements within their insurance ecosystem, to succeed today and prepare for the future.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Customer Journey and Form Builder</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Features
journey and form builders, journey analytics and deployment management capabilities &#8211; enables business users to easily create and
maintain digital journeys, using a low-code/no-code approach. This component empowers insurers with agility and fast time to market,
based on its &#8220;one click to deploy&#8221; functionality. Also available are full versioning capabilities and an extendable UI components
library.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
AgentConnect,and CustomerConnect </i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">These
are dynamic portals built to deliver the optimal experiences expected by customers, brokers, agents, employers, alike, providing a high
level of personalization to meet the diversified, individual needs of customers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
BotConnect and LiveConnect</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
brings conversational messaging to the next level, making it highly efficient in engaging customers. Sapiens BotConnect (AI-based chatbot)
and LiveConnect (Omni-channel live chat) are designed to cultivate and enhance conversational messaging by ensuring perfect handoffs
between different channels and personas, which translates into one unified customer-centric and smooth experience for both customers
and the reps that cater to their needs. Together, this duo of components greatly improves the operational efficiency, providing a better
service level to end-customers, based on their channel of choice.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
PartnerHub and Partner Ecosystem</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
is a global organization with over three decades of extensive experience in insurance innovation and technology. Sapiens seek out and
identify the most relevant, advanced and innovative technology solutions for the insurance market. Sapiens connect third-party technology
and insurtech solutions to our Sapiens PartnerHub, from where we make their offerings available to insurers for their own use, and for
the use of their customers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Analytics and Data Platform</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
offers its analytics solutions, across both Life and P&amp;C businesses, which include: insightful dashboards, reporting and apps; and
predictive analytics which utilize AI and machine learning, generates actionable insights based on different models across the insurance
value chain. By integrating with our advanced analytics solution and data warehouse, we can quickly generate actionable insights, self-service
business intelligence and data discovery capabilities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Reinsurance Solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
reinsurance solutions are comprehensive business and accounting systems, providing a superior management for all types of reinsurance
contracts &#8211; treaty and facultative, and proportional and non-proportional. It enables insurers of all sizes to manage their entire
range of reinsurance contracts and activities for all lines of business, including rich accounting functionality and reporting capabilities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
reinsurance solution enables full and flexible control of reinsurance processes, with built-in automation of contracts, calculations
and processes. By incorporating fully automated functions adapted conveniently for your business procedures, Sapiens Reinsurance provides
flexible and total financial control of your reinsurance processes, including complete support for all auditing requirements and statutory
compliance.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
solutions are available in three flavors:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>ReinsuranceMaster
</i>(in EMEA, APAC and for global insurers), <i>ReinsurancePro</i> (in N. America) which also produces schedule F automatically, and
<i>Reinsurance GO</i> (N. America) which is designed to meet the ceded reinsurance processing needs of property &amp; casualty providers,
from calculating premium and claim cessions, to producing the data required for Schedule F.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Workers&#8217; Compensation Offerings</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Platform for Workers&#8217; Compensation</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
Platform for Workers&#8217; Compensation includes the Sapiens CoreSuite for Workers&#8217; Compensation, and comes pre-integrated with
Sapiens DigitalSuite, including: Sapiens EmployerConnect a digital portal for employers and Sapiens Analytics and Data platform.&#8217;&#8217;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
CoreSuite for Workers&#8217; Compensation</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
CoreSuite for Workers&#8217; Compensation offers larger carriers, administrators and state funds the technology solutions that enable
them to adapt quickly to business and market conditions, offering high levels of accuracy and efficiency. The suite provides broad functionality
throughout the entire insurance lifecycle for workers&#8217; compensation, via a core suite, as well as policy, claims and intelligence
modules that can be deployed individually, or as an integrated solution. This suite can be purchased as an integrated offering, or standalone
components: Sapiens PolicyPro and Sapiens ClaimsPro. &#8217;&#8217;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
GO for Workers&#8217; Compensation</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
GO for Workers&#8217; Compensation was developed specifically for carriers, managing general agents (MGAs), self-insurance funds and
third-party administrators. Sapiens GO can deliver a turnkey solution in just 120 days. With its streamlined user interface and advanced
business features, the suite addresses critical objectives. This suite can be purchased as an integrated offering, or standalone components:
Sapiens PolicyGO and Sapiens ClaimsGO for Workers&#8217; Compensation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Financial &amp; Compliance Solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
set of financial &amp; compliance solutions comprised of both annual statement and insurance accounting software includes:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens FinancialPro -&#160;accounting
    software designed for insurers to meet their unique requirements for cash, statutory and GAAP reporting, well as unique allocation
    and consolidation needs. It handles multi-basis accounting and inter-company transactions and facilitates the speed and accuracy
    of financial reporting.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens Financial GO -&#160;offers
    small- and mid-sized insurers a solution for cash, statutory and GAAP reporting, as well as unique allocation and consolidation needs.
    Sapiens Financial GO manages and presents data to help insurance managers make informed decisions.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens StatementPro -&#160;makes
    statement preparation faster and simpler by offering one-click navigation between statements, pages and form validations (cross-checks)
    to the pages they reference and offering one-step filing.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Additionally, Sapiens offers&#160;Sapiens
    CheckPro&#160;and&#160;Sapiens reporting tools.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Business Decision Management Solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
Decision is a complete decision management platform that places software development in the hands of the business domain, creating &#8220;citizen
developers,&#8221; and enforces business logic across all enterprise applications. Decision effectively addresses the complexity of determining
and then translating business logic &#8211; data, business rules and machine learning used to make business decisions &#8211; into operational
code. The business side of the organization can model, validate, test and simulate the business logic required for all new processes
using Sapiens Decision. The process takes days or weeks, instead of months or years. A rigorous, structured approach ensures accuracy,
efficiency and consistency during modeling. The models may then be automatically generated and deployed as code into automated DevOps
environments, ensuring that the software is fully aligned with the organization&#8217;s business needs.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
is currently focusing on the development and marketing of Sapiens Decision in the financial services market in North America and Western
Europe, and we are building best practices where the scale and complexity of operations requires enterprise-grade technology that can
easily be adapted as policies and business strategies rapidly evolve. Sapiens developed and market Sapiens Decision for several verticals,
including the insurance industry, and leverage our industry knowledge and close relationships with our existing customers and partners.
Decision targets multiple markets:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Decision for Financial Institutions (including Consumer &amp; Commercial Banking, Investment Banking, &amp; Mortgage Banking)</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Tailored
to meet the needs of Consumer &amp; Commercial Banking, Investment Banking and Mortgage Banking institutions&#160;addresses the cost
of change. It enables banks to efficiently adapt their operations to the demands of digital transformation, changing regulations, customer
demands and increasing competition, using model-driven development (MDD). The MDD approach, enables businesspeople to define business
logic in easily understood models. The process takes days or weeks, instead of months or years. It enforces business logic across all
enterprise applications.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Decision for Insurance</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
Decision for Insurance enables insurers to efficiently adapt their business operations to the demands of digital transformation, changing
regulations, customer demands and increasing competition. It is currently used by a top-tier, P&amp;C insurance company to implement
process automation and effect digital transformation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
Decision for Government</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
Decision for Government provides the capability to automate manual processes, alleviates gaps coming from different roles and interpretations,
and creates fully validated policy artifacts in a format that other roles in the organization can understand.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Technology-Based Solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
eMerge</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
eMerge is a rules-based, model-driven architecture that enables the creation of tailor-made, mission-critical core enterprise applications
with little or no coding. Our technology is intended to allow customers to meet complex and unique requirements using a robust development
platform. For example, we perform proxy porting for our customers in an efficient, cost effective manner with Sapiens eMerge.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Services</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
services modernize and automate processes for insurance providers and financial institutions around the globe, helping to create greater
organizational efficiencies, reduce costs and provide a better end user experience. They can be divided into three main categories: <b>program
delivery</b>, <b>value added services</b> and <b>cloud services</b>.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
has partnered with both Microsoft Azure and AWS to offer its solutions over private and public (single tenant) clouds. Sapiens&#8217;
cloud deployment includes full infrastructure for operations, plus the option of choosing cloud-related cloud services delivered by Sapiens&#8217;
experienced professional services team.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
delivery methodologies are typically based on Agile approach or a hybrid agile-waterfall approach that fits best some segments of our
market. Sapiens also provides delivery tools and delivery performance indicators. Built on a solid foundation of insurance domain expertise,
proven technology and a history of successful deployments, our organization assists clients in identifying and eliminating IT barriers
to achieve business objectives.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
services modernize and automate processes for insurance providers and financial institutions around the globe, helping to create greater
organizational efficiencies, reduce costs and provide a better end-user experience. Built on a solid foundation of insurance domain expertise,
proven technology and a heritage of successful deployments, we assist clients in identifying and eliminating IT barriers to achieve business
objectives.</span></p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Benefits
include:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Project delivery experience
    </b>&#8211; more than 35 years of field-proven project delivery of its core system solutions, based on best practices and accumulated
    experience.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>System integration </b>&#8211;
    Sapiens helps its customers deploy modern solutions, while expertly integrating these solutions with their legacy environments that
    must be supported.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Global presence &#8211;
    </b>insurance and technology domain experts are located close to our customers to provide professional services<b>.</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
implementation teams assist customers in building implementation plans, integrating Sapiens software solutions with their existing systems,
and deploying specific requirements unique to each customer and installation. Sapiens&#8217; business services include API integration
management and business intelligence (BI) and advanced analytics consolidation. Sapiens&#8217; cloud services offer ongoing production
support and a 24/7 help desk.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
service teams possess strong technology skills and industry expertise. The level of service and business understanding they provide contributes
to the long-term success of our customers. This helps Sapiens develop strategic relationships with Sapiens&#8217; customers, enhances
information exchange and deepens our understanding of the needs of companies within the industry.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Through
Sapiens&#8217; service teams, Sapiens provides a wide scope of services and consultancy around Sapiens&#8217; solutions, both in the
initial project implementation stage, as well as ongoing additional services. Many of Sapiens&#8217; customers also use Sapiens&#8217;
services and expertise to assist them with various aspects of daily maintenance, ongoing system administration and the addition of new
solution enhancements.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
sometimes partners with several system integration and consulting firms to achieve scalable, cost-effective implementations for our customers.
Sapiens has developed an efficient, repeatable methodology that is closely aligned with the unique capabilities of our solutions.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
services offered by Sapiens (and its partners&#8217;) teams include:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Adding new lines of business
    and functional coverage to existing solutions running in production.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Ongoing support services
    for managing and administering the solutions.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Creating new functionalities,
    per specific requirements of our customers.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Assisting with compliance
    for new regulations and legal requirements.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition, many of Sapiens&#8217; clients choose to enter into an ongoing maintenance and support contract with Sapiens. The terms of
such a contract are usually twelve months and are renewed every year. A maintenance contract entitles the customer to technology upgrades
(when made generally available) and technical support. Sapiens also offers introductory and advanced classes and training programs available
at our offices and customer sites.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 59; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->52<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Some
of Sapiens&#8217; offerings include:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Program
delivery includes:</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Project and program
    management</i> - Overall program planning, governance, PMO services and risk management</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Training </i>- Training
    needs analysis and consulting, train-the-trainer, user training, and application configuration training.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Testing </i>- Test strategy
    consulting, design and planning, SIT / Functional UAT / Business UAT, migration testing, performance / scalability and load testing,
    security testing and testing automation.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Migration consulting</i>-
    Migration strategy consulting and planning, data extract and load, data cleansing and data reconciliation.</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Development, implementation
    and integration</i> - Technical Solution Architecture (TOM), Analysis and Design, Development and Configuration, core system integration
    and project management.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Value
added services are comprised of:</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>User acceptance testing
    </i>(UAT) - is different than system testing. UAT is a complementary stage which focuses on business processes, user&#8217;s journeys,
    and acceptance criteria as outlined in the specifications.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Migration Services </i>&#8211;
    full ownership of the migration of systems from one system to another.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Analytics Services </i>&#8211;
    let Sapiens&#8217; experts help you build predictive models which are aligned and integrated into your insurance practices.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Cloud
services include:</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Hosting Infrastructure
    Services</i>: Virtual machines selection based on the applications architecture and performance requirement to ensure a value-for-money
    approach. Cloud services including, among others, network, business continuity and security.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Hosting IT Services</i>:
    continuous services that obviate the need for local IT involvement to maintain the infrastructure and includes: Operation Control
    Center (OCC) as a service, Security Operation Center (SOC) as a Service, Backup as a service, DBA as a service, DevOps as a service,
    Disaster Recovery (DR) as a service.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Applications Cloud Services</i>:
    extends the standard maintenance agreement to provide additional services for Sapiens&#8217; solutions based on specific customer
    needs, and may include any of the following: Extended maintenance and support - Customer layer/components defect handling and extended
    SLA, Application changes &#8211; setup / config / workflow / templates, Application operation &#8211; batches / release deployment
    / performance monitoring, Sapiens+ &#8211; support for non-Sapiens products (optional).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens&#8217;
Competitive Landscape</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
is focused on serving insurers. The market for core software solutions for the insurance industry is highly competitive and characterized
by rapidly changing technologies, evolving industry standards and customer requirements, and frequent innovation. In addition, we offer
a business decision management platform, mainly to financial services organizations.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 60; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->53<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Competitive
Landscape for Sapiens Insurance Software Solutions</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
competitors in the insurance software solutions market differ from us based on size, geography and lines of business. Some of our competitors
offer a full suite, while others offer only one module; some operate in specific (domestic) geographies, while others operate on a global
basis. And delivery models vary, with some competitors keeping delivery in-house, using IT outsourcing (ITO), or business process outsourcing
(BPO).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
insurance software solutions market is highly competitive and demanding. Maintaining a leading position is challenging because it requires:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Development of new core
    insurance solutions, which necessitates a heavy R&amp;D investment and in-depth knowledge of complex insurance environments</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Technology innovation to
    attract new customers, with rapid, technology-driven changes in the insurance business model and new propositions coming</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A global presence and the
    ability to support global insurance operations</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Ability to manage multiple
    partnerships, due to the changing landscape of insurers&#8217; ecosystems</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Extensive knowledge of
    regulatory requirements and how to fulfill them (they can be burdensome and require specific IT solutions)</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Continued support and development
    of the solutions entails a critical mass of customers that support an ongoing R&amp;D investment</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Know-how of insurance system
    requirements and an ability to bridge between new systems and legacy technologies</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Enabling mission-critical
    operations that require experience, domain expertise and proven delivery capabilities to ensure success</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
complex requirements of this market create a high barrier to entry for new players. As for existing players, these requirements have
led to a marked increase in M&amp;A transactions in the insurance software solutions sector, since small, local vendors have not been
able to sustain growth without continuing to fund their R&amp;D departments and following the globalization trend of their customers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens believes that it is
well-positioned to leverage its modern solutions, customer base and global presence to compete in this market and meet its challenges.
In addition, our accumulated experience and expert teams allow us to provide a comprehensive response to the IT challenges of this market.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Different
types of competitors include:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Global software providers
    with their own IP</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Local/domestic software
    vendors with their own IP, operating in a designated geographic market and/or within a designated segment of the insurance industry</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">BPO providers who offer
    end-to-end outsourcing of insurance carriers&#8217; business, including core software administration (although BPO providers want
    to buy comprehensive software platforms to serve as part of the BPO proposition from vendors and may seek to purchase our solutions
    for this purpose)</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Internal IT departments,
    who often prefer to develop solutions in-house</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">New insurtech companies
    with niche solutions</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 61; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->54<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
differentiates itself from its competitors via the following key factors:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens offers cloud-based
    innovative and modern software solutions, with rich functionality and advanced, intuitive user interfaces, based on deep domain expertise
    and insurance know how</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens uses model-driven
    architecture that allows rapid deployment of the system, while reducing total cost of ownership</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217; solutions
    are built using an architecture that allows customers to implement the full solution or components, and readily integrate the solution
    or individual components into their existing IT landscape</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Strong and global partnership
    program, with established IT players and new insurtech companies, to ensure linkage to innovative technologies and new business models,
    as well as ongoing work to embed innovation into Sapiens platforms</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens identifies technology
    trends and invest in adjusting our solutions to keep pace with today&#8217;s frenetic evolutions</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens financial stability,
    and its large and growing global customer base, enables it to fund R&amp;D investment and maintain the competitive advantage of its
    products Sapiens is able to fund R&amp;D investment and maintain the competitive advantage of its products, due to its large and
    growing customer base and financial stability</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens delivery methodology
    is based on extensive insurance industry experience and cooperation with large insurance companies globally. Sapiens track record
    over the past few years in developing a strong offshore development center is also a significant parameter in differentiating our
    abilities in the services space</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Competitive
Landscape for Business Decision Management Solutions</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
Decision is a pioneer in this disruptive market landscape. Since the introduction of our innovative approach to enterprise architecture
to the market, we have identified only a small number of potential competitors.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
differentiates itself from its potential competitors through the following key factors:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens believes that Sapiens
    Decision is the only solution (that is currently generally available and already in production) that offers a true separation of
    the business logic in a decision management system for large enterprises</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens Decision is unique
    in its proven ability to support complex environments, with a full audit trail and governance that is crucial for large financial
    services organizations</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens understands complex
    environments where Decision is deployed, due to its experience delivering complex, mission-critical solutions</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Sapiens
Sales and Marketing</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
main sales channel is direct sales, with a small portion of partner sales. Sapiens&#8217; sales team is spread across its regional offices
in North America, the United Kingdom, Israel, India, Poland, the Nordics, Spain, Singapore, South Africa, Canada, Latvia and Germany.
The direct sales force is geared to large organizations within the insurance and financial services industry.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
believes that its sales teams are sufficiently large to service its target regions &#8211; North America, the UK, Europe and South Africa
&#8211; and to execute sales, while also being assisted by our presales, domain experts and marketing teams. We anticipate that Sapiens&#8217;
sales team will leverage its proximity to customers and prospective clients to drive more business, and offer its services across its
target markets.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"></p><div>

</div><!-- Field: Page; Sequence: 62; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->55<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens&#8217;
customer success teams were focused on building ongoing relationships with existing customers during the past year, to maintain a high
level of customer satisfaction and identify up-selling opportunities within these organizations. Sapiens believes that a high level of
post-contract customer support is important to its continued success.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
part of its sales process, Sapiens typically sell a package that includes a license, implementation, customization and integration services,
and training services. All of Sapiens&#8217; clients for whom it has deployed its solutions elect to enter into an ongoing maintenance
and support contract with Sapiens. Sapiens aims to expand its distribution model to include more channel partners and system integrators,
but it intends to maintain the direct sales model as its prime distribution channel.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 32.4pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
attends major industry trade shows (both physical and virtual) to improve its visibility and its market recognition. Additionally, Sapiens
hosts client conferences&#8211; such as its annual Sapiens Summit/Client Conference, which went virtual in 2020 and 2021, and was in-person
in North America in 2022. In 2023, Sapiens plans to host two client conferences in Barcelona, Spain, and Tuscon, Arizona. Sapiens <span style="background-color: white">continues
investing in its web presence and digital marketing activities to generate leads and enhance our brand recognition.&#160;</span>Sapiens
maintains a blog channel and also invests in its working relationships and advisory services within the global industry-analyst community.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
works together with standards providers&#8211; such as ACORD&#8211; to further enrich its offerings and provide its customers with comprehensive
and innovative solutions that address the entire breadth of their business needs.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Magic
Software</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software is a global provider of: (i) software services and Information Technologies (&#8220;IT&#8221;) outsourcing software services;
(ii) proprietary application development and business process integration platforms; (iii) selected packaged vertical software solutions;
as well as (iv) cloud based services for end to end digital transformation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s software technology is used by customers to develop, deploy and integrate on-premise, mobile and cloud-based business
applications quickly and cost effectively. In addition, its technology enables enterprises to accelerate the process of delivering business
solutions that meet current and future needs and allow customers to dramatically improve their business performance and return on investment.
Magic Software also provides selected verticals with a complete software solution and return on investment.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Based
on its technological capabilities and its specialists, Magic Software enables its clients to respond to rapidly evolving market needs
and regulatory changes, while improving the efficiency of their core operations. Magic Software has approximately 4,161 employees, who
serve its clients at any given time and whose skills and specialization are a significant source of competitive differentiation. Magic
Software operates through a network of over 3,000 independent software vendors, or ISVs, who we refer to as Magic Software Providers,
or MSPs, and hundreds of system integrators, distributors, resellers, and consulting and OEM partners. Thousands of enterprises in approximately
50 countries use Magic Software&#8217;s products and services.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Magic
Software&#8217;s Software Technology Platforms</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Organizations
across all industries are digitally transforming by leveraging software to automate and optimize mission critical operations, enhance
customer experiences, and drive competitive differentiation. Historically, organizations have principally relied on off-the-shelf packaged
software and custom software solutions to operationalize and automate their businesses. Packaged software often fails to address unique
use cases or to enable differentiation. It also requires organizations to adapt their business (processes, systems of record, etc.) to
the software package, as opposed to adapting the software to their unique business needs. While traditional custom software solutions
can be differentiated and tailored to meet strategic objectives, development requires a long, iterative, and cumbersome process, as well
as costly integration that relies on scarce developer talent. We enable organizations to differentiate themselves from their competition
through software-enabled digital transformation.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Throughout
our history, we have traditionally maintained two major lines of products, one is our application development platform, which today is
known as Magic xpa Application Platform, an evolution of our original metadata-based development platform; and the second is our application
integration platform, Magic xpi Integration Platform, originally introduced in 2003 under the name iBOLT. In December 2011, we acquired
the AppBuilder development platform of BluePhoenix Solutions Ltd., a leading provider of value-driven legacy IT modernization solutions.
AppBuilder is a comprehensive application development infrastructure used by many Fortune 1000 enterprises around the world. This enterprise
application development environment is a powerful, model-driven tool that enables development teams to build, deploy, and maintain large-scale,
custom-built business applications. On April 2019, we acquired the SmartUX development platform of PowWow Inc., a leading Low-Code enterprise
mobile development application platform for citizen to professional developers to rapidly design, build, analyze, and run cross-platform
mobile business applications.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
low-code platforms employ an intuitive, visual interface and pre-built development modules that reduce the time required to build powerful
and unique applications. Our platform automates the creation of forms, workflows, data structures, reports, user interfaces, and other
software elements that would otherwise need to be manually coded. This functionality greatly reduces the iterative development process,
allowing for real-time optimization and ultimately shortening the time it takes to design, build, and deploy applications.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
customers leverage our technologies to apply the right automation approach for their specific use case. We believe our unified low-code
platforms are a differentiator in the marketplace. We strive to deeply integrate our capabilities so that they are all interoperable
and low-code making it easier and faster for our clients to address complex use cases, particularly those that involve multiple departments
within an organization.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s software technology platforms consist of:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Magic
xpa Application Platform</b> &#8211; a proprietary low-code application platform for developing and deploying Client Server/Mobile/Web
business applications.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>AppBuilder
Application Platform</b> &#8211; a proprietary low-code application platform for building, deploying, and maintaining high-end, mainframe-grade
business applications.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Magic
xpi Integration Platform</b> &#8211; a proprietary low-code platform for application integration</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Magic xpi cloud native
    </b>&#8211;an environment configurations platform based on Kubernetes focuses on scalability, security and resilience.</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Magic SmartUX</b> &#8211;
    a proprietary low-code enterprise mobile development application platform for citizen to professional developers to rapidly design,
    build, analyze, and run cross-platform mobile business applications.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>FactoryEye</b> &#8211;
    a cloud-based platform pre-packaged but flexible end-to-end data management for manufacturers enabling smooth migration to Industry
    4.0 smart factories. Real-time factory floor visibility and optimization is provided as part of the end-to-end visibility to maximize
    production performance.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Magic Data Management
    and Analytics Platform &#8211; </b>a cloud-based pre-packaged but flexible end-to-end data management platform for all verticals
    enabling smooth digital transformation and full organizational business intelligence</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i><br/>
Magic Software&#8217;s Vertical Software Packages</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s vertical packaged software solutions include:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Clicks&#8482; </b>&#8211;
    offered by its Roshtov subsidiary, Clicks is a proprietary comprehensive core software solution for medical record information management
    systems, used in the design and management of patient-file for managed care and large-scale healthcare providers. The platform is
    connected to each provider clinical, administrative and financial data base system, residing at the provider&#8217;s central computer,
    and allows immediate analysis of complex data with potentially real-time feedback to meet the specific needs of physicians, nurses,
    laboratory technicians, pharmacists, front- and back-office professionals and consumers.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Leap&#8482; </b>&#8211;
    offered by its FTS subsidiary, Leap is a proprietary comprehensive core software solution for BSS, including convergent charging,
    billing, customer management, policy control, mobile money and payment software solutions for the telecommunications, content, Machine
    to Machine/Internet of Things or M2M/IoT, payment and other industries.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Hermes Cargo</b> &#8211;
    offered by its Hermes Logistics Technologies Ltd. subsidiary, the Hermes Air Cargo Management System is a proprietary, state-of-the-art,
    packaged software solution for managing air cargo ground handling. Our Hermes Solution covers all aspects of cargo handling, from
    physical handling and cargo documentation through customs, seamless EDI communications, dangerous goods and special handling, tracking
    and tracing, security and billing. Customers benefit through faster processing and more accurate billing, reporting and ultimately
    enhanced revenue. The Hermes Solution is delivered on a licensed or fully hosted basis. Hermes recently supplemented its offering
    with the Hermes Business Intelligence (HBI) solution, adding unprecedented data analysis capabilities and management-decision support
    tools.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>HR Pulse &#8211; </b>offered
    by its Pilat NAI, Inc. and Pilat Europe Ltd. subsidiaries, Pulse (now in its 10<sup>th</sup> release) is a proprietary tool for the
    creation of customizable HCM solutions quickly and affordably. It has been used by Pilat to create products, such as Pilat Frist
    and Pilat Professional, that provide &#8220;out of the box&#8221; SaaS solutions for organizations that implement Continuous Performance
    and/or Talent Management.&#160;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>MBS Solution</b> &#8211;
    offered by its Complete Business Solutions Ltd. subsidiary, MBS Solution is a proprietary comprehensive core system for managing
    TV broadcast channels.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Nativ &#8211; </b>offered
    by its Menarva Ltd. subsidiary, Nativ is a proprietary comprehensive core system for management of rehabilitation centers.</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">o</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Mobisale &#8211; </b>offered
    by its Mobisoft Ltd. subsidiary, Mobisale is a proprietary comprehensive core system for sales and distribution field activities
    for consumer goods manufacturers and wholesalers.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Magic
Software&#8217;s Professional Software and IT Services</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s software professional services offerings include a vast portfolio of professional services in the areas of infrastructure
design and delivery, application development, technology consulting planning and implementation services, support services, DevOps (Development
&amp; Operations), Mobile, Big Data and Analytical BI, M/F, cloud computing for deployment of highly available and massively-scalable
applications and APIs and supplemental IT outsourcing services to a wide variety of companies, including Fortune 1000 companies, all
in accordance with the professional expertise required, in each case allowing us to create significant value for our clients in managing,
streamlining, accelerating and making their businesses thrive. The talents we provide generally supplement in-house capabilities of our
customers. We have extensive and proven experience with virtually all types of telecom infrastructure technologies in wireless and wire-line
as well as in the areas of infrastructure design and delivery, application development, project management, technology planning and implementation
services.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We&#160;have
substantial experience in end-to-end development of high-end software solutions, beginning with collection and analysis of system requirements,
continuing with architecture specifications and setup, to software implementation, component integration and testing. From concept to
implementation, from application of the ideas of startups requiring the early development of an application or a device, to somewhat
larger, more established enterprises, vendors or system houses who need our team of experts to take full responsibility for the development
of their systems and products. With our ability to draw on our pool of resources, comprised of hundreds of highly trained, skilled, educated
and flexible engineers, we adhere to timelines and budget and work in full transparency with our customers every step of the way to create
a tailor-made and cost-effective solution to answer all of our customers&#8217; unique needs.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
IT services subsidiaries consist of:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Coretech Consulting Group
    LLC</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Fusion Solutions LLC</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Xsell Resources Inc.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->58<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">AllStates Consulting Services
    LLC</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Futurewave Systems, Inc.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">NetEffects, Inc.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The GoodKind Group LLC.</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">CommIT Group</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Comblack Ltd</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Infinigy Solutions</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Shavit Software Ltd.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">OnTarget Group Inc</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Aptonet Inc</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">EnableIT LLC</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Appush Ltd (formerly Vidstart Ltd)</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Magic
Software&#8217;s Partnerships and Alliances</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software continues to build on its existing strategic partnerships that include partnerships with Oracle, JD Edwards, SAP, Salesforce.com,
Microsoft, IBM and SugarCRM to enhance its mobile, integration and cloud offerings.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2018, following an extension of its partnership with Salesforce, Magic Software included new features in its Magic&#160;xpi&#160;4.7
to make the integration between Salesforce and other systems even easier. By collaborating with Salesforce, we are significantly expanding
our partners&#8217; network and maximizing our service offering to customers around the world, enabling them to better serve their customers
via all channels by connecting to back-office ERP and finance applications, and streamlining business processes across numerous applications.
We have reached the status of Salesforce Premier ISV partner, showing our high competence expert level, ensuring that all of our customers
enterprise software is faultlessly integrated.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software is an Oracle Platinum Partner holding an Oracle Validated Integration status, a SAP Channel Gold Partner holding SAP Certified
Integration status, an IBM Server Proven, and a SYSPRO business partner, among others. It appears on the Salesforce AppExchange and are
a featured partner on SugarCRM&#8217;s Sugar Exchange, marketplaces for apps provided by partners. We continue to update and strengthen
our relationships with these major IT partners by attending partner events and by updating and certifying our Magic xpi connectors for
each specific ecosystem.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;In
December 2018, Magic Software achieved Microsoft Gold Competency and has maintained this elite status since then. Gold Competency is
Microsoft&#8217;s highest level of partner certification reserved for the top one percent of Microsoft elite partners worldwide who have
demonstrated expertise and proven skills with a particular Microsoft technology or service. In addition to that, we earned the Co-Sell
Ready Status as a member in the Microsoft One Commercial Partner (OCP) Program. Magic xpi, which maps data, automates business processes
and connects apps, databases, APIs with built-in Microsoft connectors, and Magic FactoryEye, a 100% cloud-native, microservices-based
integration platform are available on the Microsoft AppSource app store and are listed on the Microsoft Azure Marketplace.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
May 2020, Magic Software&#8217;s CommIT Group achieved AmazonAWS SaaS Competency status. AWS SaaS Competency is designated to help customers
find top AWS consulting partners with deep specialization and experience in designing and building software-as-a-service solutions on
AWS. Organizations are interested in software that is easy to use, implement, and operate. They are looking to reduce time-to-value and
obtain access to innovative product features and flexible software procurement on a consumption or contractual basis. AWS SaaS Competency
Partners follow Amazon Web Services (AWS) best practices for designing and building SaaS solutions through their professional services
practices. To qualify for the AWS SaaS Competency designation, organizations have undergone rigorous technical validation by AWS Partner
Solutions Architects and demonstrated proven customer success. In recent years, CommIT Group has successfully led, developed and produced
many SaaS solutions on AWS for companies across many business sectors, including high-tech and startups, industrial and retail, and insurance
and finance. CommIT Group &#8217;s unique, flexible R&amp;D model, which provides complete flexibility in determining the mix of experts,
allows for full control of budgets and schedules throughout the development project. In this framework, We accompany our clients in their
digital journey and in their entry into the SaaS world, providing design and build services for application environments or migration
services for applications from existing models to cloud SaaS models. These processes require software architecture, construction, and
software development from both Digital and SaaS, all of which take into account performance aspects, information security, scalability,
infrastructure monitoring, customer experience and billing. Achieving AWS SaaS Competency status allows us to expand our business offering
and even accompany the organizational change for customers who are in the process of transitioning to SaaS.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Magic
Software&#8217;s Industry Overview</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
recent years, the number of available enterprise applications has grown significantly which has led information system complexity within
many organizations to a level that has obstructed business progress and evolution, reduced business agility and led to significantly
higher costs. We believe this complexity will continue to increase in the future. Although it is not unusual for organizations to operate
multiple applications, systems and platforms that were created utilizing disparate programming languages, the complexity of these environments
typically reduces an organization&#8217;s operating flexibility, hinders decision-making processes and leads to costly inefficiencies
and redundancies. When organizations seek to swiftly change, update and upgrade IT assets to support new business processes or to cope
with changes in business and regulatory environments, they often find that the introduction and integration of new or upgraded business
applications is more complex than expected, requires significant implementation resources, takes a long time to implement and is costly.
The proliferation of smartphones and mobile platforms necessitates device-independent and future-proof business solutions for fast, simple,
and cost-effective mobile deployment. In addition, new cloud computing technologies present enterprises with an opportunity to realize
greater agility and meaningful cost savings to businesses, creating a growing need for further changes to enterprises&#8217; IT applications
and systems.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
pace of digital transformation is also accelerating at companies all around the world. Customers are increasingly demanding an all-digital
experience from the companies they do business with. They seek instant gratification through real-time updates or instant customer service
without having to talk to or wait for other human beings. Employees are also pushing for a more digital experience in their workplaces.
The confluence of these internal and external forces is causing companies of all sizes to put digital transformation goals at the top
of the agenda. It is becoming clearer that companies will need to embrace and prioritize the creation of a digital operating environment
to gain a competitive edge and be able to recruit and maintain a talented employee base.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Manual
coding and application development is a complex and time-consuming process with an end result that is not guaranteed. The process requires
constant iteration as bugs are discovered and new features are integrated. In addition, the communication gap and general disconnect
between developers and end-users are critical shortcomings of manual coding that results in business applications that are less than
ideally designed. Many of these problems can be addressed by low-code and no-code development platforms. The enterprise application development
software market consists of several application development sub-segments and includes large dominant players such as IBM, Microsoft,
Oracle, Salesforce, HP, CA Technologies and Compuware as well as a large number of highly specialized vendors, with focused capabilities
for specific vertical markets. Huge backlogs of enterprise app development work and growing demand for apps coupled with shortage and
expense of skilled programmers, is increasingly leading enterprises to turn to low-code/no-code application development platforms that
democratize the development process and give business users the ability to develop applications themselves with minimal or no assistance
from IT. Through the adoption of business applications, these business users are increasingly looking for ways to automate manual workflows
and become more efficient and effective by reallocating their time to solving more complex business problems. Even IT resources and developers
are using low-code development tools to increase their development speed and reduce backlog. a growing market for low-code/no-code development
platforms.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Although
the market for low-code development platforms is not new by any means, it has certainly started to gain more traction over the past couple
of years and is expected to continue its strong growth due to continued demand for applications and a shortage of skilled developers.
Low-code development is a natural evolution of rising abstraction levels in application development, which will eventually lead to viable
cross-enterprise, highly scalable citizen development and composition of applications. According to market analysts spending on low-code
development technologies (excluding RPA) is expected to grow from $9.6 billion in 2020 to $24.7 billion by 2025, at a CAGR of 21%. Based
on Gartner&#8217;s, Magic Quadrant for Enterprise Low Code Application Platforms, 8 August 2019, by 2024 low-code application platforms
will be responsible for more than 65 percent of all application development activity and three-quarters of large enterprises will be
using at least four low-code development tools for both IT application development and citizen development initiatives. The increasing
need of digitalization and maturity of agile DevOps practices are expected to enhance the use of low-code development platform market
across the globe. Web application is considered as a face of an organization and by using the low-code development platform organizations
can roll out user-defined web-based applications quickly. Instead of writing the programming language for the development of web-based
applications, employees with less development experience can also create sophisticated applications. For those who has relevant experience,
this platform can ease out the daily work chores and can even help them create more custom web-based applications by integrating already
existing digital ecosystems. North America has the presence of several prominent market players delivering low-code development platform
and services to all end users in the region. The US and Canada both have strong economic conditions and are expected to be major contributors
to the growth of the low-code development platform market. The geographical presence, significant research and development (R&amp;D)
activities, partnerships, and acquisitions and mergers are the major factors for the deployment of low-code development platform and
services.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
IT services segment of the market is comprised of a broad array of specific segments such as infrastructure design and delivery, application
development, technology consulting planning and implementation services, support services and supplemental outsourcing services. In addition,
IT professional services include quality assurance, product engineering services and process consulting. The IT services segment is also
undergoing a profound transition, with some key trends that have accelerated recently. Growing demand for mobile and cloud-based applications
as well as Big Data solutions also entails more complex IT development and integration projects which management and implementation require
a higher level of expertise, In addition, the typical software-based projects of IT consulting have been gradually shifting towards software
and technology-driven solutions that can be embedded into clients&#8217; systems, providing ongoing engagement services. This transition
has been accentuated by an underlying change in IT services sourcing processes: the need for a faster go-to-market process as well as
constrained resources in IT departments is resulting in greater influence by specific business units on the purchasing decision as opposed
to the traditional sourcing process. The traditional outsourcing business model of capacity on demand is also transitioning towards a
model of capability on demand. Information technology service buyers are increasingly looking at outcome-driven managed services with
a tighter integration between software, service and infrastructure.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have identified the following trends that are relevant to the markets Magic Software operates in:</span></p><div>

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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Increasingly complex
    business integration</b>: In recent years, enterprises operate multiple applications and platforms, using various programming languages,
    resulting in complex enterprise information systems. Such systems and the ability to swiftly change, update, and upgrade them to
    support new business processes are crucial to the enterprise&#8217;s ability to cope with changes in the business, economic and regulatory
    environment. However, the introduction and integration of new business applications is complex, requires significant time and human
    resources and entails significant and often unpredicted costs. Therefore, enterprises are in need of solutions that will facilitate
    the rapid and seamless deployment of business applications.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Reusing IT assets/enterprise
    applications</b>: In an increasingly dynamic technology, business and economic environment, organizations face mounting pressure
    to continue to leverage their large IT investments in enterprise applications, such as ERP and CRM, while increasing their ability
    to change business processes and support new ones. Tools to support lightweight yet rapid, iterative and modular development methodologies,
    reusable architectures and application life-cycle management are primary drivers for spending on application development worldwide.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Enterprise mobility</b>:
    With the proliferation of smartphones and mobile platforms that support enterprise mobility, enterprise users now expect instant
    access to real-time information, a rich user experience, seamless integration with various enterprise systems and support to multiple
    mobile devices. As such, enterprises need to be able to develop device-independent and robust business solutions for fast and cost-effective
    mobile deployment.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Cloud, Platform-as-a-Service
    and Software-as-a-Service</b>: Cloud, Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) are each becoming a well-established
    phenomenon in some areas of enterprise IT. Cloud-hosted applications continue to grow as alternatives to internally managed systems
    as they deliver greater agility and meaningful cost savings to businesses. In addition, fast time-to-deployment, low cost-of-entry,
    and adoption of pay-as-you-go models drive growing adoption of SaaS applications. In turn, SaaS applications enable the rapid construction,
    deployment and management of some custom-built applications accessed as a service in the cloud. With more SaaS deployments, the need
    for integration tools that bridge the cloud apps with on-premise application increases.</span></td></tr>
  </table><div>
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    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Big Data: </b>The amount
    of digital information that is being generated by enterprises each year, across a number of diverse data sources and formats, is
    growing rapidly. Enterprises are required to retain, process and analyze data to attain meaningful insights and gain competitive
    advantages, and therefore require versatile and flexible tools in order to quickly and reliably process these increasingly large
    amounts of data.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>IT Consulting: </b>The
    typical software-based projects of IT consulting have been gradually shifting towards software and technology-driven solutions that
    can be embedded into clients&#8217; systems, providing ongoing engagement services.</span></td></tr>
  </table><div>
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Sourcing processes:
    </b>The need for a faster go-to-market process as well as constrained resources in IT departments is resulting in greater influence
    by specific business units on the purchasing decision as opposed to the traditional sourcing process. The traditional outsourcing
    business model of capacity on demand is also transitioning towards a model of capability on demand. Information technology service
    buyers are increasingly looking at outcome-driven managed services with a tighter integration between software, service and infrastructure.</span></td></tr>
  </table><div>
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    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Mobility &amp; IT skills
    shortage:</b> Growth in mobility skills demand is outpacing organizations&#8217; ability to keep up, resulting in mobile strategists
    facing a skills shortage across the entire mobility ecosystem, with mobile application development skills in greatest demand. Poor
    availability of skilled staff is driving mobile strategists to outsource many functions across the mobility ecosystem, including
    application development and testing services. The increasing mobility skills gap will force mobile strategists to use a multifaceted
    application development and delivery approach.</span></td></tr>
  </table><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Magic
Software&#8217;s Software Solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s software solutions enable enterprises to accelerate the planning, development, deployment and integration of on-premise,
mobile and cloud business applications that can be rapidly customized to meet current and future needs. Its software solutions and complementary
professional services empower customers to dramatically improve their business performance and return on investment by enabling the cost-effective
and rapid delivery, integration and mobilization of business applications, systems and databases. Its technology and solutions are especially
in demand when time-to-market considerations are critical, budgets are tight, and integration is required with multiple platforms or
applications, databases or existing systems and business processes, as well as for RIA and SaaS applications. Its technology also provides
the option to deploy our software capabilities in the cloud, hosted in a web services cloud computing environment. We believe these capabilities
provide organizations with a faster deployment path and lower total cost of ownership. Magic Software&#8217;s technology also allows
developers to stage multiple applications before going live in production.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Development
communities are facing high complexity, cost and extended pay-back periods in order to deliver cloud, RIAs, mobile and SaaS applications.
Magic xpa, AppBuilder, Magic SmartUX, Magic xpi, Magic FactoryEye, and Magic&#8217;s Data Management and Analytics platformall provide
MSPs with the ability to rapidly build integrated applications in a more productive manner, deploy them in multiple modes and architectures
as needed, lower IT maintenance costs and speed time-to-market. Magic Software&#8217;s solutions are comprehensive and industry proven.
These technologies can be applied to the entire software development market, from the implementation of micro-vertical solutions, through
tactical application modernization and process automation solutions, to enterprise spanning service-oriented architecture, or SOA, migrations
and composite applications initiatives. Unlike most competing platforms, Magic Software offers a coherent and unified toolset based on
the same proven metadata driven and rules-based declarative technology. Its low-code, metadata platforms consist of pre-compiled and
pre-written technical and administrative functions, which are essentially ready-made business application coding that enables developers
to bypass the intensive technical code-writing stage of application development and integration, concentrate on building the correct
logic for their apps and move quickly and efficiently to deployment. Through the use of metadata-driven platforms such as Magic xpa,
AppBuilder, Magic SmartUX, Magic xpi, Magic&#8217;s Data Management and Analytics platformand Magic FactoryEye, software vendors and
enterprise customers can experience unprecedented cost savings through fast and easy implementation and reduced project risk.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s software technology solutions include application platforms for developing and deploying specialized and high-end large-scale
business applications and integration platforms that allow the integration and interoperability of diverse solutions, applications and
systems in a quick and efficient manner. These solutions enable our customers to improve their business performance and return on investment
by supporting the affordable and rapid delivery and integration of business applications, systems and databases. Using our software solutions,
enterprises and ISVs can accelerate time-to-market by rapidly building integrated solutions, deploying them in multiple environments
while leveraging existing IT resources. In addition, our solutions are scalable and platform-agnostic, enabling our customers to build
solutions by specifying their business logic requirements in a commonly used language rather than in computer code, and to benefit from
seamless platform upgrades and cross-platform functionality without the need to re-write applications. its technology also enables future-proof
protection and supports current market trends such as the development of mobile applications that can be deployed on a variety of smartphones
and tablets, and cloud environments. In addition, we also offer a variety of vertical-targeted products that are focused on the needs
and requirements of specific growing markets. Certain of these products were developed utilizing our application development platform.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software sells its solutions globally through its own direct sales representatives and offices and through a broad sales distribution
network, including independent country distributors, independent service vendors that use our technology to develop and sell solutions
to their customers, and system integrators. Magic Software also offers software maintenance, support, training, and consulting services
in connection with our products, thus aiding the successful implementation of projects and assuring successful operation of the platforms
once installed. We sell our integration solutions to customers using specific popular software applications, such as SAP, Salesforce.com,
IBM i (AS/400), Oracle JD Edwards, Microsoft SharePoint, Microsoft Dynamics, SugarCRM and other eco-systems. As such, we enjoy a well-diversified
client base across geographies and industries including oil &amp; gas companies, telecommunications groups, financial institutions, healthcare
providers, industrial companies, public institutions and international agencies.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
underlying principles and purpose of our technology are to provide:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Simplicity </b>&#8211;
    the use of code-free/low code development tools instead of hard coding and multiple programming languages to solve critical and complex
    challenges;</span></td></tr>
  </table><div>
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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Business focus </b>&#8211;
    the use of pre-compiled business logic and components eliminates repetitive, low level technical and coding tasks;</span></td></tr>
  </table><div>
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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Comprehensiveness </b>&#8211;
    the use of a comprehensive development and deployment platform offers a full end-to-end development, deployment and integration capability;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Automation of mundane
    tasks</b> &#8211; to accelerate development and maintenance and reduce risk; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Interoperability </b>&#8211;
    to support business logic across multiple hardware and software platforms, operating systems and geographies.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software offers three complementary application platforms that address the wide spectrum of composite applications, Magic xpa, Magic
SmartUX and AppBuilder. Our Magic xpi integration platform, Magic FactoryEye and Magic&#8217;s Data Management and Analytics platform
deliver fast and simple integration and orchestration of business processes and applications. Our customers operate in a wide variety
of industries, including financial services, life sciences, government, telecommunications, energy and manufacturing.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Magic
xpa Application Platform</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
xpa Application Platform, our metadata driven application platform, provides a simple, low code and cost-effective development and deployment
environment that lets organizations and MSPs quickly create user-friendly, enterprise-grade, multi-channel mobile and desktop business
app that employ the latest advanced functionalities and technologies. The Magic xpa Application Platform, formerly named uniPaaS, was
first released in 2008 and is an evolution of our original eDeveloper product, a graphical, rules-based and event-driven framework that
offered a pre-compiled engine for database business tasks and a wide variety of generic runtime services and functions which was released
in 2001.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software has continually enhanced our Magic xpa application platform to respond to major market trends such as the growing demand for
cloud-based offerings including Rich Internet Applications (RIA), mobile applications and SaaS. Accordingly, we have added new functionalities
and extensions to our application platform, with the objective of enabling the development of RIA, SaaS, mobile and cloud-enabled applications.
SaaS is a business and technical model for delivering software applications, similar to a phone or cable TV model, in which the software
applications are installed and hosted in dedicated data centers and users subscribe to these centers and use the applications over an
internet connection. This model requires the ability to deliver RIA. Magic xpa is a comprehensive RIA platform. It uses a single development
paradigm that handles all ends of the application development and deployment process including client and server partitioning and the
inter-communicating layers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
xpa offers customers the power to choose how they deploy their applications, whether full client or web; on-premise or on-demand; in
the cloud or behind the corporate firewall; software or mobile or SaaS; global or local. Our Magic xpa Application Platform complies
with event driven and service oriented architectural principles. By offering technology transparency, this product allows customers to
focus on their business requirements rather than technological means. The Magic xpa single development paradigm significantly reduces
the time and costs associated with the development and deployment of cloud-based applications, including RIAs, mobile and SaaS. In addition,
application owners can leverage their initial investment when moving from full client mode to cloud mode, and modify these choices as
the situation requires. Enterprises can use cloud-based Magic xpa applications in a SaaS model and still maintain their databases in
the privacy of their own data centers. It also supports most hardware and operating system environments such as Windows, Unix, Linux
and AS/400, as well as multiple databases and is interoperable with. NET and Java technologies.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
xpa can be applied to the full range of software development, from the implementation of micro-vertical solutions, through tactical application
modernization and process automation solutions, to enterprise spanning SOA migrations and composite applications initiatives. Unlike
most competing platforms, we offer a coherent and unified toolset based on the same proven metadata driven and rules based declarative
technology, resulting in increased cost savings through fast and easy implementation and reduced project risk.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic xpa enables organizations
to differentiate themselves from their competition through software-enabled digital transformation. With our platform, organizations
can rapidly and easily design, build and implement powerful, enterprise-grade custom applications through our intuitive, visual interface,
with little or no coding required. Our Solution ensures that applications developed on our platform can be immediately and natively deployed
across a full range of mobile and desktop devices with no additional customization, including desktop web browsers, tablets and mobile
phones. We also enable organizations to easily modify and enhance applications and automatically disseminate these updates across device
types to ensure that all users benefit from the most up-to-date functionality.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Key
benefits of our platform include:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

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    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Powerful applications
    to solve critical and complex challenges</b>.&#160;At the core of our platform is an advanced engine that enables the modeling, modification
    and management of complex processes and business rules. Our heritage provides us with this differentiated understanding of complex
    processes, and we have incorporated that expertise into our platform to enable the development of powerful applications. Organizations
    have used our platform to launch new business lines, build large procurement systems, manage retail store layouts, conduct predictive
    maintenance on field equipment and manage trading platforms, among a range of other use cases.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Rapid and simple innovation
    through our powerful platform</b>. Our platform employs a low-code, intuitive, visual interface and pre-built development modules
    that reduce the time required to build powerful and unique applications. Our platform automates the creation of forms, data flows,
    records, reports and other software elements that would otherwise need to be manually coded or configured. This functionality greatly
    reduces the iterative development process, allowing for real-time application optimization and ultimately shortening the time from
    idea to deployment. In turn, organizations can better leverage scarce and costly developer talent to accomplish more digital transformation
    objectives.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Build once, deploy everywhere</b>.
    Our technology allows developers to build an application once and use it everywhere with the consistency of experience and optimal
    performance levels that users expect. Applications developed on our platform can be immediately and natively deployed across a full
    range of mobile and desktop devices with no additional customization, including desktop web browsers, tablets and mobile phones.
    We also enable organizations to easily modify and enhance applications and automatically disseminate these updates across device
    types to ensure all users benefit from the most up-to-date functionality.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Deployment flexibility
    to serve customer needs</b>. Our platform can be installed in any cloud or on-premises, with organizations able to access the same
    functionality and data sources in all cases. Our flexible deployment model also preserves a seamless path to future cloud deployments
    for organizations initially choosing on-premises for their most sensitive workloads.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s approach to digital transformation goes beyond simply enabling organizations to build custom applications fast. We empower
decision makers to reimagine their products, services, processes and customer interactions with software by removing much of the complexity
and many of the challenges associated with traditional approaches to software development. Because we make application development easy,
organizations can build specific and competitively differentiated functionality into applications to deliver enhanced user experiences
and streamlined business operations.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
February 2018, Magic Software released Magic xpa 3.3 with a more seamless and easier integration with Java, similar to the already existing
integration with. NET, making the Magic xpa platform even more robust. Along with that, Magic Software provided a new WS provider mechanism,
built on Apache Axis2, enhancing our current WCF based capabilities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
April 2018 and for the third consecutive year, Magic Software&#8217;s Magic xpa application development platform gained top market share
in license sales in the Japanese market. According to the &#8220;Market Research for Next Generation Extra-Rapid Development Tools in
2018&#8221; published by MIC Research Institute Ltd., the Magic xpa Application Platform grew 2% achieving a 41% share of the Japanese
market.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2018, Magic Software released Magic xpa 4.0 with its new Angular-based Web application framework that provides developers and
Angular developers with the power to develop device-agnostic and feature-packed Web applications. Magic xpa 4.0 decouples the business
logic from the presentation of the apps providing developers with the flexibility to use the Angular open-source platform with industry-standard
state-of-the-art technologies, including HTML5, CSS, and JavaScript for designer-quality screens, while benefiting from the productivity,
security, and scalability capabilities provided by our low-code development platform.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition, Magic Software further modernized its Integrated Development Environment (IDE) by moving toward a full-fledged Visual Studio-based
studio, offering our users an even more intuitive and user-friendly experience.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">During
2018, Magic xpa was listed in Gartner&#8217;s Market Guide for Application Platforms report. In addition, Magic xpa was listed in the
Forrester Wave&#8482; for Mobile Low-Code Development Platforms.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software 2019 roadmap includes the release of a 64-bit edition of Magic xpa, featuring a full 64-bit runtime engine for Windows and Linux.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2020, Magic Software significantly enhanced its new Angular based web client capabilities, invested more resources in the overall product
stability, provided GIT version control capability as an integral part of expanding its CI/CD overall capabilities, as well as enhanced
its compare and merge functionality under its xpa 4.7 release.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2021 and during 2022, Magic Software moved its Magic xpa platform to be a cloud native platform deployed by a dockers container, thereby
opening the door to its customer to take its applications to be full SaaS products.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>AppBuilder
Application Platform</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">AppBuilder,
a platform we acquired in December 2011, is a proprietary development environment used for managing, maintaining and reusing complicated
applications needed by large businesses. It provides the infrastructure for enterprises worldwide, across several industries, with applications
running millions of transactions daily on legacy systems. Enterprises using AppBuilder can build, deploy and maintain large-scale custom-built
business applications for years without being dependent on any particular technology. The AppBuilder deployment environments include
IBM mainframe, Unix, Linux and Windows. AppBuilder is intended to increase productivity and agility in the creation and deployment of
enterprise class computing.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">AppBuilder
follows the 4GL development paradigm to help enterprises focus on the business needs and definition and overlook technical hurdles. AppBuilder
developers define the business roles and prior to deployment the code is generated from the development environment to the required run
time environment. Several large MSPs have utilized AppBuilder to build state of the art applications that are deployed through many large
customers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">AppBuilder
implements a model driven architecture approach to application development. It provides the ability to design an application at the business
modeling level and generate forward to an application. AppBuilder has a platform-independent, business-rules language that enables generation
to multiple platforms. It is possible to generate the client part of an application as Java and the server part as COBOL. As businesses
change, the server part can be generated as Java without changing the application logic. Only a simple configuration option needs to
be changed.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">AppBuilder
contains everything a development environment needs to create any type of simple or complex business application with platform-independent
functionality, including:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">System administration security
    controls for scope and permissions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Migration, testing, and
    deployment functions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Architecture-independent
    development;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">An integrated toolset for
    designing, developing, and deploying applications;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Object-based components
    managed from host, server, or client repositories;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Support for Java/J2EE,
    COBOL, C#, and C programming languages;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">An efficient, cross-platform
    code generation facility;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Ready-to-use business logic
    and libraries;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A remote prepare facility
    for mainframe development;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Multiple language user
    interface support; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">DBCS support.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Magic
xpi Integration Platform</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
believe data is the most valuable competitive asset today as companies increasingly pursue digital transformation initiatives to modernize
their businesses. Enormous amounts of data are being generated by people, applications, and devices worldwide. Enterprises are seeking
to connect data across their various applications, systems, and IT environments in order to become data-driven businesses. Understanding
and connecting these data assets as well as migrating workloads to the cloud, enables superior insights across the business organization,
better service of customers, automation of supply chains, and the democratization of secure, governed data access for all employees.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
rise of cloud computing, low-cost data storage and the proliferation of applications that generate and access data, combined with the
increasing volume of data from mobile, social and IoT, is resulting in an explosion of the volume, variety, and velocity of data. According
to a March 2021 report from IDC, &#8220;The amount of digital data created over the next five years will be greater than twice the amount
of data created since the advent of digital storage.&#8221; This new data creates opportunities to generate greater business insights
and pursue new market opportunities, but is overwhelming for organizations to manage, aggregate, and normalize. As enterprises undertake
the massive transition to cloud, we believe a majority of their workloads will remain on-premises for the foreseeable future due to the
mission-critical processes they support. The complexity of this hybrid world will be further exacerbated as enterprises also employ multi-cloud
strategies. According to IDC, &#8220;82% of organizations are currently using multiple clouds - or plan to within the next 12 months.&#8221;
As a result, we expect enterprises will require new technologies purpose-built to connect, analyze, manage, and normalize data anywhere
it resides using modern, cloud-native architectures that can seamlessly be deployed in any IT environment.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s Magic xpi integration platform (an evolution of its original and formerly branded iBOLT platform, launched in 2003)
is a graphical, wizard-based code-free solution delivering fast and simple integration and orchestration of business processes and applications.
Magic xpi allows businesses to more easily view, access, and leverage their mission-critical information, delivering true enterprise
application integration, or EAI, business process management, or BPM, and SOA infrastructure. Increasing the usability and life span
of existing legacy and other IT systems, Magic xpi allows fast EAI, development and customization of diverse applications, systems and
databases, assuring rapid return on invested capital and time-to-market, increased profitability and customer satisfaction.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
xpi allows the integration and interoperability of diverse solutions, including legacy applications, in a quick and efficient manner.
In January 2010, we released Magic xpi 3.2 and since then we have continued to develop the Magic xpi channel. We entered into agreements
with additional system integrators, consultancies and service providers, who acquired Magic xpi skills and offer Magic xpi licenses and
related services to their customers. We also offer special editions of Magic xpi with optimized and certified connectors for specific
enterprise application vendor ecosystems, such as SAP, Oracle JD Edwards, Microsoft SharePoint and Salesforce.com. These special editions
contain specific features and pricing tailored for these market sectors.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt; background-color: white"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Data
engineers, Extract-Transform-Load (ETL) developers, and citizen integrators have the ability to use our platform to ingest, transform
and integrate data spanning departmental to enterprise scale workloads. These workloads include diverse and distributed data sources
in multi-cloud, hybrid environments. The breadth and depth of our data integration capabilities accelerate the aggregation and processing
of data to ready it for analytics, data science and enterprise reporting initiatives. Leveraging a simple graphical design experience,
users can develop workloads across ETL, Extract-Load-Transform (ELT), real-time and streaming data integration patterns. Our platform
is designed to integrate structured and unstructured data across on-premises and cloud-native applications, databases, business intelligence
tools, data modeling tools, data lakes, data warehouses, mainframes, messaging systems, file systems and IoT devices. Our data-lake architecture
allows data stewards and business analysts to create an authoritative single-source view of all business-critical data from internal
and external sources across multiple data domains, including customers, locations, assets, and employees and many other domain types.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software&#8217;s heritage as a veteran player in the integration market provides it with a differentiated understanding and ability to
automate complex processes, and Magic Software has incorporated that expertise into our platform to enable the development of powerful
business software. Magic xpi can leverage a complete stack of automation technologies, applying the right automation approach for each
specific use case.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Key
benefits of Magic Software&#8217;s platform include:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Business Process Management</b>.
    At the core of our platform is an advanced engine that enables the modeling, modification and management of complex processes. This
    engine enables orchestration of any business workflow.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Decision Rules</b>.
    Appian includes a declarative environment for defining and executing business logic or rules. These rules can be highly complex and
    can be applied within the Appian platform to many use cases, ranging from automated decision making to user experience personalization.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Seamless integration
    with existing systems and data</b>.&#160;In contrast to typical enterprise software, our platform does not require that data reside
    within it in order to enable robust data analysis and cross-department and cross-application insight. Our platform seamlessly integrates
    with many of the most popular enterprise software applications and data repositories and can be used within many legacy environments.
    For example, organizations frequently use our platform to extend the life and enhance the functionality of legacy systems of record,
    such as those used for enterprise resource planning, human capital management and customer relationship management, by building new
    applications that enhance the functionality of those systems and by leveraging the data within those systems to further optimize
    and automate operations.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Embrace the full benefits
    of the public cloud. </b>Our platform helps customers to accelerate the migration of their on-premises workloads to the cloud. Our
    platform modernizes our customers&#8217; applications and data management capabilities to accelerate migrations to the cloud, allowing
    them to embrace innovation, create digital-first business models, reduce operating costs, and generate new revenue streams.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Deliver rich 360-degree
    business experiences.</b> By enabling our customers to aggregate, consolidate and normalize their data to build a single source of
    truth, we empower them to deliver highly engaging and personalized customer experiences. This allows our customers to embrace a digital-first
    business strategy, build better connections and relationships with their end users, and modernize their supply chains by intelligently
    matching supply with demand patterns.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
the aggregate, these core capabilities enable Magic to automate and govern end-to-end processes. Magic complements these automation technologies
with related features like process reporting, analytics and management, which make it simple for organizations to quickly improve and
upgrade their automations as business needs change.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2018, Magic Software released Magic xpi version 4.7 with a new OData Provider connector, Active Directory Federation Services (ADFS)
support for the SharePoint Online (MOSS) connector, ability to write new connectors based on Magic xpa Application Platform&#8217;s runtime
technology and multiple features to improve programming productivity, such as visual indicators of data flow status and an enhanced monitor
to provide an even more accurate bird&#8217;s eye view of all running projects.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
October 2018, Magic Software announced that Magic xpi Integration Platform 4 achieved SAP-certified integration with SAP S/4HANA, enabling
our customers to optimize business processes through automation across leading ERP, CRM, finance, and other enterprise systems using
a single platform.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
February 2019, Magic Software released Magic xpi version 4.9 with a new REST client connector, ODATA connector enhancements, inherent
UPSERT support in the data mapper, and built-in cloud support.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2019, Magic Software released Magic xpi version 4.11, enabling access to remote connectors residing at another site, without the
need for a VPN (aka &#8216;Local Agent&#8217; capability). In addition, in the beginning of 2020 we released the major released Magic
xpi 4.12, which includes 64-bit support for our Run-Time engine as-well as integration with one of the industry&#8217;s API management
solutions suites. During 2019, we also released additional features pursuant to customer requests.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2020, Magic Software enhanced the above Local Agent capability with more functionality, added additional connectors (e.g., OPC for manufacturing)
and invested more resources in the overall product stability. In addition, Magic Software has added various features to the platform
to expand its product offering, per customer requests and extended its offering adding EDI capabilities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2021, Magic Software enhanced Magic xpi Local Agent capabilities with more functionalities, added additional connectors (e.g., OPC for
manufacturing) and invested more resources in the overall product stability. In addition, Magic Software moved its Magic xpi platform
to be a cloud native platform deployed by dockers container.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2022, Magic Software continued to expand its product offering with additional features, per customer requests. In March 2023 Magic Software
launched Magic xpi Cloud Native, allowing shifting xpi integration projects to the cloud smoothly. The xpi Cloud Native environment configurations
based on Kubernetes, focuses on scalability, security, and resilience. The deployment process is made effortless with our new &#8220;Cloud
Manager&#8221;. Cloud Manager interface hides all the complexities of cloud deployment and clustering and performs all the heavy lifting
through easy to use and intuitive set of Rest API&#8217;s. These APIs also bring agility and efficiency to organizations CI/CD practices
via &#8220;Continuous Deployment&#8221; capabilities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Magic
SmartUX</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
SmartUX, a platform Magic Software acquired in April 2019, is a low-code development platform for mobilizing and modernizing enterprise
business application designed for citizen to professional developers to rapidly design, build, analyze, and run cross-platform mobile
business applications.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Magic SmartUX platform addresses the three biggest challenges enterprises are facing in the road to Digital Transformation:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Multi-platform: end client
    devices are abundant and diverse, we provide an omni-channel solution. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Many Systems of Record:
    over the years enterprise adopted (home grown and third party) solutions that scattered the business flow over many different system,
    Magic SmartUX enable the enterprise to expose complex business flows to modern technology with now changes and overhead to the existing
    working applications.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Talent Gap: Mobile and
    integration are the hardest skillsets for IT orgs to find, with the Magic SmartUX platform addressing Citizens Developers, we allow
    any intern tech savvy individual to deliver complex and robust Mobile business application.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>FactoryEye</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
May 2019, Magic Software launched the release of FactoryEye, a proprietary high performance, low-code, flexible, cloud platform built
specially for manufacturers based on a modern architecture enabling advanced manufacturing and organizational intelligence, real-time
virtualizations and actionable insights for cross- organizational effectiveness and increased bottom line. Magic Software has hundreds
of manufacturing customers, and drew on over 35 years of manufacturing experience to develop FactoryEye.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
product&#8217;s intuitive and user-friendly workspace empower manufacturers by providing all the analysis the report they need in order
to make faster and smarter decisions based on real time data and analytics. This translates into improved productivity, faster delivery
times, and better control over the manufacturing processes, leading to increased customer satisfaction and higher profit margins. FactoryEye
offers dozens of prebuilt connectors to a range of enterprise applications and MRP systems, such as SAP, JD Edwards, and Infor, as well
as MES, CRM, and PLM systems. FactoryEye collects real-time data from existing machinery, operational and organizational systems and
transforms it into actionable intelligence for immediate results and continuous improvement in the manufacturing process and operational
efficiency. The solution brings the benefits of Industry 4.0 connectivity to mid-sized manufacturers in several industry verticals, including
automotive parts, food &amp; beverage, medical devices, metal processing, packaging, plastics &amp; rubber specialty manufacturing and
more.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
addition of FactoryEye to Magic Software&#8217;s software portfolio allows Magic Software to provide to its new and existing manufacturing
clients, with a comprehensive Industry 4.0 digital transformation solution and aligns with Magic Software strategy of enhancing its portfolio
with enterprise grade technologies.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FactoryEye&#8217;s
end-to-end solution incorporates several key features:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Powered by Magic Software
    plug and play IIoT Integration platform.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Incorporates advanced analytics
    and AI into decision support </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Promote centralized visibility
    across operations</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Access to information necessary
    to quickly make smart decisions</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Flexible, simplified and
    incremental digital transformation </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Increased equipment productivity
    and operational efficiency </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Improved machine uptime
    and reduced maintenance costs</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Leverages
investments and allows quick ROI by integrating existing systems</span></p></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition to offering a dynamic cloud-based software solution, FactoryEye manufacturing consultants work with customers to harmonize their
systems and fit the right tools for their needs. Consultants analyze business processes for what is working, formulate a plan to add
what is missing from existing systems and create sprints to deliver immediate results. A dynamic cycle of data collection and analysis
allows for continuous improvement and flexibility in the optimization process.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Since
its launch, Magic Software made a targeted effort to reach mid-sized manufacturers who are looking to improve the efficiency of their
factories. Our goal is to position FactoryEye as a solution that offers more than mere factory floor visibility through IIoT connectivity,
while remaining more cost effective and customizable than offerings from &#8220;Tier 1&#8221; companies. To that end, Magic Software
has built a new website for FactoryEye, as well as blogs, whitepapers, e-books public relations activities, exhibitions and events, round
tables and on-line campaigns , all in the purpose of increasing the awareness of this new offering and benefits for mid-sized manufacturers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FactoryEye
brings the benefits of Industry 4.0 to mid-sized manufacturing companies, with an easy, affordable, and flexible approach that does not
require changing existing systems and infrastructure. This Industry 4.0 solution captures vast amounts of production data, transforms
it into actionable intelligence, and empowers workers, managers and executives to make informed decisions in real-time.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition, we continue to market Magic Software&#8217;s application and integration products. These products continue to provide value
and convenience for our customers as low code options to integrate their disparate systems.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Magic
Software Vertical software solutions</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Clicks&#8482;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software Roshtov subsidiary has approximately three decades of proven experience based on its proprietary comprehensive core software
solution for medical record information management systems, using in the design and management of patient-file for managed care and large-scale
healthcare providers. The platform, which can be tailor-made to the specific needs of the healthcare provider, is connected to the clinical,
administrative and financial data base system, residing at the provider&#8217;s central computer, and allows immediate analysis of complex
data with potentially real-time feedback to meet the specific needs of physicians, nurses, laboratory technicians, pharmacists, front-
and back-office professionals and consumers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">All
of our clients that buy or subscribe to our Clicks software solution also enter into software support agreements with us for maintenance
and support of their medical record management systems. In addition to immediate software support in the event of problems, these agreements
allow clients to access new releases covered by support agreements. In addition, each client has 12-hour access, six days a week (6 hours
on Friday) to the applicable call-center support teams.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->71<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
employ a team of 35 research and development specialists that together with our clients create a future where the health care system
works to improve the well-being of individuals and communities. Roshtov&#8217;s proven ability to innovate has led to what we believe
to be an industry leading architectures and a breadth and depth of solutions and services.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">There
are four healthcare service providers in Israel, of which, Maccabi Healthcare Services and Clalit, which are the two largest healthcare
providers in Israel accounting for 77% of the Israeli market, have been our customers since the early 1990&#8217;s.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Leap&#8482;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
FTS subsidiary has over 20 years of BSS experience, based on dozens of projects delivered to customers worldwide. We implement revenue
management and monetization solutions in mobile, wireline, broadband, MVNO/E, payments, e-commerce, M2M / Internet of Things, mobile
money, cable, cloud and content markets under the brand name of Leap&#8482;. Our Leap&#8482; solutions lower the total cost of ownership
(TCO) for telecom, content and payment service providers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FTS
works with telecommunications, content and payment service providers globally to help them manage complex transactions and relationships
with greater flexibility and independence. Analyzing transactions from a business standpoint, FTS offers end-to-end and add-on telecom
billing, charging, policy control and payments solutions to customers worldwide, and services both growing and major providers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FTS
targets mid to lower level tier service providers, supporting their BSS needs with end-to-end, turnkey billing and other BSS projects.
In addition, FTS offers upper-tiers of service providers with BSS and monetization solutions for specific needs, including policy control
and charging solutions, M2M billing, billing for content services, MVNE/MVNO billing, mobile money software solutions, payment and mobile
financial services solutions and others.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
Leap&#8482; offering is comprised of:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Leap&#8482;
BCCF (Business Control and Charging Function) &#8211; a proprietary packaged software solution which serves as the underlying foundation
of our Leap&#8482; products and solutions. Leap BCCF enables service providers to handle the aspects of event processing, from defining
the system&#8217;s business logic, through importing events and formatting, to charging and executing business rules. With Leap BCCF,
new services are deployed on the fly, and strategic business rules are formulated more easily, ensuring real-time responses to both service
and customer-related events and providing a baseline for policy control.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Leap&#8482;
Billing 6.3 &#8211; a convergent charging, billing and customer care solution that realizes substantial reductions in OPEX and CAPEX
while increasing customer satisfaction and retention. Leap Billing software&#8217;s flexibility and ease of use enables the service providers&#8217;
billing platform to work more at the speed of marketing by offering new marketing plans or services in a rapid time-to-market.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Leap&#8482;
Policy Control <b>- </b>Leap Policy Control is an integrated charging and policy control solution (a full PCC solution based on PCRF
&amp; online/offline charging). Compliant with the 3GPP&#8217;s Diameter policy control standard, Leap Policy Control provides traffic
and subscriber management strategies. Leap Policy Control gives operators the power to monitor usage in real time and, using fully configurable
business rules, define how they manage network resources, applications, and subscribers &#8211; in real time &#8211; while generating
revenue from personalized mobile applications, content and services. Leap Policy Control can be implemented as a stand-alone solution
or as part of a larger BSS project implementation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FTS
Express&#8482; <b>- </b>FTS express&#8482; is an all-in-one software appliance for online charging, billing, AAA, balance management,
customer care, policy control and interconnect, designed for entry-level operations of MVNOs, LTE, VoIP, ISP, broadband, IPTV and more.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following is a sample of the monetization solutions offered by FTS:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">End-to-end, turnkey billing
    and customer care solutions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Convergent, online charging
    and billing;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Policy control and charging;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->72<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">MVNO/E billing;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Billing for content;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Interconnect billing;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">M2M / IoT billing;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Broadband and multi-play
    billing;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Mobile money solutions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">E-commerce and M-commerce
    solutions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Payments and mobile payments
    solutions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Smart revenue sharing and
    partner management solutions; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Billing service bureau.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FTS&#8217;s
solutions are delivered via cloud, on-premises or in a fully managed-services mode and are backed by our Israel and Bulgaria-based experienced
professional services support team.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>HR
Pulse</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Now
in its 10<sup>th</sup> release, HR Pulse is a proprietary platform that creates and customizes software applications for HCM, with the
goal to combine technology with effective processes, to facilitate the collection, analysis and interpretation of quality data about
people, their jobs and their performance, to enhance HCM decision making, resulting in increased organizational efficiency and effectiveness.
HR Pulse addresses four distinct functional areas with the ability to also work as one consolidated system:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Performance and goal management:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Development management;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Talent management and succession
    planning; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Compensation and merit
    review.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
offering includes customizable &#8220;out of the box&#8221; HCM SaaS Solutions, such as Pilat Frist and Pilat Professional, that provides
a menu of templates that can be used to affordably and expeditiously create customized HCM solutions for companies. The HR Pulse platform
promotes the building and implementation of solutions that address broader business challenges as well. Such offerings include 360-degree
feedback, employee surveys, leadership and management development, coaching and job evaluation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Hermes
Cargo</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Hermes
has been developing and evolving cargo management systems for the air cargo industry since 2002. Hermes Air Cargo Management System is
a proprietary, state-of-the-art, packaged software solution for managing air cargo ground handling. Our Hermes Solution covers all aspects
of cargo handling, from physical handling and cargo documentation through customs, seamless EDI communications, dangerous goods and special
handling, tracking and tracing, security and billing. Over the last 10 years Hermes systems have been implemented in over 70 terminals
on five continents, providing efficient and accurate handling of more than 5 million tons of freight annually. Customers benefit through
faster processing and more accurate billing, reporting and ultimately enhanced revenue. Customers include independent ground handlers,
airlines with a cargo arm, hubs belonging to an individual airline or those catering to a number of airlines transiting cargo to additional
destinations. The Hermes Solution is delivered on a licensed or fully hosted basis.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Hermes
systems are built with the specific needs of air cargo handlers and airlines in mind and are amongst the most versatile and sophisticated
around. Hermes Solutions are focused on maximizing customer profits by streamlining ground handling processes and employing built-in
best practices to reduce handling errors. Hermes team of cargo experts carry out a full business analysis, listen to our customers&#8217;
requirements, suggest additional functionality and work with them to deliver an air cargo management solution that is streamlined around
their processes and customized to their needs. Hermes works with everyone from smaller cargo handlers to large airlines all over the
world and counts Menzies Aviation, WFS (FRA), Luxair, Etihad Airport Services and Frankfurt Cargo Services among their customers.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Nativ
</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Offered
by Magic Software&#8217;s Menarva Ltd subsidiary, Nativ is the leading system for efficient management of all types of rehabilitation
centers. Selected by many of the largest rehabilitation and treatment centers in Israel, Nativ serves as a comprehensive solution, the
largest and most specialized and equipped system in Israel, with all the capabilities required for operating all aspects of organizations
engaged in rehabilitation and treatment. professional software and IT services. From rehabilitation programs to recruitment, Nativ enables
control of all levels of rehabilitation bodies, including monitoring detailed rehabilitation plans, finance, collection, account management,
recruitment, working hours, asset management, employment and medical files.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition, Nativ also contains many integral interfaces, including the Israel&#8217;s Ministry of Health&#8217;s suppliers portal, Israel&#8217;s
Ministry of Welfare&#8217;s suppliers portal, rent transfers from the Israel&#8217;s Ministry of Housing, accounting systems, payroll
systems and more. The system produces a wide range of reports, including a receipt report from Israel&#8217;s Ministry of Health, Welfare,
Economy and Security, comprehensive and detailed information divided into units and services, a detailed living allowance report, patient
report, condition report, emergency report and more.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Menarva
has extensive experience gained in its work over the past 10 years with dozens of clients in Israel, an experience that has given rise
to in-depth insights into the field of rehabilitation. Nativ is supported by the cloud and allows connection at any time and from any
place for maximum efficiency, including a mobile application for continuous monitoring of field personnel in real time.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Nativ
offers maximum survivability, due to the need for high reliability and comprehensive information security, all infrastructure is owned
by Menarva and the system complies with all standards and guidelines of Israel&#8217;s Privacy Protection Authority, including ISO standards:
Standard 9001 for Quality Control, and Standard 27001 for information systems development.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Magic
Software Product Development</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Magic
Software place considerable emphasis on research and development in order to improve and expand the functionality of our technologies
and to develop new applications. We believe that our future success depends upon our ability to maintain our technological leadership,
to enhance our existing products and to introduce new commercially viable products addressing the needs of our customers on a timely
basis. We also intend to support emerging technologies as they are introduced in the same way we have supported new technologies in the
past. We will continue to devote a significant portion of our resources to research and development. We believe that internal development
of our technology is the most effective means of achieving our strategic objective of providing an extensive, integrated and feature-rich
development technology. For significant version release see &#8220;Magic&#8217;s Software Solutions&#8221; discussed above.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 36pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Magic Software Product-Related
Services</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Professional Services</i><b>.</b>
Magic Software offer fee-based consulting services in connection with installation assurance, application audits and performance enhancement,
application migration and application prototyping and design. Consulting services are aimed at generating both additional revenues and
ensuring successful implementation of Magic xpa, Appbuilder, Magic xpi, Magic BusinessEye, SmartUX and FactoryEye projects through knowledge
transfer. As part of management efforts to focus on license sales, our goal is to provide such activities as a complementary service to
our customers and partners. We believe that the availability of effective consulting services is an important factor in achieving widespread
market acceptance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Services are offered as separately
purchased add-on packages or as part of an overall software development and deployment technology framework. Over the last several years,
we have built upon our established global presence to form business alliances with our MSPs that use our technology to develop solutions
for their customers, and distributors to deliver successful solutions in focused market sectors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Maintenance. </i>We offer
our customers annual maintenance contracts providing for unspecified upgrades and new versions and enhancements for our products on a
when-and-if-available basis for an annual fee.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Customer Support.</i> We
believe that a high level of customer support is important to the successful marketing and sale of our products. Our in-house technical
support group provides training and post-sale support. We believe that effective technical support during product evaluation as well as
after the sale has substantially contributed to product acceptance and customer satisfaction and will continue to do so in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We offer online support systems
for our MSPs and end users, providing them with the ability to instantaneously enter, confirm and track support requests through the Internet.
These systems support MSPs and end-users worldwide. As part of this online support, we offer Support Knowledge Base tools providing the
full range of technical notes and other documentation including technical papers, product information, and answers to most common customer
queries and known issues that have already been reported.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Training. </i>We conduct
formal and organized training on our development tools and packaged software solutions. We develop courses, pertaining to our principal
products and provide trainer and student guidebooks. Course materials are available both in traditional, classroom courses and as web-based
training modules, which can be downloaded and studied at the student&#8217;s own pace and location. The courses and course materials are
designed to accelerate the learning process, using an intensive technical curriculum in an atmosphere conducive to productive training.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Magic Software IT Services</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Background</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The core of our growth strategy
is to serve as a one-stop-shop for our clients, helping them accelerate their digital transformation to enhance competitiveness, grow
profitability and deliver sustainable stakeholder value. We use our deep industry and functional expertise to help clients capture more
growth and solve a diverse set of business challenges, including identifying and developing new products and services; improving sales
and customer experience; optimizing cost structures; maximizing human performance; harnessing data to improve decision-making; mitigating
risk and enhancing security; shaping and delivering value from large-scale cloud migrations; and digitizing manufacturing and operations
with smart, connected products and platforms.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Technology is the single biggest
driver of change in companies today. We help our clients use technology to build their digital core to drive enterprise-wide transformation&#8212;such
as moving them to the cloud, leveraging data and artificial intelligence, and embedding security and sustainability across the enterprise;
by transforming their operations; and by accelerating their revenue growth. We leverage our scale and global footprint, innovation capabilities,
and strong ecosystem partnerships, together with our platforms including to consistently deliver tangible value for our clients.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Despite the potential impacts
of the Omicron variant, economic recovery is expected to continue to boost technology investments, with high expectations for digital
market prosperity. While according to Gartner, worldwide IT spending was expected to grow by 5%-6% in 2021, it actually grew by over 9%,
and is expected to continue to grow, by 5.1% in 2022 (see https://www.gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five-
point-1-percent-in-2022, which is not incorporated by reference into this annual report).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our IT services offerings
consist of a variety of professional services that can be grouped into integration and other IT services. Our integration services include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; font-size: 10pt; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-size: 10pt"><b>Infrastructure analysis, design and delivery</b> - management of complex, tailor-made projects and telecom infrastructure projects in wireless and wire-line as well as IT consulting services, mainly for the defense and public sectors.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; font-size: 10pt; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-size: 10pt"><b>Technology consulting and implementation services </b>- planning and execution of end-to-end, large-scale, complex solutions in networking, cyber security, command &amp; control and high performance transaction systems.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; font-size: 10pt; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-size: 10pt"><b>Application development </b>- We specialize in end-to-end projects that feature an array of technologies, from development and implementation of concepts for startups to overall responsibility for the development of systems for large enterprises. Our development services include development of on-premise, mobile and cloud applications as well as Embedded and real time software development.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software is a talent-
and innovation-led organization with approximately 4,161 people as of December 31, 2022, who serve our clients at any given time and whose
skills and specialization are a significant source of competitive differentiation. With approximately 3,500 experts, the majority of whom
are in the U.S, Israel and Europe, and hundreds of projects gone live in a variety of advanced technologies, we have developed significant
expertise and accumulated vast experience in integration projects. Such projects are typically more complex and require a high level of
industry knowledge and highly skilled professionals. Our integration expertise, as well as our global reach allows us to deliver comprehensive,
value added services to our customers. Our IT services customers include major global telecoms, OEMs and engineering, furnish and installation
service companies.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Strategic Consulting and Outsourcing Services</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software provides a
broad range of IT consulting services in the areas of infrastructure design and delivery, application development, technology planning
and implementation services, cloud computing, as well as supplemental outsourcing services. Our wholly-owned subsidiaries, Fusion Solutions
LLC, Xsell Resources Inc., Allstates Consulting Services LLC, Futurewave Systems, Inc., NetEffects, Inc, OnTarget Group, Inc, the CommIT
Group, Infinigy Solutions LLC., The Goodkind Group LLC., EnableIT LLC, Comblack Ltd. and Shavit Software (2009) Ltd. provide advanced
IT consulting and outsourcing services to a wide variety of companies including Fortune 1000 companies. Our technical personnel generally
supplement the in-house capabilities of our customers. Our approach is to make available a broad range of technical personnel to meet
the requirements of our customers rather than focusing on specific specialized areas. We have extensive knowledge of and have worked with
virtually all types of wireless and wireline telecom infrastructure technologies as well as in the areas of infrastructure design and
delivery, application development, project management, technology planning and implementation services. Our consulting partners come from
a wide range of industries, including finance, insurance, government, health care, logistics, manufacturing, media, retail and telecommunications.
With an experienced team of recruiters in the telecom and IT areas and with a substantial and a growing database of telecom talent, we
can rapidly respond to a wide range of requirements with well qualified candidates. Our customer list includes major global telecoms,
OEMs and engineering, furnish and installation service companies. We have built long-term relationships with our customers by providing
expert telecom talent. We provide individual consultants for contract and contract-to-hire assignments as well as candidates for full
time placement. In addition, we configure teams of technical consultants for assigned projects at our customers&#8217; sites.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->76<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Michpal</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Michpal, an Israeli registered
company, is a developer of proprietary, on-premise payroll software solution for processing traditional payroll stubs to Israeli enterprises
and payroll service providers. Michpal also developed several complementary modules such as attendance reporting, which are sold to its
customers for additional fees. As of December 31, 2022, Michpal group serves more than 8,000 customers, most of which are long-term customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As part of its payroll software
solution, Michpal allows the preparation of employee paychecks, pay statements, supporting journals, summaries, and management reports
and supports monthly and year-end regulatory and legislative payroll tax statements and other forms such as payroll social and income
taxes, to its clients and their employees. In addition, Michpal enables its clients to connect to certain major enterprise resource planning,
or ERP, applications with a certified connector.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2018, Michpal released
its new product and a new service line &#8211; &#8220;Michpal Pension&#8221; and &#8220;Michpal PensionPlus&#8221;, respectively, which
led to a 25% increase in revenues of Michpal year over year. These solutions enable all Israeli employers to digitally report their employees&#8217;
pension fund payments to their respective pension funds as required by Israeli law (this requirement took effect on February 1, 2018 for
employers who employ more than 21 employees, on February 1, 2019 for employers who employ more than 10 employees, on February 1, 2023
for employers who employ more than 3 employees and on February 1, 2024 also for employers who employ less than 3 employees).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 2018, Michpal
expanded its business through the acquisition of an 80% share interest in Effective&#160;Solutions Ltd., an Israeli company that provides
consulting services in the fields of operational cost savings and procurement, as well as salary control and monitoring. The two companies
have launched, in November 2018, a new service called &#8216;Michpal YEDA&#8217;, adopted by more than 50% of Michpal&#8217;s customers,
which allows clients to consult with team of experienced professionals, including employment attorneys and HR experts, with respect to
payroll, labor, pensions, social security and employee income tax matters.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2019, Michpal launched
a supplement service line, &#8220;Michpal 360&#8221;, specially tailored for payroll service providers, allowing them to offer their clients
to digitally report their employees&#8217; pension fund payments to their respective pension funds as required by law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 2019, Michpal
completed its second acquisition, acquiring all of the share capital of Unique Software Industries, an Israeli software development and
services company, which during its 30 years of operations, has provided integrated solutions in the field of payroll, including pay-stubs,
pension services management, education funds management, and software solutions for managing employee attendance. The acquisition constituted
an additional strategic move towards the expansion of our operations in the field of payroll and human resources management in which we
currently engage primarily through the Michpal group. Following the acquisition of Unique, we started operating in the complementary field
of outsourced payroll services, in which we were not active and will allow us to penetrate the field of services bureaus, by way of expanding
our present customer base.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2020, Michpal completed
the acquisition of 70% of the share capital of Liram Finance Software Ltd, a provider of proprietary integrated specialized management
systems in the field of financial accounting, taxation and compliance, for accounting professionals (accountants and tax consultants),
bookkeepers, controllers, and CFOs, giving its clients, for more than 35 years, complete confidence in their actions and decisions. Liram&#8217;s
solutions include specialized financial software solutions for preparation and reporting of financial statements, tax declarations, single-entry
and double-entry bookkeeping. fixed asset management and depreciation calculations (under the brand name Ram-Nihul).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2021, Liram launched its
&#8220;RamPlus 360&#8221; platform, which is a modular platform offering a wide range of Liram&#8217;s software solutions under one integrated
working environment (on-premise or online). The new platform has already proven its efficacy during the COVID-19 crisis by enabling financial
professionals to continue their work offsite and provide crucial real-time and personalized service to their clients even during the COVID-19
lockdown period, while saving time and preventing errors. We believe that the acquisition of Liram is a strategic step towards the expansion
of Michpal&#8217;s operations in the field of payroll, human resources and financial management and compliance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2022, Michpal launched its digital
employee payroll portal - for employer and employee. The portal allows employees 24X7 access to view their pay stubs and payroll tax history,
update their profile information such as their mailing address, phone number, and email address, get notification directly from their
employer on every monthly salary payment and extract administrative reports including employee&#8217;s monthly attendance reports.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In February 16, 2022, Michpal acquired 70% of
the share capital of Formally Smart Form System Ltd. (&#8220;Formally&#8221;). Formally is an Israeli-based company and the creator of
Formally Smart Form platform &#8211; a central server platform for managing knowledge and work processes, and for producing digital forms
combined with a legally-binding eSignature technology allowing customers to create impressive documents in minutes and get them signed
in a snap. Formally offers a variety of proprietary computerized and advanced tools for managing business processes trusted by Israel&#8217;s
largest financial, banking, and insurance enterprises. Its &#8220;no-code&#8221; platform, allows to convert outdated forms into a digital
process for any company freeing IT teams from ongoing maintenance issues and enables employees across the organization to deliver new
digital products quickly and efficiently.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>InSync</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InSync is a US based national
supplier of employees to Vendor Management Systems (VMS) Workforce Management Program accounts. InSync specializes in providing professionals
in the following areas: Accounting and Finance, Administrative, Customer Service, Clinical, Scientific and Healthcare, Engineering, Manufacturing
and Operations, Human Resources, IT Technology, LI/MFG, and Marketing and Sales. With an experienced team of IT recruiters, InSync can
rapidly respond to a wide range of requirements with well-qualified candidates. InSync currently supports more than 30 VMS program customers
with employees in over 40 states.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Zap Group</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group, is Israel&#8217;s
largest group of consumer websites which manages more than 20 leading consumer websites from diverse content worlds with a total of more
than 17 million visits per month, including Zap Price Comparison website, Zap Yellow Pages (the largest business index in Israel) and
Zap Rest (Israel&#8217;s restaurants index). Zap Group, an Israeli private company, provides a variety of digital advertising solutions
for its customers (small and medium businesses in Israel) and an access to an E-commerce platform to allow them engage with their consumers.
Zap Group serves over 400,000 listed businesses on its platforms; approximately 16,000 of them are paying customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The websites managed and offered
by Zap Group offer consumers a user-friendly search experience with a variety of advanced tools, which enable them to make educated purchase
decisions in the best and most informed way.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Digital Solutions </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group provides a variety
of digital advertising solutions for its customers (small and medium businesses in Israel) and an access to an E-commerce platform that
allows them to engage with their consumers. Zap Group regularly seeks to develop attractive digital solutions, which it believes to have
market potential for small and medium businesses and their end user. All of Zap Group&#8217;s investments in this area have been proven,
where we believe we can leverage our experience to enhance product positioning and increase market penetration. We provide our management
and technical and financial expertise, marketing experience to help bring these products to market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>E-commerce Solutions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group provides an E-commerce
platform for approx. 1,500 large, medium and small businesses, which operates stores in Israel. The platform, both website and application,
allow end users to compare prices of the various stores for over 1.2 million products in 650 categories. The platform provides to more
than 120 million visiting end users annually, 300,000 reviews of stores and products and 5,000 quality guides (videos and articles), which
allow them to engage through the platform directly with stores for the purchase of a certain product they looked at through the platform.
Total online purchases through the platform are estimated at approximately NIS 2 billion annually, which is estimated as constituting
14% out of total online purchase volume in Israel (not including food and beverage).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2021, Zap Group launched
a new website for car sellers and buyers, which provides a marketplace where buyers can explore on one website various options for buying
a second-hand car (B2C). The platform allows the buyer to compare prices, specs, financing, peripheral services, accessories and overall
packages. The online, real-time supply availability enables transparency, and also provides the buyer an aggregated view of specific sellers
and agencies, and direct contact with a large pool of sellers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In December 2022 Zap Group concluded the acquisition
of 51% of the outstanding share capital of N.C Marketing and Advertising Ltd. (also known as &#8220;Safra digital marketing&#8221;) and
51% of the outstanding share capital of Marcomit Ltd. (&#8220;Marcomit&#8221;). Safra digital marketing is an Israeli company specializing
in social media services including Facebook, Instagram and Tik-tok. Marcomit is an Israeli company specializing in digital branding for
large enterprises including advanced branding materials for media and digital advertising.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Digital platforms</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group provides digital
advertising platforms and services through 18 websites for medium and small businesses in 1,600 business categories in Israel, including
doctors, lawyers, and other service and product providers. The platform, both website and application allow end users to contact directly
with the service provider. The platform provides to more than 50 million visiting end users annually, 200,000 reviews 2,000 quality guides
(videos and articles), 300 price lists, and 700 forums with more than 1.5 million expert explanations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group also provides its
customers other digital services such as Search Engine Marketing (Pay Per Click Google and Facebook campaigns) and Search Engine Optimization
for their websites. In addition, Zap Group provides website design services, creation of new websites on various tools (ZAP-X), management
of social media, online business cards (GMB), and big data services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Restaurants and events</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group provides digital
advertising platforms and services for more than 17,000 restaurants listed and provides services for social events. Approximately 2,500
of them are paying customers. The platform, both website and application allow end users to directly contact the restaurant for table
ordering, ordering of delivery or take away, to post visit reviews or explore the restaurant menu, photo gallery and other content such
as articles, etc. The platform provides to more than 30 million visiting end users annually, approximately two million food deliveries,
200,000 reviews, 5,000 food and culinary articles (videos and articles), and more than 0.5 million push updates annually.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Other </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group provides a digital
advertising platform for domestic travel and hospitality businesses in Israel. The platform&#8212; both website and application&#8212;
allows end users to order directly from the provider (hotel, guesthouse or attraction service provider). The platform provides access
to approximately 1,200 vacation and leisure locations, and to millions of visiting end users annually.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Our Affiliated Company</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>TSG</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG is a global high technology
company engaged in high-end technical solutions for protecting the safety of national borders, improving data gathering mechanisms, and
enhancing communications channels for military, homeland security and civilian organizations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG operates primarily in
the defense and homeland security arenas. The nature of military and homeland security actions in recent years, including low intensity
conflicts and ongoing terrorist activities, as well as budgetary pressures to focus on leaner but more technically advanced forces, have
caused a shift in the defense and homeland security priorities for many of TSG&#8217;s major customers. As a result, TSG believes there
is a continued demand in the areas of command, control, communications, computer and intelligence (C4I) systems, intelligence, surveillance
and reconnaissance (ISR) systems, intelligence gathering systems, border and perimeter security systems, cyber-defense systems. There
is also a continuing demand for cost effective logistic support and training and simulation services. TSG believes that its synergistic
approach of finding solutions that combine elements of its various activities positions it to meet evolving customer requirements in many
of these areas.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG tailors and adapts its
technologies, integration skills, market knowledge and operationally-proven systems to each customer&#8217;s individual requirements in
both existing and new platforms. By upgrading existing platforms with advanced technologies, TSG provides customers with cost-effective
solutions, and its customers are able to improve their technological and operational capabilities within limited budgets.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG markets its systems and
products either as a prime contractor or as a subcontractor to various governments and defense and homeland security contractors worldwide.
In Israel, TSG sells its defense, intelligence and homeland security systems and products mainly to the IMOD, which procures all equipment
for the Israeli Defense Force (IDF).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022 TSG acquired 51% of
the outstanding share capital of E.P.R. Systems Ltd. Headquartered in Israel, E.P.R has over 20 years of experience and serves more than
100 local authorities in Israel. E.P.R offers comprehensive software solutions for municipal institutions primarily to manage all their
billing and collection operations for all types of revenues, including taxes, fees and levies and several innovative extension modules.
Additionally, E.P.R offers a full scope of expert implementation, application management and hosting services, enabling municipal institutions
to execute their digital and business strategies. In accordance with the purchase agreement, TSG may acquire additional 9% of the outstanding
share capital of E.P.R. during the first 12 months following the closing based on the 51% closing date deal value. In January 2023, TSG
exercise its right and acquired the additional 9% of the outstanding share capital of E.P.R.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">TSG&#8217;s offerings include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Command &amp; Control Solutions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG offers sophisticated and
innovative command and control solutions that support military and civilian sectors on land, air and sea. TSG provides a variety of Command
&amp; Control solutions ranging from strategic battlefield management to tactical and special operations forces. TSG systems cover all
echelons of management, from national and regional levels down to the operational and tactical levels. Its systems are field proven and
used by military forces, security services and public safety organizations worldwide.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Intelligence, Surveillance
and Knowledge Management Solutions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG Intelligence solutions
for security agencies and defense forces meet the demand for accurate and timely intelligence, based on multiple sources and sensors.
TSG unique technologies cover the entire life-cycle of intelligence from acquisition to fusion, analysis, distribution, target management
and more. TSG&#8217;s Knowledge Management solutions provide public sector bodies with the capacity to effectively manage their organizational
data, support decision making and follow-up.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Telecommunication&amp;
IT Management Solutions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG has extensive experience
in developing and integrating telecommunications and IT solutions and tools such as Operations Support Systems (OSS), Contact Centers,
Back Office Optimization and Value-Added Services (VAS) that are tailored to meet the requirements of multiple applications. Leveraging
deep know-how in telecommunications, TSG provides wide-ranging offering suitable for public and private sector organizations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;<i>Cyber Security Solutions
&amp; Services:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG provides cutting-edge
security services and solutions to government and private sectors including secure critical infrastructure and financial institutions
in cyber space. TSG cyber solutions, Cyber Security Center (CSC), Security Training, Security Investigations and Security Engineering
support the establishment of a safe, secure and reliable work environment and cover, among other things, Security Engineering, Digital
Forensics, Computer emergency response teams (CERT), Mobile Security, and Training.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Homeland Security Solutions
(HLS)</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG&#8217;s field proven homeland
security solutions maximize safety and security while minimizing threats. TSG provide its clients with paramount technologies ranging
from emergency management and Chemical, biological, radiological and nuclear defense (CBRN) systems, to rescue&amp; special operations
and smart and safe city solutions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Supporting Tools:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">TSG offers a variety of supporting
system and solutions, providing dynamic and customizable field proven applications for in the following verticals:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 88; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->81<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Geographical Distribution of Revenues</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">The following table summarizes
our consolidated revenues classified by geographic regions of our customers, for the periods indicated:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">591,794</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">680,325</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">255,680</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">262,303</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">18,012</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">26,692</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">11,333</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Total</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">2,404,376</td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Competition</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The markets for the IT products
and services we offer are rapidly evolving, highly competitive and fragmented, and, in some cases, present only low barriers to entry,
with frequent new product introductions, and mergers and acquisitions. Our ability to compete successfully in IT services markets depends
on a number of factors, like breadth of service offerings, sales and marketing efforts, service, pricing, and quality and reliability
of services. The principal competitive factors affecting the market for the proprietary software solutions include product performance
and reliability, product functionality, availability of experienced personnel, price, ability to respond in a timely manner to changing
customer needs, ease of use, training and quality of support.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We face competition, both in Israel and internationally,
from a variety of companies, including companies with significantly greater resources than us who are likely to enjoy substantial competitive
advantages, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">greater financial, technical, marketing and other resources;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">greater name recognition;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">well-established relationships with our current and potential clients; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a result, our competitors
may be able to respond more quickly to new or emerging technologies or changes in customer requirements. They may also benefit from greater
purchasing economies, offer more aggressive product and service pricing or devote greater resources to the promotion of their products
and services. In addition, in the future, we may face further competition from new market entrants and possible alliances between existing
competitors. We also face additional competition as we continue to penetrate international markets. As a result, we cannot assure you
that the products and solutions we offer will compete successfully with those of our competitors. Furthermore, several software development
centers worldwide offer software development services at much lower prices than we do. Due to the intense competition in the markets in
which we operate, software products prices may fluctuate significantly. As a result, we may have to reduce the prices of our products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 89; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->82<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Matrix&#8217;s Competitive Landscape</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s principal competitors
in the domestic Israeli market are Israeli IT services companies and systems integrators such as: Hilan Ltd., Malam-Team, One-1, Kyndryl,
Aman, the Elad Group, Yael, SQLink, Emet Computing, AllCloud, Emet, LogOn, Abra-it, and HMS. In addition, in recent years, large accounting
and advisory firms such as Deloitte and E&amp;Y have expanded their service portfolio to include managed services and consulting in the
fields of BI, Cybersecurity, ERP and CRM. We view these firms as direct competition, given that they already have a deep understanding
of a particular client&#8217;s business because of the accounting and auditing services they provide, and given the trust that they have
developed with the client, which is an essential part of providing any services to a client. This international trend is as evident in
Israel as it is in all major markets around the world. Matrix&#8217;s competitors in the United States market include many companies that
provide similar services to those of Matrix, as well as providers of offshore services which utilize low rates. In some cases, Matrix
competes with IBM, Accenture, Oracle and the large accounting and advisory accounting firms. Matrix&#8217;s international competitors
in the Israeli marketplace include Microsoft, IBM, HP and Oracle. These international competitors often use local subcontractors to provide
personnel for contracts performed in Israel. Most of these international entities are also business partners of Matrix. The main competitors
with respect to infrastructure solutions include One-1, Malam-Team and Emet Computing. With respect to cloud services, competitors include
All Cloud, DoIT, Google, Microsoft and Amazon Web Services. Matrix competitors with respect to training are the training centers of the
Technion, IITC, HackerU, Ness Technologies, SQLink and Sela.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Sapiens&#8217; Competitive Landscape</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens is focused on serving
insurers. The market for core software solutions for the insurance industry is highly competitive and characterized by rapidly changing
technologies, evolving industry standards and customer requirements, and frequent innovation. In addition, we offer a business decision
management platform, mainly to financial services organizations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Competitive Landscape
for Insurance Software Solutions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens&#8217; competitors
in the insurance software solutions market differ from us based on size, geography and lines of business. Some of our competitors offer
a full suite, while others offer only one module; some operate in specific (domestic) geographies, while others operate on a global basis.
And delivery models vary, with some competitors keeping delivery in-house, using IT outsourcing (ITO), or business process outsourcing
(BPO).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The insurance software solutions
market is highly competitive and demanding. Maintaining a leading position is challenging, because it requires:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The complex requirements
of this market create a high barrier to entry for new players. As for existing players, these requirements have led to a marked increase
in M&amp;A transactions in the insurance software solutions sector, since small, local vendors have not been able to sustain growth without
continuing to fund their R&amp;D departments and following the globalization trend of their customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.45in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe Sapiens is well-positioned
to leverage our modern solutions, customer base and global presence to compete in this market and meet its challenges. In addition, our
accumulated experience and expert teams allow us to provide a comprehensive response to the IT challenges of this market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Different types of competitors include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -16.2pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We differentiate Sapiens from
its potential competitors for insurance software solutions through the following key factors:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 91; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->84<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We leverage our proven track
record of successful delivery to help our customers deploy our modern solutions, while integrating with their legacy environment (when
that legacy environment must remain supported)&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 0.5in"><i>Competitive Landscape for
Business Decision Management Solutions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens Decision is a pioneer
in this disruptive market landscape. Since the introduction of our innovative approach to enterprise architecture to the market, we have
identified only a small number of potential competitors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens differentiates itself
from potential competitors through the following key factors:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Magic Software&#8217;s Competitive Landscape</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The markets for Magic Software
Magic xpa and Magic xpi platforms are characterized by rapidly changing technology, evolving industry standards, frequent new product
introductions, mergers and acquisitions, and rapidly changing customer requirements. These markets are therefore highly competitive, and
we expect competition to continue to intensify. The growth of the cloud adoption and mobile markets increases the competition in these
areas. We constantly follow and analyze the market trends and our competitors in order to effectively compete in these markets and avoid
losing market share to our direct competitors and other players.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With Magic xpa, we compete
in the low-code application platform, SOA architecture and enterprise mobility markets.&#160; Our main competitors fall into two categories:
(1) providers of custom software and customer software solutions that address, or are developed to address, some of the use cases that
can be addressed by applications developed on our platform; and (2) providers of low-code development platforms, such as Microsoft, Salesforce.com,
ServiceNow, OutSystems, Appien and Mendix;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 92; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->85<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As our market grows, we expect
it will attract more highly specialized vendors as well as larger vendors that may continue to acquire or bundle their products more effectively.
The principal competitive factors in our market include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With Magic xpi, we compete
in the integration platform market, which is highly competitive and rapidly evolving. Among our current competitors are IBM, Informatica,
TIBCO, MuleSoft, Jitterbit, Talend, Dell&#8211;Boomi, Scribe and Software AG.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There are several similar
products in the market utilizing the model driven architecture, or MDA, approach utilized by AppBuilder. The market for this type of platform
is highly competitive. Companies such as CA and IBM have tools that compete directly with AppBuilder. Furthermore, new development paradigms
have become very popular in IT software development and developers today have many alternatives.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As our market grows, we expect
that it will attract more highly specialized vendors as well as larger vendors that may continue to acquire or bundle their products more
effectively. The principal competitive factors in our market include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe we generally
compete favorably with our competitors with respect to the features, security and performance of our platform, the ease of integration
of our applications and the relatively low total cost of ownership of our applications. However, many of our competitors have substantially
greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets, broader distribution,
more diversified product lines and larger and more mature intellectual property portfolios.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our goal is to maintain our
technological advantages, time to market and worldwide sales and distribution network. We believe that the principal competitive factors
affecting the market for our products include developer productivity, rapid results, product functionality, performance, reliability,
scalability, portability, interoperability, ease-of-use, demonstrable economic benefits for developers and users relative to cost, quality
of customer support and documentation, ease of installation, vendor reputation and experience, financial stability as well as intuitive
and out-of-the-box solutions to extend the capabilities of ERP, CRM and other application vendors for enterprise integration.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Michpal&#8217;s Competitive Landscape</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to Michpal, the
market in which it operates is very fragmented and among its current competitors in the Israeli market in which it operates are mainly
Hilan, MalamTeam, Tamal, Synel, Oketz systems and others.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our goal is to maintain Michpal&#8217;s
technological advantages, time to market, sales and distribution network. We believe that the principal competitive factors affecting
the market for Michpal&#8217;s products include developer productivity, rapid results, product functionality, performance, reliability,
scalability, portability, interoperability, ease-of-use, demonstrable economic benefits for developers and users relative to cost, quality
of customer support and documentation, ease of installation, vendor reputation and experience, financial stability as well as intuitive
and out-of-the-box solutions that extend its capabilities to effectively manage its operations and reduce its business risks in the face
of changing business environments.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Seasonality</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Even though not significantly
reflected in our financial results, traditionally, the first and third quarters of the fiscal year have tended to be slower quarters for
some of our subsidiaries and our affiliated companies and the industries in which they operate. The first quarter usually reflects a decline
following a highly active fourth quarter during which companies seek to complete transactions and projects and utilize budgets before
the end of the fiscal year. The relatively slower third quarter reflects reduced activities during the summer months in many of the regions
where our customers are located and also reflects the Jewish national holidays in Israel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, our quarterly
results are also influenced by the number of working days in each period in Israel. For example, during the Jewish holidays period (typically
at the end of the third quarter and beginning of the fourth quarter or at the end of the first quarter and beginning of the second quarter),
when the number of working days is lower, we tend to see a decrease in our revenues, which may impact our quarterly results. Following
is the quarterly breakdown, by percentage, of standard working hours in each quarter of 2022 and 2023 in the Israeli market, which accounts
for approximately 61% of our annual revenues:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022, seasonality due to
the Jewish holiday periods adversely impacted the second and fourth quarters (in addition to any adverse impact on working hours caused
by the coronavirus pandemic, and the Israeli election day). In 2023, we expect seasonality due to the Jewish holiday periods to adversely
impact the second and late third/ early fourth quarters.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table presents
our revenues allocation per quarter in 2021 and 2022 (by percentage):</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Raw Materials</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Generally, we are not dependent
on raw materials or on a single source of supply. We manage our inventory according to project requirements. In some projects, specific
major subcontractors are designated by the customer. Raw materials used by us are generally available from a range of suppliers internationally,
and the prices of such materials are generally not subject to significant volatility.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Further, although we believe
that there are currently adequate replacements for the third-party technology that we presently use and distribute, the loss of our right
to use any of this technology could result in delays in producing or delivering affected products until equivalent technology is identified,
licensed or otherwise procured, and integrated. Our business would be disrupted if any third-party technology we license from others or
functional equivalents of that technology were either no longer available to us or no longer offered to us on commercially reasonable
terms. In either case, we would be required either to attempt to redesign our products to function with technology available from other
parties or to develop these components ourselves, which would result in increased costs and could result in delays in product sales and
the release of new product offerings. Alternatively, we might be forced to limit the features available in affected products. Any of these
results could harm our business and impact our results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Software Development</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The software industry is generally
characterized by rapid technological developments, evolving industry standards and customer requirements, and frequent innovations. In
order to maintain technological leadership, we engage in ongoing software development activity through our investees, aimed both at introducing
new commercially viable products addressing the needs of our customers on a timely basis, as well as enhancing and customizing existing
products and services. This effort includes introducing new supported programming languages and database management systems; improving
functionality and flexibility; and enhancing ease of use. We work closely with current and potential end-users, our strategic partners
and leaders in certain industry segments to identify market needs and define appropriate product enhancements and specifications.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Intellectual Property Rights</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens, Magic and Michpal
rely on a combination of contractual provisions and intellectual property law to protect their proprietary technology. We believe that
due to the dynamic nature of the markets in which we operate and software industries, factors such as the knowledge and experience of
our management and personnel, the frequency of product enhancements and the timeliness and quality of our support services, build upon
the protection offered by copyrights. We seek to protect the source code of our products as trade secret information and as unpublished
copyright work, although in some cases, we agree to place our source code into escrow. We also rely on security and copy protection features
in our proprietary software. We distribute our products under software license agreements that grant customers a personal, non-transferable
license to use its products and contain terms and conditions prohibiting the unauthorized reproduction, reverse engineering or misuse
of its products. In addition, we attempt to protect trade secrets and other proprietary information through agreements with employees,
consultants and distributors. Sapiens&#8217; trademark rights include rights associated with its use of its trademarks, and rights obtained
by registration of its trademarks. Sapiens&#8217; use and registration of its trademarks do not ensure that it has superior rights to
others that may have registered or used identical or related marks on related goods or services. We have registrations for the mark &#8220;Sapiens&#8221;
in the U.K., Benelux, Germany, France, Italy Switzerland, Israel, and the European Union. In the past we have registered trademarks and
tradenames for many of our products both in the US and in the European Union, and we intend to continue to do so going forward. The initial
terms of protection for our registered trademarks range from 10-20 years and are renewable thereafter.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software has obtained
trademark registrations in South Africa, Canada, China, Israel, the Netherlands (Benelux), Switzerland, Thailand, Japan, the United Kingdom
and the United States. The initial terms of the registration of its trademarks range from 10 to 20 years and are renewable thereafter.
Magic Software&#8217;s use and registration of its trademarks do not ensure that it would have superior rights to others that may have
registered or used identical or related marks on related goods or services. Magic Software has registered a copyright for its software
in the United States and Japan. In addition, it has registered copyrights for some of its manuals in the United States and has acquired
an International Standard Book Number (ISBN) for some of its manuals. Magic Software&#8217;s copyrights expire 70 years from date of first
publication.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In accordance with industry
practice, we do not otherwise hold any patents and rely upon a combination of trade secret, copyright and trademark laws and non-disclosure
agreements, to protect our proprietary know-how. Our proprietary technology incorporates processes, methods, algorithms and software that
we believe are not easily copied. Despite these precautions, it may be possible for unauthorized third parties to copy aspects of our
products or to obtain and use information that we regard as proprietary. We believe that because of the rapid pace of technological change
in the industry generally, patent and copyright protection are less significant to our competitive position than factors such as the knowledge,
ability and experience of our personnel, new product development and ongoing product maintenance and support.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to our defense
sector activities, the IMOD usually retains specific rights to technologies and inventions resulting from our performance under Israeli
government contracts. This generally includes the right to disclose the information to third parties, including other defense contractors
that may be our competitors. Consistent with common practice in the defense industry, a majority of TSG&#8217;s revenues in 2020, 2021,
and 2022 were dependent on products incorporating technology that a government customer may disclose to third parties&#160;. When the
Israeli government funds research and development, it usually acquires rights to data and inventions. We often may retain a non-exclusive
license for such inventions. The Israeli government usually is entitled to receive royalties on export sales in relation to sales resulting
from government financed development. However, if only the product is purchased without development effort, we normally retain the principal
rights to the technology. Subject to applicable law, regulations and contract requirements, TSG attempts to maintain its intellectual
property rights and provide customers with the right to use the technology only for the specific project under contract.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Regulatory Impact</i></b>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The global financial and defense
services industries served in particular by Sapiens, Matrix, Magic Software, Michpal and TSG are heavily subject to government and market
regulation, which is constantly changing. Financial services companies must comply with regulations such as the Sarbanes-Oxley Act, Solvency
II, Retail Distribution Review (known as RDR) in the United Kingdom, the European Union General Data Protection Regulation, or GDPR, in
the EU, the CCPA, a statute that went into effect on January 1, 2020 in California (and similar privacy legislation in New York and elsewhere
in the U.S.), the Dodd-Frank Act and other directives regarding transparency. In addition, many individual countries have increased supervision
over local financial services companies. For example, in Europe, regulators have been very active, motivated by past financial crises
and the need for pension restructuring. Distribution of insurance policies is being optimized with the increasing use of Bank Assurance
(selling of insurance through a bank&#8217;s established distribution channels), supermarkets and kiosks (insurance stands). Increased
activity such as that in Europe would generally tend to have a positive impact on the demand for our software solutions and services;
nevertheless, insurers are cautiously approaching spending increases, and while many companies have not taken proactive steps to replace
their software solutions in recent years, many of them are now looking for innovative, modern replacements to meet the regulatory changes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s and Magic Software&#8217;s
IT businesses are generally positively affected by regulatory reform and other regulatory changes with respect to banking, insurance and
telecommunications in Israel, as such reforms and changes create demand for specific IT solutions, often in a set, short time frame. In
particular, regulation on large financial institutions operating in the Israeli financial market is continuously increasing, as a means
of reducing the risk associated with the activities of such financial institutions and increasing transparency and increases the demand
for Matrix&#8217;s and Magic Software&#8217;s services offering for entities that become subject to such supervision. Banks&#8217; entry
into the sphere of offering advice with respect to pension, insurance and other financial products has also generated demand for Matrix&#8217;s
IT solutions, given the increased supervision of the Israeli Securities Authority that is triggered by such activities, although the pace
at which such demand has grown has been relatively slower. Enhanced disclosure requirements for banks and financial institutions in the
Israeli market, such as those published with respect to the required capital liquidity of banks in Israel, have also been generating demand
for new IT solutions that Matrix offers. Matrix&#8217;s business is also affected by changes in regulations of the U.S Securities and
Exchange Commission, the Financial Industry Regulatory Authority, the Commodity Futures Trading Commission, the National Futures Association,
the Federal Energy Regulatory Commission, with respect to requirements relating to Know Your Customer, Customer Identification Programs,
Anti-Money Laundering and Fraud Prevention.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In recent years, there has
been greater focus on core banking issues, and today a number of banks are in the process of undergoing a gradual examination / replacement
of the traditional core systems. The financial market is also facing significant changes and opportunities for the IT market in light
of the Strum Reform and its implications for the banking market, credit card companies and other relevant players in the financial market.
In the insurance industry, there is a delay in decision making based on the prolonged selling process of some of the companies, and in
light of the worsening of the capital adequacy ratios and actuarial reserves that are required by regulators and which affect the profitability
of the companies, their ability to distribute a dividend or allocate budgets for IT investments as in the past.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to our defense
sector activities, we operate under laws, regulations and administrative rules governing defense and other government contracts, mainly
in Israel. Some of these carry major penalty provisions for non-compliance, including disqualification from participating in future contracts.
In addition, our participation in governmental procurement processes in Israel, the United States and other countries is subject to specific
regulations governing the conduct of the process of procuring defense and homeland security contracts.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Government Contracting
Regulations. </b>We operate under laws, regulations, administrative rules and other legal requirements governing defense and other government
contracts, mainly in Israel. Some of these legal requirements carry major penalty provisions for non-compliance, including disqualification
from participating in future contracts. In addition, our participation in governmental procurement processes in Israel, the United States
and other countries is subject to specific regulations governing the conduct of the process of procuring defense and homeland security
contracts, including increasing requirements in the area of cyber production and information assurance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Israeli Export Regulations</b>.
Israel&#8217;s defense export policy regulates the sale of a number of our systems and products, which are developed and marketed by our
affiliated company TSG. Current Israeli policy encourages exports to approved customers of defense systems and products such as ours,
as long as the export is consistent with Israeli government policy. Subject to certain exemptions, a license is required to initiate marketing
activities. We also must receive a specific export license for defense related hardware, software and technology exported from Israel.
Israeli law also regulates export of &#8220;dual use&#8221; items (items that are typically sold in the commercial market but that also
may be used in the defense market).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Procurement Regulations</b>.
Solicitations for procurements by governmental purchasing agencies in Israel, the United States and other countries are governed by laws,
regulations and procedures relating to procurement integrity, including avoiding conflicts of interest, corruption, human trafficking
and conflict minerals in the procurement process. Such regulations also include provisions relating to information assurance and for the
avoidance of counterfeit parts in the supply chain.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Civil Aviation Regulations</b>.
Several of the products sold by TSG for commercial aviation applications are subject to flight safety and airworthiness standards of the
U.S. Federal Aviation Administration (FAA) and similar civil aviation authorities in Israel, Europe and other countries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Buy-Back. </b>As part of
their standard contractual requirements for defense programs, several of our customers may include &#8220;buy-back&#8221; or &#8220;offset&#8221;
provisions. These provisions are typically obligations to make, or to facilitate third parties to make, various specified transactions
in the customer&#8217;s country, such as procurement of defense and commercial related products, investment in the local economy and transfer
of know-how.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s and Magic Software&#8217;s
businesses have not been impacted to a material extent by government regulations.	</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Environmental, Social &amp; Governance Matters</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our subsidiaries place an
emphasis on, and devote considerable time towards, business responsibility, sustainability, and delivering value for their respective
customer base, employees, investors, suppliers, and each of their respective communities. This requires that we conduct our business in
accordance with all applicable laws and regulations, and to adhere to outstanding ethical business practices. Our subsidiaries have developed
a strong set of corporate values that inspire ethical behavior throughout their decision-making process and that promote one of their
business objectives of bringing together a diverse group with the unique skill sets, knowledge, and talents to effectuate our vision.
For example, Sapiens specifically is proud to encourage female advancement in its company, with 38% of its executive leadership consisting
of women in 2022. Matrix specifically is also proud to foster a strong female voice in its company, with 56% of its overall human capital
resources consisting of women in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->90<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Organizational Structure</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Formula is the parent company
of the Formula Group.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table presents
certain information regarding the control and ownership of our directly held investments in subsidiaries and affiliates, as of April 30,
2023.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -9pt; padding-left: 9pt">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: center">Israel</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -9pt; padding-left: 9pt">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Shamrad Electronic (1997) Ltd</td><td>&#160;</td>
    <td style="text-align: center">Israel</td><td>&#160;</td>
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  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The common shares of Sapiens
and the ordinary shares of Magic Software are each traded on the Nasdaq Global Select Market and on the TASE, and the ordinary shares
of Matrix are traded on the TASE.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>D.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Property, Plants and Equipment</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Formula&#8217;s headquarters,
as well as the headquarters and principal administrative, finance, sales, marketing and research and development office of Magic Software,
are located in Or-Yehuda, Israel, a suburb of Tel Aviv. Magic Software leases its and our office space, constituting approximately 32,404
square feet, under a lease agreement entered in November 2019. The lease expires in June 2033, with an option by Magic Software to extend
for an additional two 5-year term. In 2022, Magic Software paid $0.6 million under that lease. In addition, Magic Software subsidiaries
lease office spaces in the United States, Israel, Europe, India, Japan and South Africa. In 2022, Magic Software&#8217;s rent costs for
those additional facilities totaled $4.2 million, in the aggregate. We believe that Magic and our existing facilities are adequate for
our current needs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix leases approximately 699,654 square feet of office space in
various locations in Israel pursuant to leases of varying duration, including for a facility in Herzliya that serves as Matrix&#8217;s
corporate headquarters. In October 2018, Matrix renewed its corporate headquarters lease agreement with Ofer Brothers Properties Ltd.
according to which it leases its office spaces in Herzliya, Israel. The lease term is expected to end in October 2023. The cost of rent
is NIS 10 million annually (approximately $3.0 million). In addition, Matrix leases an aggregate of approximately 67,000 square feet of
office space in locations outside of Israel, in the United States, Bulgaria, Macedonia, Hungary, India and the UK. The lease terms for
the spaces that Matrix currently occupies are generally three to four years. In 2023, Matrix announced that by the end of 2023, it would
be moving to a new campus in the O-TECH complex in Kfar Saba. The new campus will spread over 172,200 square feet of office space across
15 building floors and 151,000 square feet of parking space across 3 building floors. The lease term for the new campus expires in January
2032, with an option by Matrix to extend for an additional two 5-year term with an annual rent cost of approximately NIS 20 million (approximately
$5.7 million). In the year ended December 31, 2022, <span style="background-color: white">Matrix&#8217;s rent costs totaled NIS 27.3 million
(approximately $8.1 million),</span> in the aggregate, for all of its leased offices. We believe that Matrix&#8217;s existing facilities
are adequate for its current needs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens leases office space
in India, Israel, the United States, Germany, Poland, Lithuania, Latvia, Denmark, Spain, The United Kingdom, and China. The lease terms
for the spaces that Sapiens currently occupies are generally two to eight years. Based on Sapiens&#8217; current occupancy, it leases
the following amount of space in the following locations <span style="background-color: white">(offices over 500 square feet), which constitute
Sapiens&#8217; primary locations</span>: in India, approximately 213,598 square feet; in Israel, approximately 104,043 square feet of
office space (98,021 square feet that Sapiens s &#8211; 6,022 square feet is subleased); in the United States, approximately 53,882 square
feet (43,074 square feet that we use - 10,808 square feet is subleased); in Germany, approximately 26,398 square feet; in Poland, approximately
26,012 square feet; in Lithuania, approximately 17,655 square feet; in Latvia, approximately 14,271 square feet; in Denmark, approximately
7,860 square feet; in Spain, approximately 6,700 square feet; in the United Kingdom, approximately 7,374 square feet, and in China, approximately
5,180 square feet. Sapiens Israeli offices house its corporate headquarters, as well as its core delivery research and development activities.
We believe that Sapiens&#8217; existing facilities are adequate for our current needs. In 2022, Sapiens&#8217; rent costs totaled $12.8
million, in the aggregate, for all of its leased offices. We believe that Sapiens&#8217; existing facilities are adequate for its current
needs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Michpal leases approximately
40,000 square feet of office space in various locations in Israel pursuant to leases of varying duration, including for a facility in
Tel-Aviv that serves as Michpal&#8217;s corporate headquarters. During the year ended December 31, 2022, Michpal&#8217;s rent costs totaled
$0.8 million, in the aggregate, for its leased office space.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Zap Group leases approximately
111,203 square feet of office space in various locations in Israel pursuant to leases of varying duration, including for a facility in
Petah-Tikva that serves as Zap Group&#8217;s corporate headquarters. During the year ended December 31, 2022 Zap Group&#8217;s rent costs
totaled $1.1 million, in the aggregate, for its leased office space.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Ofek leases approximately
16,145 square feet of office space in Netanya, Israel, under a lease agreement entered in March 2020 for a term of six (6) years. During
the year ended December 31, 2022, Ofek&#8217;s rent costs totaled $0.1 million, for its leased office space.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that our properties
are adequate for our present use of them. If in the future we require additional space to accommodate our growth, we believe that we will
be able to obtain such additional space without difficulty and at commercially reasonable prices.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As described in &#8220;Subsidiary
Commitments&#8221; in Item 5.B below, while our subsidiaries and our affiliated companies have incurred liens on leased vehicles, leased
equipment and other assets in favor of leasing companies, neither Formula nor any subsidiary has encumbered the real property that it
uses in its operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We furthermore believe that
there are no environmental issues that encumber our use of our facilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_008"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 4A.&#160;UNRESOLVED STAFF COMMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_009"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Overview</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are a global software solutions
and IT professional services holdings company that is principally engaged through our directly held investees in providing proprietary
and non-proprietary software solutions and IT professional services, software product marketing and support, computer infrastructure and
integration solutions and learning and integration. We deliver our solutions in numerous countries worldwide to customers with complex
IT services needs, including a number of &#8220;Fortune 1000&#8221; companies.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since our inception, we have
acquired effective controlling interests, and have invested, in companies which are engaged in the IT solutions and services business.
We, together with our investees, are known as the Formula Group.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Other than in our joint control
in TSG in which each of we and Israeli Aerospace Industries Ltd. holds 50% of its voting power, we currently have effective control under
IFRS 10 in each of our other investees, Matrix, Sapiens, Magic Software, Michpal, Ofek Aerial Photography, InSync and Zap Group, despite
the lack of absolute majority of voting power in Matrix, Magic Software and Sapiens. As a result of our effective control in these investees
as of December 31, 2022 and in accordance with IFRS 10, we consolidated their financial results with ours throughout the period covered
by the financial statements included in Item 18 of this annual report. Prior to our transition to reporting under IFRS, we consolidated
investees in which we held an equity interest only if we held a controlling interest in those companies. Under IFRS 10, we may consolidate
entities in which we have effective control. For further information, please see Note 2(3) to our consolidated financial statements included
in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Except for providing our investees
with our management, technical expertise and marketing experience to help them create a consecutive positive economic impact and long-term
value and direct their overall strategy through our active involvement, we do not conduct independent operations at our parent company
level. Our operating results are, and have been, directly influenced by the business operations of our subsidiaries and affiliated company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our consolidated financial
statements for the years ended December 31, 2021 and 2022 are prepared in accordance with IFRS. We have presented herein consolidated
statements of financial position that comply with IFRS applicable as of December 31, 2021 and 2022. Our consolidated statements of profit
or loss presented herein in IFRS cover the years ended December 31, 2020, 2021, and 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We recognize revenues in two
categories: the delivery of software services and the delivery of proprietary software solutions and related services. All of our investees,
recognize revenues from the delivery of software services, and most of them recognize revenues in both revenue categories. For ease of
reference, we have separated our subsidiaries into these categories in accordance with the category in which each subsidiary has earned
most of its revenues (although each type of revenue is nevertheless recorded according to actual revenue type, rather than based on strict,
subsidiary-demarcated categories).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Our functional and reporting currency</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Until December 31, 2019, the
currency of the primary economic environment in which our operations on a standalone basis were conducted was the dollar. Following an
examination and reevaluation of the primary economic environment in which we currently operate and expects to continue operating and,
taking into consideration the recent trends and our forward-looking business strategy, in accordance with the International Accounting
Standard 21 (IAS 21), we concluded that the currency of the primary economic environment in which our operations on a standalone basis
are currently conducted is the NIS. The functional currencies applied by our investees which are consolidated in these financial statements
are the currencies of the primary economic environment in which each one of them operates. We have elected to use the dollar as our reporting
currency for all years presented since we believe that financial statements in U.S dollars provide more relevant information to our investors
and users of the financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Assets, including fair value
adjustments upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each
reporting date. Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences
are recognized in other comprehensive income (loss).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Intragroup loans for which
settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in the foreign
operation and, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded in other comprehensive
income (loss).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Upon the full or partial disposal
of a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which
had been recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is
reattributed to non-controlling interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Transactions denominated in
foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition,
monetary assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at
the exchange rate at that date. Exchange rate differences, other than those capitalized to qualifying assets or accounted for as hedging
transactions in equity, are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currency and measured
at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign
currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the
fair value was determined.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For those subsidiaries whose
functional currency has been determined to be their local currency, assets and liabilities are translated at year-end exchange rates and
statement of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded
as a separate component of accumulated other comprehensive income (loss) in equity.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Operating Results</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This section presents an analysis
of our results of operations, on a comparative basis, for the years ended December 31, 2021 and 2022. We have omitted herein a comparative
analysis of our results of operations for the years ended December 31, 2020 and 2021. In order to view that latter analysis, please see
&#8220;Item 5. Operating and Financial Review and Prospects&#8212;A. Operating Results&#8212;Year Ended December 31, 2021 Compared to
Year Ended December 31, 2020&#8221; in our Annual Report on Form 20-F for the year ended December 31, 2021, which we filed with the SEC
on May 16, 2022, which analysis is incorporated by reference herein.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->94<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0in; text-align: justify; text-indent: -0.55pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: -0.55pt"><b><i>Year Ended December
31, 2021 Compared to Year Ended December 31, 2022</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following tables set forth
certain data from our statement of profit or loss for the years ended December 31, 2021 and 2022, as well as such data as a percentage
of our revenues for those years. The data has been derived from our audited consolidated financial statements included elsewhere in this
annual report. The operating results for the below years should not be considered indicative of results for any future period. This information
should be read in conjunction with the audited consolidated financial statements and notes thereto included in this annual report.</p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Statements of Profits or Loss</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(U.S. dollars, in thousands)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="width: 76%; text-indent: -9pt; padding-left: 9pt">Revenues</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">2,404,376</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">2,572,357</td><td style="width: 1%; text-align: left">&#160;</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">1,840,517</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,949,892</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">563,859</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">622,465</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -9pt; padding-left: 9pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Research and development expenses, net</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">65,858</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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were as follows: revenues from the delivery of software services increased by approximately 8%, from $1,771.4 million in 2021 to $1,912.9
million in 2022, and revenues from the sale of our proprietary software products and related services increased by approximately 4%,
from $633.0 million in 2021 to $659.5 in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Software Services Revenues</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in software services
revenues was recorded across the following of our investees reporting under this revenue stream&#8212; Matrix, Magic Software, Michpal,
Insync, Ofek and Zap Group &#8212; and was primarily due to growth in their revenues as described below:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Matrix</i></b>:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s revenues reported
under this revenue stream increased from NIS 4,234.0 million (approximately $1,311.6) in 2021 to NIS 4,541.2 in 2022, reflecting an increase
of approximately 7% when measured in NIS, Matrix&#8217;s local currency (compared to 3% when measured in U.S dollars). The increase in
Matrix&#8217;s revenues, when measured in NIS, reflected an increase in almost all of Matrix&#8217;s principal areas of operations (excluding
a 3% decrease recorded in Matrix&#8217;s Software product marketing and support business segment, when measured in NIS, resulting mainly
from a decrease in margins pushing selling rates down which characterized the trend in this business segment), and to the transition to
subscription based selling model.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 103; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in Matrix revenues
was mainly attributable to each of the following: (1) an increase of approximately 3% in Matrix&#8217;s Information Technologies (IT)
Software solutions and services in Israel from NIS 2,361.0 million (approximately $731.4) in 2021 to NIS 2,435.4 million (approximately
$725.9) in 2022; (2) an increase of approximately 11% in Matrix&#8217;s computer infrastructure and integration solutions from NIS 1,210.3
million (approximately $374.9 million) in 2021 to NIS 1,345.6 million (approximately $401.1) in 2022; (3) an increase of approximately
22% in Matrix&#8217;s Information Technologies (IT) Software solutions and services in the United States from NIS 355.9 million (approximately
$110.3 million) in 2021 to NIS 434.3 million (approximately $129.4) in 2022; and (4) an increase of approximately 19% in Matrix&#8217;s
Training and integration from NIS 174.9 million (approximately $54.2 million) in 2021 to NIS 207.6 million (approximately $61.9) in 2022.
The increase was offset, in part, by a decrease of 3% in Matrix&#8217;s software product marketing and support from NIS 258.1 million
(approximately $79.9 million) in 2020 to NIS 249.9 million (approximately $74.5 million) in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in Matrix&#8217;s
revenues was also due to: (A) the inclusion of the first full year of revenues of the following entities&#8217; during 2022: (i) SQ Service
Quality Ltd., A. A. Engineering Ltd., and I.T.D. Group Ltd. (consolidated upon acquisition by Matrix as of April 2021); and (ii) AVB Technologies
Ltd. (consolidated upon acquisition by Matrix as of October 2021); and (B) the inclusion for the first time of revenues during 2022 of
RDT Equipment and Systems (1993) Ltd. (consolidated upon acquisition by Matrix as of June 2022).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Magic Software:</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software&#8217;s revenues,
reported under this revenue stream, increased by approximately 22% from $402.2 million in 2021 to $489.2 million in 2022, primarily attributable
to (i) an increase of $3.7 million due to the inclusion of the first full year of revenues of Enable IT, consolidated upon acquisition
by Magic Software as of April 1, 2021), and (ii) an increase of $21.0 million due to the inclusion for the first time of revenues of Appush
and The Goodkind Group, LLC (consolidated upon acquisition by Magic Software as of January 1, 2022 and August 15, 2022, respectively),
with the remaining increase resulted primarily from increased demand for our IT software services across most of Magic Software business
units.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 17.45pt"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>InSync:</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InSync&#8217;s revenues increased
by approximately 19% from $38.7 million in 2021 to $46 million in 2022. Insync&#8217;s revenues were positively impacted by the recovery
from the COVID-19 pandemic in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Michpal&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Michpal&#8217;s revenues,
reported under this revenue stream, increased by approximately 11% from $8.3 million in 2021 to $9.2 million in 2022. Michpal&#8217;s
revenues reported under this revenue stream were impacted by the recovery from the COVID-19 pandemic in 2021 and increased demand for
its consulting services in the fields of operational cost savings, procurement and expense management, as well as salary control and monitoring.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in software services
revenues was also attributable to the inclusion, for the first full year of revenues of Zap Group, reported under this revenue stream,
which was consolidated upon acquisition by Formula as of April 6, 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Proprietary Software Products and Related Services
Revenues</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in revenues from proprietary software products and related
services was attributable in part to the (i) inclusion of the first full year of revenues of Zap Group, reported under this revenue stream,
consolidated upon acquisition by Formula as of April 6, 2021, accounting for $9.1 million; (ii) the increase of Sapiens revenues by approximately
3% from $461.0 million in 2021 to $474.7 million in 2022; (iii) the decrease by approximately 1%, from $78.1 million in 2021 to $77.6
million in 2022, in Magic Software&#8217;s revenues, reported under this revenue stream, resulting from a decrease in revenues of $6.9
million resulting from devaluation of mainly the NIS, GBP, JPY and Euro in relation to the US dollar, which was offset by (a) an increase
of $6.0 million revenues which resulted from increased demand for Magic Software&#8217;s proprietary software solutions and (b) $1.4 million
resulting from the first-time consolidation of Intrabases SAS acquired on July 1, 2022 and; (iv) the increase by approximately 21%, from
$23.8 million in 2021 to $28.8 million in 2022, in Michpal&#8217;s revenues reported under this segment, which resulted from increased
demand for Michpal&#8217;s payroll software solutions and related services and by the inclusion for the first time of revenues of Formally
Smart Form System Ltd., consolidated upon acquisition by Michpal as of February 16, 2022.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 0.5in"><b><i>Sapiens:</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens&#8217; revenues increased
by approximately 3%, from $461.0 million in 2021 to $474.7 million in 2022. The net increase in revenues of approximately $13.7 million
for the year ended December 31, 2022 was attributable to Sapiens&#8217; core business growth. In 2022 and 2021, Sapiens&#8217; largest
customer accounted for 4.6% and 5%, respectively, of its consolidated revenues.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 0.5in"><b><i>Michpal:</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Michpal&#8217;s revenues reported
under this revenue stream increased from $23.8 million in 2021 to $28.8 million in 2022, reflecting an increase of 21%. The increase in
revenues of approximately $5.0 million for the year ended December 31, 2022 was primarily attributable to the inclusion for the first
time of revenues of Formally Smart Form System Ltd., consolidated upon acquisition by Michpal as of February 16, 2022, and increased demand
for Michpal&#8217;s payroll software solutions and related services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Magic Software:</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software&#8217;s revenues,
reported under this revenue stream, decreased by approximately 1% from $78.1 million in 2021 to $77.6 million in 2022 resulting from a
decrease in revenues of $6.9 million resulting from devaluation of mainly the NIS, GBP, JPY and Euro in relation to the US dollar, which
was offset by (a) an increase of $6.0 million revenues which resulted from increased demand for Magic Software&#8217;s proprietary software
solutions and (b) $1.4 million resulting from the first-time consolidation of Intrabases SAS acquired on July 1, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A breakdown of our overall
revenues into (i) proprietary software products and related services revenues, and (ii) software services revenues for the years ended
December 31, 2021 and 2022, the percentage those respective categories of revenues constituted out of our total revenues in those years,
and the percentage change for each such category of revenues from 2021 to 2022, are provided in the below table:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Revenues by geographical region</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The dollar amount of our revenues
attributable to each of the geographical regions in which we conduct our operations for the years ended December 31, 2021 and 2022, respectively,
were as follows:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">11,333</td><td style="text-align: left">&#160;</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Cost of Revenues</span></i></b><i>.
</i>Cost of revenues consists primarily of compensation expense to employees and subcontractors, royalties and licenses payable to third
parties, amortization of acquired technologies, capitalized software and depreciation, cloud-related cost, and hardware and other materials
costs. Cost of revenues increased by 5.9% from $1,840.5 million in 2021 to $1,949.9 million in 2022. As a percentage of total revenues,
costs of revenues in 2021 and 2022 decreased from 76.5% in 2021 to 75.8%, in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our proprietary software solutions
and related services sales are generally characterized by a higher gross margin than sales of our software services. The cost of revenues
for proprietary software solutions and related services decreased from $350.8 million in 2021 to $346.8 million in 2022. As a percentage
of our proprietary software solutions and related services revenues, costs of revenues for proprietary software solutions and related
services decreased from 55.4% in 2021 to 52.3% in 2022. The decrease in our cost of revenues for proprietary software solutions and related
services as a percentage of revenues from proprietary software solutions and related services was primarily attributable to the inclusion
for the first time of the results of operations of Formally Smart Form System Ltd., consolidated upon acquisition by Michpal as of February
16, 2022, which achieved gross margin of approximately 83%. Furthermore, while the rate of payroll expenses increased in 2022, in line
with industry trends, we mitigated that increase by increasing our reliance upon offshore employees.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The cost of revenues for software
services increased from $1,489.7 million in 2021 to $1,605.5 million in 2022. As a percentage of software services revenues, costs of
revenues for software services remained relatively stable, at 84.0% in 2022 compared to 84.1% in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in our cost of
revenues in 2022 was attributable in part to the inclusion of the results (and, consequently, the cost of revenues) of the following entities
in our consolidated results in 2021: (i) the first full year of Y.G. Soft IT Ltd (consolidated upon acquisition by Magic Software as of
January 2021), (ii) the first full year of EnableIT, LLC., and Menarva Ltd., (consolidated upon acquisition by Magic Software as of April
2021), (iii) the first full year of SQ Service Quality Ltd., A. A. Engineering Ltd., and I.T.D. Group Ltd. (consolidated upon acquisition
by Matrix as of April 2021), (iv) the first full year of AVB Technologies Ltd., (consolidated upon acquisition by Matrix as of October
2021), (v) the first full year of Zap Group (consolidated upon acquisition by Formula as of April 2021), (vi) the first-time inclusion
of Shamrad Electronic (1997) Ltd (consolidated upon acquisition by Formula as of October 2022), (vii) the first-time inclusion of Cognitive
Ltd (consolidated upon acquisition by Sapiens as of May 2022), (viii) the first-time inclusion of Appush Ltd.. (consolidated upon acquisition
by Magic Software as of January 2022), (ix) the first-time inclusion of The Goodkind Group, LLC., (consolidated upon acquisition by Magic
Software as of August 2022), (x) the first-time inclusion of Intrabases SAS (consolidated upon acquisition by Magic Software as of July
2022), (xi) the first-time inclusion of RDT Equipment and Systems (1993) Ltd. (consolidated upon acquisition by Matrix as of June 2022)
and (xii) the first-time inclusion of Formally Smart Form System Ltd (consolidated upon acquisition by Formula as of February 2022).&#160;</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in our cost of
revenues in 2022 was also attributable to the following increases involving Matrix, Sapiens and Magic Software:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Matrix:</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s cost of revenues
increased by approximately 7%, when measured in NIS, Matrix&#8217;s local currency, from NIS 3,729.7 million (approximately $1,155.3 million)
in 2021 to NIS 4,000.6 million (approximately $1,192.7 million) in 2022. The increase in absolute cost of revenues was in line with the
increase in Matrix revenues and was primarily attributable to the increase in the operations of Matrix&#8217;s cloud and infrastructure
business segment which grew in 2022 by approximately 11% when measured in NIS and accounted for 29% of Matrix&#8217;s total revenues.
The level of Matrix&#8217;s cost of revenues as a percentage of its revenues remained relatively stable these last two years, at 85.5%
in 2021 and 85.6% in 2022 (when measured in NIS).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s cost of revenues
for each of the years ended December 31, 2021 and 2022 does not include amounts of stock-based compensation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Sapiens:</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens&#8217; cost of revenues
increased by $2.5 million, or 0.9%, to $272.6 million for the year ended December 31, 2022, as compared to $270.1 million for the year
ended December 31, 2021. The increase was mainly due to an increase in the number of delivery employees compared to 2021 offset by $4.7
million decrease of intangible assets and software capitalization amortization expenses. Cost of revenues amounted to 57.4% as a percentage
of Sapiens&#8217; revenues during the year ended December 31, 2022, which was a decrease by 116 basis points from the corresponding percentage
for the year ended December 31, 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens&#8217; cost of revenues
for each of the years ended December 31, 2022 and 2021 does not include amounts of stock-based compensation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Magic Software:</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software&#8217;s cost
of revenues increased by approximately 17%, from $351.1 million in 2021 to $411.4 million in 2022. The increase in absolute cost of revenues
was in line with the increase in revenues by 18% year over year, from $411.4 million recorded in 2021 to $566.8 million recorded in 2022.
Cost of revenues amounted to 72.6% as a percentage of Magic Software&#8217;s revenues during the year ended December 31, 2022, which was
a decrease by 51 basis points from the corresponding percentage for the year ended December 31, 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues for each
of the years ended December 31, 2021 and 2022 does not include amounts of stock-based compensation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Operating Expenses</span></i></b><i>:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Research and Development
Expenses, net</span></i></b><i>. </i>Research and development, or R&amp;D, expenses consist primarily of compensation expense to employees
and subcontractors engaged in research and development.&#160;Research and development expenses, net, consist of research and development
expenses, gross, less capitalized software costs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Research and development expenses,
gross, increased from $77.6 million in 2021 to $81.3 million in 2022, mainly due to: an increase in the number of R&amp;D employees in
2022 compared to 2021, along with the full-year effect of the increase in compensation expenses to employees, which was mostly implemented
over the course of 2021. Capitalization of software costs in 2021 and 2022 was attributable to our subsidiaries engaged in providing proprietary
software solutions (i.e., Magic Software and certain of its subsidiaries, and Sapiens and certain of its subsidiaries). Research and development
expenses, net, increased from $65.9 million in 2021 to $72.1 million in 2022, mainly due to the factors described above.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a percentage of revenues,
research and development expenses, net, remained the same in 2022 as in 2021, at 2.8% and 2.7%, respectively. Research and development
expenses for the years ended December 31, 2022 and 2021 do not include amounts of stock-based compensation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; text-align: justify; margin: 0pt 0"><b><i><span style="text-decoration:underline">Selling, Marketing
General and Administrative Expenses</span>.</i></b> Selling, marketing, general and administrative, or SMG&amp;A, expenses consist primarily
of cost of compensation expense to employees and subcontractors involved in sales, marketing, management and administrative functions,
travel expenses, selling expenses, rent, utilities, communications expenses, expenses related to external consultants, depreciation,
amortization and other expenses. Selling, marketing, general and administrative expenses increased from $290.0 million in 2021 to $318.0
million in 2022. As a percentage of revenues, SMG&amp;A slightly increased from 12.1% in 2021 to 12.4% in 2022.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The increase in SMG&amp;A
expenses in 2022 was mainly attributable to: (i) the increase in Matrix&#8217;s SMG&amp;A by $6.3 million resulting from an increase in
sales and marketing activities in line with the increase recorded in Matrix revenues, which wes offset in part by a decrease by $4.0 million
resulting from the appreciation of the USD compared to the NIS in 2022 (Matrix&#8217;s general and administrative expenses remained relatively
stable when measured in NIS); (ii) an increase of $8.8 million from the inclusion for the first full year of Zap Group (consolidated upon
acquisition by Formula as of April 2021); (iii) an increase in Magic Software&#8217;s SMG&amp;A from $68.1 million in 2021 to $83.5 million
in 2022, which was mainly attributable to (a) the inclusion for a full year for the first time in 2022 of entities acquired in 2021, and
inclusion for the first time in 2022 of entities acquired in 2022, (b) an increase in cost related to share-based compensation from $1.0
million in 2021 to $2.1 million in 2022, and (c) the accompanying increase in Magic Software&#8217;s revenues; and (iv) an increase in
Michpal Group&#8217;s SMG&amp;A expenses by approximately $1.0 million resulting from an increase in sales and marketing activities and
$0.4 million recorded with respect to revaluation of contingent consideration due with respect to the acquisition of Unique Software Industries,
which was acquired in November 2019.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Consolidated stock-based compensation
expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and 2021 amounted
to $15.0 million and $14.8 million, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Matrix:</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s SMG&amp;A expenses
increased to $95.6 million for the year ended December 31, 2022 compared to $93.3 million for the year ended December 31, 2021, representing
an increase of $2.3 million. This increase was mainly attributable to an increase of $6.3 million in sales and marketing activities in
line with the increase recorded in Matrix&#8217;s revenues, which was offset, in part, by a decrease of $4.0 million resulting from the
appreciation of the USD compared to the NIS. Matrix general and administrative expenses remained relatively stable when measured in NIS.
As a percentage of Matrix&#8217;s revenues, Matrix&#8217;s SMG&amp;A expenses remained the same, at 6.9% in each of 2021 and 2022 when
measured in NIS.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Matrix&#8217;s stock-based
compensation expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and
2021 amounted to $0.4 million and $1.0 million, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Sapiens:</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens&#8217; SMG&amp;A expenses,
which are primarily comprised of compensation expenses for employees and subcontractors, were $76.2 million for the year ended December
31, 2022 compared to $77.2 million in the year ended December 31, 2021, representing a decrease of $1.0 million. This decrease was mainly
attributable to a decrease of $1.1 million of Sapiens share-based compensation expenses compared to the previous year. As a percentage
of total revenues, Sapiens&#8217; SMG&amp;A decreased from 16.7% in the year ended December 31, 2021, to 16.0% for the year ended December
31, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens&#8217; stock-based
compensation expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and
2021 amounted to $4.3 million and $5.4 million, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Magic Software:</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software&#8217;s SMG&amp;A
expenses increased to $83.5 million for the year ended December 31, 2022 compared to $68.1 million for the year ended December 31, 2021,
representing an increase of $15.4 million. This increase was attributable to (a) the inclusion for a full year for the first time in 2022
of entities acquired in 2021 and inclusion for the first time in 2022 of entities acquired in 2022, (b) an increase in cost related to
share-based compensation from $1.0 million in 2021 to $2.1 million in 2022, and (c) an increase in overall SMG&amp;A in line with the
increase in Magic Software&#8217;s revenues, from $480.3 million in 2021 to $566.8 million in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Magic Software&#8217;s stock-based
compensation expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and
2021 amounted to $2.1 million and $1.0 million, respectively.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Operating Income</span></i></b>.
Our operating income increased from $208 million in 2021 to $276.6 million in 2022. Operating income in 2022 included a capital gain
from the disposition of a Matrix&#8217;s subsidiary (Infinity Labs R. &amp; D. Ltd) for a total consideration of NIS 154.5 million (approximately
$46.2 million), which resulted in a capital gain of $44.3 million. Excluding the impact of capital gain resulted from the sale of Infinity
Labs, as a percentage of revenues, our operating income remained stable and changed from 8.7% in 2021 to 9.0 % in 2022. The increase
in our operating income during the year ended December 31, 2022 relative to the year ended December 31, 2021 as an absolute amount was
attributable to the various gross profit and operating expenses trends described above.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Financial Expenses,
net</span></i></b>. Financial expenses decreased from $30.0 million in 2021 to $27.2 million. Financial expenses, net decreased from $24.0
million in 2021 to $19.9 million in 2022. Financial expenses are influenced by various factors, including: our cash balances; loan balances;
outstanding debentures; changes in liabilities related to business combinations; changes in the exchange rate of the NIS against the dollar;
changes in the exchange rate of the dollar against the Euro; and changes in the Israeli consumer price index, or CPI.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The decrease in net financial
expenses in 2022 was primarily attributable to (i) a decrease in financial costs related to debentures from $6.9 million to $3.8 million
resulting from repayment of debentures in an amount of $53.1 million during 2022, (ii) a decrease in financial expenses related to liabilities
in respect of business from $3.5 million in 2021 to $1.1 million in 2022, (iii) an increase in net positive impact of foreign exchange
differences amounting to $7.6 million, offset, in part, by (iv) a decrease in income from marketable securities and derivatives, net from
$3.3 million of income in 2021 to a loss of $1.2 million in 2022, and (v) an increase in interest expenses on loans and borrowings from
$6.2 million in 2021 to $9.8 million in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Taxes on Income</span></i></b>.
Taxes on income increased from $42.6 million in 2021 to $55.2 million in 2022, in line with the increase in our income before taxes. As
a percentage of pre-tax income, tax expenses amounted to approximately 21.5% in 2022, compared to 23.2% in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Share of profits
(loss) of companies accounted for at equity, net</span></i></b><i>. </i>Share of profits (loss) of companies accounted for at equity, net,
decreased from a gain of $0.5 million in 2021 to a loss of $1.8 million in 2022. Our share of loss of companies accounted for at equity,
net in 2022 was mainly attributable to a loss recorded in TSG in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Net income attributable
to non-controlling interests</span></i></b>. Net income attributable to non-controlling interests includes the non-controlling interests
held by other shareholders in our consolidated companies, which were not wholly owned by Formula during each of the periods indicated.
Net income attributable to non-controlling interests increased from $54.6 million in 2021 to $81.4 million in 2022, mainly due to (i)
an increase in Sapiens&#8217; net income attributable to its shareholders, from $45.6 million of net income attributable to its shareholders
during the year ended December 31, 2021 to $52.1 million net income attributable to its shareholders during the year ended December 31,
2022, (ii) an increase in Matrix&#8217;s net income attributable to its shareholders from $60.6 million recorded during the year ended
December 31, 2021 to $99.9 million recorded during the year ended December 31, 2022 which was offset, in part, by a decrease in net income
attributable to non-controlling interests recorded in Matrix, from $11.3 million during the year ended December 31, 2021 to $9.5 million
during the year ended December 31, 2022, (iii) an increase in Magic Software&#8217;s net income attributable to its shareholders from
$29.8 million recorded during the year ended December 31, 2021 to $40.0 million recorded during the year ended December 31, 2022.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 0.5in"><b><i>Impact of Inflation
and Currency Fluctuations on Results of Operations</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our financial statements are
stated in U.S. dollars. However, most of our revenues and expenses from our software services revenue line are denominated in NIS and
a substantial portion of our revenues and costs from our proprietary software products and related services revenue line are incurred
in other currencies, particularly NIS, Euros, Japanese yen, Indian rupee and the British pound. We also maintain substantial non-U.S.
dollar balances of assets, including cash, accounts receivable, and liabilities, including accounts payable, debentures and debt to financial
institutions Therefore, fluctuations in the value of the currencies in which we do business relative to the U.S. dollar may adversely
affect our business, results of operations and financial condition. For financial reporting purposes, we translate all non-U.S. dollar
denominated transactions into dollars using the average exchange rate over the period during which the transactions occur, in accordance
with IFRS. Therefore, we are exposed to the risk that the devaluation of the NIS relative to the U.S. dollar may reduce the revenue growth
rate and profitability for our software services in dollar terms. The average of the daily representative exchange rates of the NIS to
the dollar in 2021 and 2022, as reported by the Bank of Israel, was NIS 3.2293 per $1 U.S. dollar, and NIS 3.3596 per $1 U.S. dollar,
respectively. Consequently, this trend decreased the dollar value of our NIS-based revenues and profitability for our Israeli software
services in 2022 relative to 2021. On the other hand, a significant portion of our revenues from proprietary software products and related
services is currently mainly denominated in U.S dollars, Euros, Japanese yen, Indian rupee and the British pound, whereas a substantial
portion of our expenses relating to those products, principally salaries and related personnel expenses, are denominated in NIS. As a
result, the devaluation of the Euro, Japanese yen, Indian rupee and the British pound relative to the U.S. dollar (in which our financial
results are reported) reduces the revenue growth rate and profitability for our proprietary software products and related services in
dollar terms, thereby adversely affecting our operating results. From the perspective of expenses (and contrary to the trend involving
software services), the devaluation of the NIS relative to the dollar, decreases the relative value, in U.S. dollars, of the NIS-denominated
operating costs related to our proprietary software product revenues. That, therefore, increases our profitability and partially compensates
for the negative effect that this movement has on our revenues and our profitability from our software services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since most of our expenses
are incurred in NIS, the dollar cost of our operations also rises as a result of any increase in the rate of inflation in Israel, to the
extent that such inflation is not offset, or is only offset on a lagging basis, by the devaluation (if any) of the NIS against the dollar
during a relevant period of time. The average Israeli rate of inflation on an annual basis amounted to (0.7%), 2.8%, and 5.3% for the
years ended December 31, 2020, 2021, and 2022, respectively. In 2020 and 2021, the NIS appreciated relative to the U.S dollar, whereas
in 2022 the NIS devaluated against the dollar (in each case, based on average of the daily representative exchange rates). Therefore,
in 2020 and 2021 the appreciation of the NIS relative to the dollar increased the cost of our operations. In 2022, the depreciation of
the NIS relative to the dollar reduced the dollar cost of our operations, despite the increase that would have otherwise been caused by
the rise in inflation in Israel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An increase in the rate of
inflation in Israel may also have a material adverse effect on our financial results by increasing our operational expenses, as certain
of our operating lease and rent agreements are denominated in NIS and are generally linked to the Israeli CPI, so to the extent that the
Israeli CPI rises, so will our operational expenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Though, to date, we have not
engaged in significant currency hedging transactions, we do periodically engage in certain economic hedging in order to help protect against
fluctuation in foreign currency exchange rates. Instruments that we use to manage currency exchange risks may include foreign currency
forward contracts. The purpose of our foreign currency hedging activities is to reduce our exposure, from the perspective of our profitability,
to the risks that arise from the adverse impact that exchange rates bear on our revenues and expenses that are denominated in non-U.S.
currencies. Instruments are used selectively to manage risks, but there can be no assurance that we will be fully protected against material
foreign currency fluctuations. We do not use these instruments for speculative or trading purposes. In the future, we may enter into more
or larger currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the NIS,
Euro, Japanese yen or British pound against the dollar, and from increases in the Israeli inflation rate. However, we cannot assure you
that these measures will adequately protect us from the adverse effects of those fluctuations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Following is a summary of the most relevant monetary
indicators for the reported periods:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="border-bottom: Black 1.5pt solid; text-align: left; font-weight: bold">For the year ended December&#160;31,</td><td style="text-align: center; padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
    <td colspan="2" style="text-align: center; border-bottom: Black 1.5pt solid; font-weight: bold">Inflation rate in Israel</td><td style="text-align: center; padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="text-align: center; padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
    <td colspan="2" style="text-align: center; border-bottom: Black 1.5pt solid; font-weight: bold">Devaluation (appreciation)&#160;of NIS against&#160;the US$*</td><td style="text-align: center; padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="text-align: center; padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
    <td colspan="2" style="text-align: center; border-bottom: Black 1.5pt solid; font-weight: bold">Devaluation (appreciation) of Euro against the US$*</td><td style="text-align: center; padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: center; padding-left: 5.4pt">&#160;</td><td style="text-align: center; font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: center">&#160;</td><td style="font-weight: bold; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>%</b></span></td><td style="font-weight: bold; text-align: center">&#160;</td><td style="text-align: center; font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: center">&#160;</td><td style="font-weight: bold; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>%</b></span></td><td style="font-weight: bold; text-align: center">&#160;</td><td style="text-align: center; font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: center">&#160;</td><td style="font-weight: bold; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>%</b></span></td><td style="font-weight: bold; text-align: center">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 64%; text-align: left">2020</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">(0.7</td><td style="width: 1%; text-align: left">)%</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">(7.0</td><td style="width: 1%; text-align: left">)%</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">(9.3</td><td style="width: 1%; text-align: left">)%</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">2021</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">2.8</td><td style="text-align: left">%</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(3.2</td><td style="text-align: left">)%</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">7.7</td><td style="text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">2022</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">5.26</td><td style="text-align: left">%</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(13.2</td><td style="text-align: left">)%</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">5.8</td><td style="text-align: left">%</td></tr>
  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">*</span></td><td style="text-align: justify"><span style="font-size: 10pt">Reflects the change in the
daily exchange rate from the start of such year until the end of such year rather than the change in the average daily exchange rate
over the course of that year relative to the previous year.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Effective Corporate Tax Rates in Israel</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Tax regulations have a material
impact on our business, particularly in Israel where we have our headquarters. The following is a summary of some of the current tax law
applicable to companies in Israel, with special reference to its effect on us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Corporate Tax </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Generally, Israeli companies
are subject to corporate tax on their taxable income. As of 2018 and thereafter, the corporate tax rate is 23%. However, the effective
tax rate payable by a company that derives income from an AE, BE, PFE or a PTE, in each case, as defined and further discussed below,
may be considerably lower. See &#8220;Law for the Encouragement of Capital Investments&#8221; in this Item 5.A below. In addition, Israeli
companies are currently subject to regular corporate tax rate on their capital gains.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Besides being subject to the
general corporate tax rules in Israel, certain of our Israeli subsidiaries have also, from time to time, applied for and received certain
grants and tax benefits from, and participate in, programs sponsored by the Government of Israel, as described below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Taxation of Non-Israeli Subsidiaries Held
by an Israeli Parent Company</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Non-Israeli subsidiaries of
an Israeli parent company are generally subject to tax in their countries of residence under tax laws applicable to them in such countries.
Such subsidiaries could also be subject to Israeli corporate tax on their income if they were to be managed and controlled from Israel.
In such case, double taxation could ensue unless an applicable tax treaty provides applicable rules for relief from double taxation or
such relief is available under internal law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An Israeli parent company
may also be required to include in its income on a current basis, as a deemed dividend, certain income derived by its subsidiaries under
the Israeli Controlled Foreign Corporation rules, or CFC, regardless of whether such income is distributed or not. Under these rules,
a non-Israeli subsidiary is considered to be a CFC, if, among other things, (i) a majority of the subsidiary&#8217;s means of control
are held by Israeli residents, (ii) most of its revenues or income is passive (such as interest, dividends, royalties, rental income or
income from capital gains) and (iii) such income is taxed at a rate that does not exceed 15%. An Israeli parent company that is subject
to Israeli taxes on such deemed dividend income, may generally receive a credit for foreign taxes paid by its subsidiaries in their country
of residence and for deemed foreign taxes to be withheld upon the actual distribution of such income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->104<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Law for the Encouragement of Industry (Taxes),
5729-1969</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Law for the Encouragement
of Industry (Taxes), 5729-1969 (the &#8220;<b>Industry Encouragement Law</b>&#8221;) provides several tax benefits for an &#8220;Industrial
Company.&#8221; Pursuant to the Industry Encouragement Law, a company qualifies as an Industrial Company if it is an Israeli resident
company which was incorporated in Israel and at least 90% of its income in any tax year (other than income from certain government loans)
is generated from an &#8220;Industrial Enterprise&#8221; that it owns and is located in Israel or in the &#8220;Area,&#8221; in accordance
with the definition under Section 3A of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance. An &#8220;Industrial Enterprise&#8221;
is defined as an enterprise which is held by an Industrial Company whose major activity, in a given tax year, is industrial production.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An Industrial Company is entitled
to certain tax benefits, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">Amortization of the cost of the purchases of patents, or the right to use a patent or know-how that were purchased in good faith and used for the development or promotion of the Industrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9632;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the right to elect, under certain conditions, to file a consolidated tax return together with Israeli Industrial Companies controlled by it; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9632;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Expenses related to a public offering are deductible in equal amounts over three years beginning from the year of the offering.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Eligibility for benefits under
the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that certain of
our Israeli subsidiaries and affiliate currently qualify as Industrial Companies within the definition under the Industry Encouragement
Law. We cannot assure you that they will continue to qualify as Industrial Companies or that the benefits described above will be available
in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Law for the Encouragement of Capital Investments,
5719-1959</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Law for the Encouragement
of Capital Investments, 5719-1959, or the Investment Law, provides certain incentives for capital investments in a production facility
(or other eligible assets). Generally, an investment program that is implemented in accordance with the provisions of the Investment Law,
referred to as an Approved Enterprise, or AE, a Benefitted Enterprise, or BE, or a Preferred Enterprise, or PFE, or a Special Preferred
Enterprise, or &#8220;SPFE&#8221;, or a Preferred Technological Enterprise, or PTE, or a Special Preferred Technological Enterprise, or
SPTE is entitled to benefits as discussed below. These benefits may include cash grants from the Israeli government and tax benefits,
based upon, among other things, the geographic location in Israel of the facility in which the investment is made. In order to qualify
for these incentives, an AE, BE, PFE, SPFE PTE or SPTE is required to comply with the requirements of the Investment Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Investment Law has been
amended several times over the recent years, with the three most significant changes effective as of April 1, 2005 (referred to as the
2005 Amendment), as of January 1, 2011 (referred to as the 2011 Amendment) and as of January 1, 2017 (referred to as the 2017 Amendment).
Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by
the 2005 Amendment remain in force but any benefits granted subsequently are subject to the provisions of the amended Investment Law.
Similarly, the 2011 Amendment introduced new benefits instead of the benefits granted in accordance with the provisions of the Investment
Law prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect up to January 1, 2011 were
entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego
such benefits and elect the benefits of the 2011 Amendment. The 2017 Amendment introduces new benefits for Technological Enterprises,
alongside the existing tax benefits.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Tax benefits under the 2011 Amendment that
became effective on January 1, 2011.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The 2011 Amendment canceled
the availability of the benefits granted in accordance with the provisions of the Investment Law prior to 2011 and, instead, introduced
new benefits for income generated by a &#8220;Preferred Company&#8221; through its PFE (as such terms are defined in the Investment Law)
as of January 1, 2011. A Preferred Company is defined as either (i) a company incorporated in Israel which is not wholly owned by a governmental
entity or (ii) a limited partnership that (a) was registered under the Israeli Partnerships Ordinance and (b) all of its limited partners
are companies incorporated in Israel, but not all of them are governmental entities; which has, among other things, PFE status and is
controlled and managed from Israel. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of
15% with respect to its preferred income, or PFI, attributed to its PFE in 2011 and 2012, unless the PFE is located in a certain development
zone, in which case the rate will be 10%. Such corporate tax rate was reduced to 12.5% and 7%, respectively, in 2013 and was increased
to 16% and 9%, respectively, in 2014 until 2016. Pursuant to the 2017 Amendment, in 2017 and thereafter, the corporate tax rate for a
PFE that is located in a specified development zone was decreased to 7.5%, while the reduced corporate tax rate for other development
zones remains 16%. Income derived by a Preferred Company from a Special Preferred Enterprise, or SPFE (as such term is defined in the
Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates of 8%, or 5% if the SPFE is located
in a certain development zone. As of January 1, 2017, the definition for SPFE includes less stringent conditions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The classification of income
generated from the provision of usage rights in know-how or software that were developed in a PFE, as well as royalty income received
with respect to such usage, is subject, as PFE income, to the issuance of a pre-ruling from the Israel Tax Authority, or ITA, that stipulates
that such income is associated with the productive activity of the PFE in Israel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Dividends paid to Israeli
shareholders out of PFI attributed to a PFE or to a Special PFE are generally subject to withholding tax at source at the rate of 20%(in
case of non-Israeli residents - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate,
20%, or such lower rate as may be provided in an applicable tax treaty). However, if such dividends are paid to an Israeli company, no
tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company the aforesaid
will apply).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sapiens has received a new
tax ruling from the ITA valid until December 31, 2024, according to which dividends paid to Israeli shareholders who are individuals and
to non-Israeli shareholders (individuals and corporations) will be subject to withholding tax at source at the rate of 25% and in the
case of Israeli resident corporations&#8212; 0%, regardless of the source of the dividends. We cannot guarantee that the tax ruling will
be extended.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The 2011 Amendment also provided
transitional provisions to address companies already enjoying current benefits under the Investment Law. These transitional provisions
provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011
with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was
granted to an AE, which chose to receive grants, before the 2011 Amendment became effective, will remain subject to the provisions of
the Investment Law as in effect on the date of such approval, and subject to certain conditions; and (ii) the terms and benefits included
in any certificate of approval that was granted to an AE, that had participated in an alternative benefits program, before the 2011 Amendment
became effective, will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that
certain conditions are met.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2011, Magic and one of
its Israeli subsidiaries filed a notice to the Israeli tax authorities to apply for the new benefits under the 2011 Amendment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2015, certain of Sapiens&#8217;
Israeli subsidiaries that had tax-exempt profits, filed a notice to the Israeli tax authorities to apply for the new benefits under the
2011 Amendment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 15, 2021, the
Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2021 and 2022 Budget Years), 2021, which we refer
to as the Economic Efficiency Law, was enacted. This law established a temporary order, or the Temporary Order, allowing Israeli companies
to release tax-exempt earnings, which we refer to as trapped earnings or accumulated earnings, that had accumulated until December 31,
2020, through a mechanism established for a reduced corporate income tax rate applicable to those earnings. In addition to reducing the
corporate income tax (or CIT) rate, the Economic Efficiency Law amended Article 74 of the Investment Law, whereby effective from August
15, 2021, for any dividend distribution (including a dividend specified in Article 51B of the Investment Law) by a company which has trapped
earnings, there is a requirement to allocate a portion of that distribution to the trapped earnings. Under the Temporary Order, the reduction
of CIT applies to earnings that are released (with no requirement for an actual distribution) within a period of one year from the date
of enactment of the Temporary Order. The reduction in the CIT is dependent on the proportion of the trapped earnings that are released
relative to the total trapped earnings, and on the foreign investment percentage in the years the earnings were generated. Consequently,
the larger the proportion of the trapped earnings that are released, the lower the tax in respect of the distribution. The minimum tax
rate is 6%. Further, a company that elects to pay a reduced CIT is required to invest in its industrial enterprise a designated amount
in accordance with the Economic Efficiency Law within a period of five years commencing from the tax year in which the election is made.
The designated investment should be utilized for the acquisition of production assets, and/or investments in research and development
and/or compensation to additional new employees.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2021, Sapiens elected to
benefit from the Temporary Order and pay the reduced CIT as per the provisions of the Economic Efficiency Law in respect of its total
accumulated tax-exempt earnings amounting to NIS 109 million (approximately $35.0 million), and accordingly our deferred tax liability
includes an amount of $3.5 million. In 2022, the Sapiens filed its application for the Temporary Order and paid the required amount to
the Israeli tax authority.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 2022, Magic Software
also elected to benefit from the Temporary Order and filed its application for the Temporary Order and paid the required reduced CIT as
per the provisions of the Economic Efficiency Law in respect of its total accumulated tax-exempt earnings amounting to NIS 25.0 million
(approximately $7.1 million), and accordingly recognized a tax liability of NIS 2.5 million (approximately $0.7 million).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31, 2022 all of Sapiens&#8217;
and Magic Software&#8217;s trapped earnings were released.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>New Tax benefits under the 2017 Amendment
that became effective on January 1, 2017</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The 2017 Amendment provides
new tax benefits for two types of Technology Enterprises, as described below, and is in addition to the other existing tax beneficial
programs under the Investment Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The 2017 Amendment provides
that a technology company satisfying certain conditions will qualify as a PTE, and will thereby enjoy a reduced corporate tax rate of
12% on income that qualifies as Preferred Technology Income, or PTI, as defined in the Investment Law. The tax rate is further reduced
to 7.5% for a PTE located in development zone A. In addition, a Preferred Technology Company will enjoy a reduced corporate tax rate of
12% on capital gain derived from the sale of certain Benefited Intangible Assets (as defined in the Investment Law). to a related foreign
company if the &#8220;Benefitted Intangible Assets&#8221; (as defined under the Investment Law) were acquired from a foreign company after
January&#160;1, 2017 for at least NIS 200&#160;million, and the sale receives prior approval from the Israeli Innovation Authority (&#8220;IIA&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The 2017 Amendment further
provides that a technology company satisfying certain conditions will qualify as an SPTE (an enterprise for which, among others, total
consolidated revenues of its parent company and all subsidiaries is at least NIS 10 billion) and will thereby enjoy a reduced corporate
tax rate of 6% on PTI regardless of the company&#8217;s geographic location within Israel. In addition, an SPTE will enjoy a reduced corporate
tax rate of 6% on capital gain derived from the sale of certain &#8220;Benefited Intangible Assets&#8221; to a related foreign company
if the Benefited Intangible Assets were either developed by the Special Preferred Technology Enterprise or acquired from a foreign company
on or after January 1, 2017, and the sale received prior approval from IIA. An SPTE that acquires Benefitted Intangible Assets from a
foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject to certain approvals
as specified in the Investment Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Dividends distributed by a
PTE or a Special PTE, paid out of PTI to Israeli shareholders,, are generally subject to withholding tax at source at the rate of 20%
(in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced
tax rate, 20%, or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company,
no tax is required to be withheld (although, if such dividends are subsequently distributed from such Israeli company to individuals or
a non-Israeli company, the aforesaid will apply). If such dividends are distributed to a foreign company that holds solely or together
with other foreign companies 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% (or
a lower rate under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced
tax rate).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We examined the impact of
the 2017 Amendment and the degree to which certain of our Israeli subsidiaries will qualify as a PTE or SPTE, and the amount of PTI that
we may have, or other benefits that we may receive, from the 2017 Amendment. Beginning in 2017, part of our Group&#8217;s taxable income
in Israel is entitled to a preferred 12% tax rate under the 2017 Amendment. In addition, from 2019 onwards, certain of our Israeli subsidiaries
are considered an SPTE and are entitled to an SPTE tax rate of 6%, as described above.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Tax Benefits and grants for Research and
Development</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Israeli tax law allows, under
certain conditions, a tax deduction for research and development expenditures, including capital expenditures, for the year in which they
are incurred. Such expenditures must relate to scientific research and development projects, and must be approved by the relevant Israeli
government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company&#8217;s
business and carried out by or on behalf of the company seeking such tax deduction. However, the amount of such deductible expenses is
reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects.
Expenditures not so approved by the relevant Israeli government ministry, but otherwise qualifying for deduction, are deductible over
a three-year period.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Tax Reform - United States of America:</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The U.S. Tax Cuts and Jobs
Act of 2017 (&#8220;TCJA&#8221;) was approved on December 22, 2017. This legislation makes significant changes to the U.S. Internal Revenue
Code. Such changes include a reduction in the corporate tax rate and limitations on certain corporate deductions and credits, among other
changes. The TCJA reduces the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. In addition, the TCJA
makes certain changes to the depreciation rules and implements new limits on the deductibility of certain expenses and deduction.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Effective in 2022, the TCJA
requires all U.S. companies to capitalize, and subsequently amortize R&amp;E expenses that fall within the scope of Section 174 over five
years for research activities conducted in the United States and over fifteen years for research activities conducted outside of the United
States, rather than deducting such costs in the year incurred for tax purposes. Although Congress may defer, modify, or repeal this provision,
potentially with retroactive effect, we have no assurance that Congress will take any action with respect to this provision. During 2022,
Sapiens has accounted for the effects of the R&amp;E capitalization, based on interpretation of the law as currently enacted. Accordingly,
Sapiens increased its current tax expenses in 2022 against a corresponding deferred tax benefit in the same amount, resulting in no effect
on the total taxes on income in the statements of income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Liquidity and Capital Resources</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since inception, we have financed
our growth and business primarily through cash provided by operations and through public debt and equity offerings, as well as through
private and public debt and equity offerings of our subsidiaries. In addition, we finance our business operations through short-term and
long-term loans and borrowings available under our credit facilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Current Outlook</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We had cash and cash equivalents
and short-term investments (including marketable securities) of $512.5 million and $569.1 million as of December 31, 2021 and 2022, respectively.
At December 31, 2021, we had indebtedness to banks and others, including debentures, of $586.4 million and $647.7 million, respectively,
of which $224.2 million and $226.2 million were current liabilities and $362.3 million and $421.5 million were long-term liabilities as
of those respective dates. Included in the balance of our indebtedness to banks and others as of December 31, 2022, Formula standalone
had indebtedness of $154.7 million and $158.5 million, in the aggregate, outstanding under Formula&#8217;s secured debentures (Series
A and Series C, respectively) which Formula sold in public offerings in Israel in September 2015 (extended in January 2018) and March
2019 (extended in April 2021 and August 2022), in each case, as described below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We had cash and cash equivalents
that were held outside of Israel and that would have been subject to income taxes if distributed as a dividend as of December 31, 2021
and 2022 in amounts of $56.9 million and $81.8 million, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Sources of Financing</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Series A Secured Debenture Financings</i>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In September 2015, Formula
consummated a public offering of debentures in Israel. The two series of debentures issued by Formula in the public offering consisted
of one series of debentures&#8212; the Series A Secured Debentures&#8212; that is secured by liens on the shares of Formula&#8217;s subsidiaries
(Matrix, Sapiens and Magic Software), and a second series&#8212; the Series B Convertible Debentures&#8212; that was convertible into
ordinary shares of Formula. Both series of debentures were listed for trading only on the TASE. Of those two series, only the Series A
Secured Debentures remain outstanding as of the current time.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the public offering, NIS
102,260,000 ($26.3 million) par value of Series A Secured Debentures were sold, which bear interest on the unpaid principal at a fixed
annual rate equal to 2.8% (which may vary based on the credit rating of the debentures), which is paid on a semi-annual basis through
July 2024. The principal is payable in eight equal annual installments beginning in July 2017 and ending in July 2024. The interest rate
varies based on the credit rating of the Series A Secured Debentures. The net proceeds received by Formula from the issuance of the Series
A Secured Debentures in September 2015 amounted to $25.9 million (net of issuance expenses).The gross proceeds received by Formula from
the issuance of all debentures in September 2015 (including from the Series B Convertible Debentures, which are no longer outstanding)
were approximately NIS 229.8 million ($58.6 million), in the aggregate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>January 2018 Private Placement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On January 31, 2018, Formula consummated a private
placement to qualified investors in Israel, of an additional, aggregate NIS 150 million par value of Series A Secured Debentures at a
price of NIS 1,034.7 for each NIS 1,000 principal amount. The aggregate gross proceeds totaled NIS 155.2 million (approximately $45.6
million), excluding issuance costs of $0.2 million. The terms of the Series A Secured Debentures sold in the private placement are identical
in all respects to those of the Series A Secured Debentures sold in Formula&#8217;s September 2015 public offering.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Series C Secured Debenture Financings</i>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 31, 2019, Formula
consummated a public offering in Israel of a new series of secured debentures&#8212;Series C Secured Debentures&#8212; in an aggregate
NIS 300.0 million par value amount, at a price of NIS 1,000 for each unit of NIS 1,000 principal amount. The aggregate gross proceeds
from the public offering totaled NIS 300.0 million (approximately $82.6 million) excluding issuance costs of $0.9 million. The Series
C Secured Debentures are secured by liens on the shares of Formula&#8217;s subsidiaries and are listed for trading only on the TASE. Each
Series C Debenture unit bears interest at a fixed annual rate equal to 2.29%, which interest will be paid out on a semi-annual basis.
The principal amount of the Series C Debentures will be payable by Formula in seven annual installments from December 1, 2020 through
December 1, 2026, the first five of which will each constitute 11% of the principal, and the final two of which will each constitute 22.5%
of the principal.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The terms of the Series C
Secured Debentures sold in the March 2019 public offering are substantially similar to those of the Series A Secured Debentures sold in
Formula&#8217;s September 2015 public offering and January 2018 private placement.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>April 2021 Private Placement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 12, 2021, Formula
consummated a private placement to qualified investors in Israel of an aggregate NIS 160 million (approximately $48.6 million) principal
amount of its non-convertible Series C Secured Debentures at a price of NIS 1,037 for each NIS 1,000 principal amount. The total aggregate
gross proceeds received by Formula from the investors was NIS 165.92 million (approximately $50.4 million), out of which NIS 1.7 million
was attributed to interest payable (approximately $0.5 million). Debt premium of NIS 4.4 million (approximately $1.0 million) net of issuance
costs of NIS 0.9 million (approximately $0.3 million) were allocated to the Formula Systems Series C Secured Debentures and are amortized
as financial income over the remaining term of Formula Systems Series A Secured Debentures due in 2026.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The additional debentures
were sold by means of an increase in the outstanding principal amount of Series C Secured Debentures. As a result of this private placement,
the total outstanding principal amount of the Series C Debentures increased to approximately NIS 427 million. The Series C Secured Debentures
sold in the private placement are subject to the terms of the deed of trust, entered into in March 2019, by and between Formula, as the
issuer of the debentures, and Reznick Paz Nevo Trusts Ltd., as trustee on behalf of the debenture holders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The terms of the Series C
Debentures sold in the April 2021 private placement were identical in all respects to those of the Series C Debentures sold in Formula&#8217;s
March 2019 public offering.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>August 2022 Private Placement</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">On August 22, 2022, Formula
entered into agreements with qualified investors in Israel for the private placement to those investors of an additional aggregate of
NIS 200 million principal amount of Formula&#8217;s Series C Secured Debentures, at a price of NIS 975 for each NIS 1,000 principal amount.
The total aggregate gross proceeds received by Formula from the investors was NIS 195 million (of which NIS 1.1 million was attributed
to interest payable, or approximately $0.3 million). The additional debentures were sold by means of an increase in the outstanding principal
amount of Series C Secured Debentures.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The total principal amount
of all debentures&#8212;including Series A Secured Debentures and Series C Secured Debentures&#8212;issued by Formula that remain outstanding
as of March 31, 2023 constituted NIS 561.7 million (approximately $155.4 million).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>General Terms of Outstanding Debentures</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Series A Secured Debentures
and Series C Secured Debentures contain, in addition to standard terms and obligations, the following obligations on our part:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a negative pledge, subject to certain exceptions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have agreed to standard
events of default under the Series A Secured Debentures and Series C Secured Debentures, together with the following additional events
of default due to any of the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">cross default, excluding following an immediate repayment initiated in relation to the other series of debentures or other indebtedness (other than non-recourse debt) over NIS 75 million ($21.3 million as of December 31, 2022);</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">if the rating of the debentures is less than BBB- by Standard and Poors Maalot or equivalent rating of other rating agencies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">if there is a change in control without consent of the rating agency;</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">if Formula fails to provide additional security when the loan-to-value of the securities securing the Series A Secured Debentures or Series C Secured Debentures (as applicable) falls below the required ratio;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">failure to comply with the negative pledge covenant.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Subsidiary and Affiliate Financing Activities</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">From time to time, our subsidiaries
and affiliated companies also maintain credit facilities with banks and other financial institutions and issue debt instruments such as
debentures in accordance with their cash requirements. These credit facilities and debentures include, inter alia, certain standard events
of defaults related to our subsidiaries&#8217; operations, which restrict their ability to: (i) undergo a change of control, (ii) distribute
dividends, (iii) incur debt or apply a floating charge on their assets, or (iv) undergo an asset sale or other change that would result
in a fundamental change in their operations. The subsidiaries&#8217; and affiliated companies&#8217; indebtedness also requires that they
comply with certain financial covenants, including maintenance of certain financial ratios related to their shareholders&#8217; equity,
total rate of debt and liabilities, minimum outstanding balance of total cash and short-term investments and operating results that are
customary for companies of their comparable size and the risk. Some of our subsidiaries&#8217; assets are pledged to the lender banks
and debenture holders. If we or any of our subsidiaries do not meet the covenants specified in our credit agreements or indentures (or
equivalent agreement with the debenture holders), and a waiver with respect to the fulfillment of such covenants has not been received
from the lender bank or representative of the debenture holders, the lender bank or debenture holders (via the action of their representative)
may foreclose on the pledged assets to satisfy a debt.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Currently, Matrix, Sapiens,
Magic Software and Formula have such material credit facilities and/or debentures outstanding. The long-term debt obligations of Matrix
over NIS nominated loans bear fixed interest at an average annual rate of 1.4.0%-4.1% (including Matrix Series B Debentures issued September
2022 and extended in December 2022) and floating interest over U.S dollar nominated loans at a rate of LIBOR + 2.2%. The long-term debt
obligations of Magic Software over NIS nominated loans bear fixed interest at an annual rate of 2.1%-3.3% and floating interest over NIS
dollar nominated loans at a rate of SOFR + 2.1% SOFR + 2.2.25 over U.S dollar nominated loans. The long-term debt obligations of Sapiens
bear fixed interest at an annual rate of 3.37%. These credit facilities and/or debentures expire over a period of time that ranges from
one to seven years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31, 2022, Matrix
had aggregate short-term obligations to banks and others of NIS 471.5 million (approximately $134.0 million) and aggregate long-term obligations
to banks and others of NIS 274.5 million (approximately $78.0 million) under its credit facilities. As of December 31, 2022, Magic Software
had aggregate short-term obligations to banks and others of $20.8 million and aggregate long-term obligations to banks and others of $30.4
million under its credit facilities. During the second half of 2022, in an effort to hedge its exposure to the effects of the increase
in interest rates, Matrix engaged in two Series B bonds issuances, yielding a net amount (minus issuance expenses) of approximately NIS
471.1 million (approximately $140.3). The principal due under the Matrix IT Series B Debentures is payable in thirteen (13) semi-annual
installments each equal to approximately 7.14% of the aggregate principal amount (or approximately NIS 33,959) on February 1 and on August
1 of each of the years 2023 through 2029 with the last payment equal to 7.18% of the aggregate principal amount (or approximately NIS
34,148) paid on February 1, 2030. The outstanding principal amount under the Matrix IT Series B Debentures bears interest at a fixed rate
of 4.1% per annum (subject to adjustments based on the credit rating of the debentures), payable on February 1st and August 1st of each
of the years as of February 1, 2023, through 2030. In addition, as of December 31, 2022, Zap Group had aggregate short-term obligations
to banks and others of $1.9 million and aggregate long-term obligations to banks and others of $6.7million under its credit facilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;In November 2016, Magic
Software obtained an NIS 120 million (approximately $31.4 million) loan linked to the NIS from an Israeli institution. Magic Software
intended to use the proceeds from this loan for its general corporate purposes, which may include the funding of its working capital needs
and the funding of potential acquisitions. The principal amount of the loan is payable in seven equal annual payments with the final payment
due on November 2, 2023 and bears a fixed interest rate of 2.60% per annum, payable in two semi-annually payments. The loan, which may
be prepaid under certain circumstances, is subject to various financial covenants, which mainly consist of the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">1.</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">2.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Magic Software cash and cash equivalent and marketable securities available for sales will not be less than $10 million (ten million U.S. dollars).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">3.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The ratio of Magic Software total financial debts to total assets will not exceed 50%.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">4.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The ratio of Magic Software total financial debts less cash, short-term deposits and short-term marketable securities to the annual EBITDA will not exceed 3.25 to 1.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">5.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Magic Software will not create any pledge on all of its property and assets in favor of any third party without the financial institution&#8217;s consent</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In September 2017, Sapiens
issued NIS 280 million (approximately $78.3 million, net of $0.96 million of debt discount and issuance costs) principal amount of Series
B unsecured, non-convertible debentures, in a public offering and private placement in Israel. Proceeds of such offering were utilized
to repay the entire outstanding loan amount (including accrued interest) under a $40 million credit agreement to which Sapiens had been
party with HSBC Bank USA, National Association as financing for Sapiens&#8217; acquisition of StoneRiver. The outstanding principal amount
of the Sapiens Series B debentures is linked to the US dollar and bears interest at an annual rate of 3.37%, to be paid on a semi-annual
basis (on January 1 and July 1 of 2018 through 2025, with one final interest payment on January 1, 2026). The principal of the Sapiens
Series B debentures is payable in eight equal annual payments beginning on January 1, 2019, with the final payment due on January 1, 2026.
The first five principal installments for the September 2017 Series B Debentures, in amounts of $9.9 million each, were paid on January
1, 2019, 2020, 2021, 2022 and 2023.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In June 2020, Sapiens issued
additional Series B Debentures in an aggregate principle amount of NIS 210 million (approximately $60.4 million) through a public offering
in Israel. The gross proceeds received for the issuance of Sapiens&#8217; Series B Debentures in June 2020 were NIS 210.8 million (approximately
$60.6 million), out of which approximately NIS 3.0 million was attributed to interest payable (approximately $0.9 million). Debt discount
of NIS 2.2 million (approximately $0.6 million) and issuance costs of NIS 2.3 million (approximately $0.7 million) were allocated to Sapiens&#8217;
Series B Debentures and are amortized as financial expenses over the remaining term of the Sapiens Series B Debentures due in 2026. The
first three principal payments of $9.9 million each for the June 2020 Series B Debentures were made on January 1, 2021, 2022 and 2023.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 20, 2020, Sapiens
closed an underwritten follow-on public offering of 3,389,830 of its common shares at a public offering price of $29.50 per share, before
underwriting discounts and commissions. Sapiens also granted the underwriters a 30-day option to purchase up to an additional 508,474
common shares at the public offering price, less underwriting discounts and commissions, which option was exercised in full. In total,
Sapiens raised net proceeds of approximately $108.7 million from the offering, after deducting underwriting discounts and commissions
and estimated offering expenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the deed of trust entered
into by Sapiens with the trustee for the holders of its Series B Debentures, Sapiens undertook to maintain a number of conditions and
limitations on the manner in which it can operate its business, including limitations on its ability to undergo a change of control, distribute
dividends, incur a floating charge on its assets, or undergo an asset sale or other change that results in a fundamental change in its
operations. The deed of trust also requires Sapiens to comply with certain financial covenants, including maintenance of a minimum shareholders&#8217;
equity level and a maximum ratio of financial indebtedness to shareholders&#8217; equity, at levels that are customary for companies of
comparable size. The deed of trust furthermore provides for an upwards adjustment in the interest rate payable under the debentures in
the event that the debentures&#8217; rating is downgraded below a certain level. A breach of the financial covenants for more than two
successive quarters or a substantial downgrade in the rating of the debentures (below BBB-) could result in the acceleration of Sapiens&#8217;
obligation to repay the debentures.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of the date of the financial
statements included in this annual report, each of Formula, Sapiens, Magic Software and Matrix was in compliance with each of its respective
financial covenants.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that our current
cash reserves, together with cash that may be distributed to us from the ongoing operations of our subsidiaries and any credit that we
may choose to draw upon that is available under our (and our subsidiaries&#8217; and affiliated company&#8217;s) existing credit facilities
should be sufficient for our present working capital requirements for at least the next 12 months at our current level of operations.
We may consider in the future additional equity issuances, debt issuances or borrowings from banks if necessary to meet cash needs for
our growth, including if needed to consummate one or more acquisitions for consideration consisting of all or a substantial portion of
our available cash. Should we require additional financing in the future, we cannot assure you that such financing will be available on
favorable terms or at all.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Credit Ratings </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In April 2021, following Formula&#8217;s
consummation of a private placement to qualified investors in Israel of additional Series C Secured Debentures, Formula reported publicly
to the TASE and Israeli Securities Authority that Midroog (established in affiliation with the worldwide rating company, Moody&#8217;s
Corporation which maintains a 51% share capital interest) maintained the then-current credit rating of Aa3.il with stable outlook for
Formula&#8217;s current series of secured debentures (Series A Secured Debentures and Series C Secured Debentures).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with its August
2022 private placement of additional Series C Secured Debentures, on August 22, 2022, Formula publicized an updated rating report published
by Standard &amp; Poor&#8217;s Maalot, or S&amp;P (a subsidiary of S&amp;P Global), with respect to Formula and its two outstanding series
of debentures. In that report, S&amp;P assigned a rating of ilAA- for both the Series A Secured Debentures and Series C Secured Debentures,
and a rating of ilAA-/stable for Formula itself.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with Sapiens&#8217;
offering of its Series B Debentures, Sapiens received from S&amp;P a corporate credit rating and a rating for the Series B Debentures,
which S&amp;P affirmed, as of July 2018 and 2019, May 2020 and July 2021, as ilA+, with stable outlook. On June 28, 2022, S&amp;P upgraded
the rating for Sapiens&#8217; Series B Debentures from &#8220;ilA+&#8221; to &#8220;ilAA-&#8221; (on local scaling), with a stable outlook.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with Matrix&#8217;s
August offering of its Series B Debentures (then extended in December 2022 in a private placement) Matrix received from Midroog (established
in affiliation with the worldwide rating company, Moody&#8217;s Corporation which maintains a 51% share capital interest) a corporate
credit rating and a rating for the Series B Debentures, which Midroog affirmed, as of March 2023, as ilAa3.il, with stable outlook.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Cash Provided by Operating Activities</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cash flow provided by our
operating activities increased from $209.1 million in 2021 to $239.1 million in 2022, mainly resulting from increase in Matrix&#8217;s
cash flow provided by operating activities from NIS 219.2 million (approximately $67.9 million) in 2021 to NIS 387.4 million (approximately
$115.3 million).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash provided by operating
activities in 2022 consisted primarily of the cash generated by our subsidiaries&#8217; ongoing operating activities and of net income
stemming therefrom, as adjusted for non-cash activity, including changes in operating assets and liabilities. The material upwards adjustments
in cash flow reflecting non-cash activity included adjustments due to: (i) depreciation and amortization of capitalized research and development
assets, other intangible assets (mainly customer relations), property, plants and equipment and operating right-of-use assets in an aggregate
amount of $115.3 million; (ii) an increase in trade payables in an amount of $25.3 million; (iii) an increase in other accounts payable
and employees and payroll accrual in an amount of $22.3 million; (iv) stock-based compensation expenses in an amount of $15.0 million;
(v) a decrease in other current and long-term accounts receivable in an amount of $2.6 million, offset in part by: (a) an increase in
trade receivables in an amount of $51.4 million; (b) a gain from disposition of a subsidiary of Matrix in an amount of $44.3 million;
(c) changes in deferred taxes, net in an amount of $18.1 million; (d) an increase in inventories in an amount of $13.8 million; (e) a
decrease in deferred revenues in an amount of $6.4 million; and (f) a decrease in value of short-term and long-term loans from bank and
others and deposits, net in an aggregate amount of $4.7 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cash flow provided by operating
activities in 2022 was primarily comprised of NIS 387.4 million (approximately $115.3 million) provided by Matrix, $55.6 million provided
by Sapiens, $56.7 million provided by Magic Software, $6.9 million provided by Michpal, $8.5 million provided by Zap Group, $2.9 million
provided by Shamrad, $0.8 million provided by Insync and approximately $0.6 million provided by Ofek, offset by $7.9 million used by Formula.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash provided by operating
activities in 2021 consisted primarily of the cash generated by our subsidiaries&#8217; ongoing operating activities and of net income
stemming therefrom, as adjusted for non-cash activity, including changes in operating assets and liabilities. The material upwards adjustments
in cash flow reflecting non-cash activity included adjustments due to: (i) depreciation and amortization of capitalized research and development
assets, other intangible assets (mainly customer relations), property, plants and equipment and operating right-of-use assets in an aggregate
amount of $122.2 million; (ii) an increase in liabilities in respect of business combinations in an amount of $4.7 million; (iii) stock-based
compensation expenses in an amount of $14.8 million; (iv) an increase in value of short-term and long-term loans from bank and others
and deposits, net in an aggregate amount of $2.0 million; (v) an increase in trade payables in an amount of $40.1 million; (vi) a decrease
in other current and long-term accounts receivable in an amount of $20.1 million; (vii) a decrease in inventories in an amount of $4.6
million and (viii) an increase in other accounts payable and employees and payroll accrual in an amount of $7.3 million; (ix) an increase
in deferred revenues in an amount of $9.3 million, offset in part by an increase in trade receivables in an amount of $150.8 million and
changes in deferred taxes, net in an amount of $8.0 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cash flow provided by operating
activities in 2021 was primarily comprised of NIS 219.2 million (approximately $67.9 million) provided by Matrix, $89.9 million provided
by Sapiens, $43.7 million provided by Magic Software, $6.3 million provided by Michpal, $1.1 million provided by Ofek and approximately
$6.9 million provided by Zap Group, offset by $1.0 million used by Insync and $6.2 million used by Formula.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Cash Used by or Provided by Financing Activities</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cash flow used by financing
activities was $80.0 million in 2022 compared to cash flow used by financing activities in an amount of $114.1 million in 2021, mainly
reflecting the cumulative effect of the following financing-related transactions that occurred over the course of those years:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Year Ended December 31, 2022</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022, Magic Software declared
cash dividends to its shareholders in an aggregate amount of approximately $24.8 million, of which $13.4 million were paid to non-controlling
interests. In addition, in March 2023, upon the publication of its financial results for the year ended December 31, 2022, Magic Software
announced an additional dividend distribution in an aggregate amount of approximately $14.7 million of which $7.9 million was paid to
non-controlling interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022, Matrix declared cash
dividends to its shareholders in an aggregate amount of approximately NIS 284.3 million (approximately $84.6 million, based on the average
exchange rate for the year 2022), of which NIS 145.9 million (approximately $43.4 million) were paid to non-controlling interests. In
addition, in March 2023, upon the publication of its financial statements for the year ended December 31, 2022, Matrix announced an additional
dividend distribution in an aggregate amount of approximately NIS 37.4 million (approximately $10.2 million) of which NIS 19.4 million
(approximately $5.3 million) was paid to non-controlling interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022, Sapiens declared
cash dividends to its shareholders in an aggregate amount of approximately or $38.9 million, of which $21.6 million were paid to non-controlling
interests. In addition, in March 2023, upon the publication of its financial statements for the year ended December 31, 2022, Sapiens
announced an additional dividend distribution in an aggregate amount of approximately $13.8 million of which $7.7 million was paid to
non-controlling interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Over all, net cash used by
financing activities in 2022 was attributable to: (i) dividends paid to non-controlling interests in subsidiaries in an amount of $96.6
million; (ii) dividends paid to Formula&#8217;s shareholders in an amount of $21.8 million; (iii) repayment of long-term loans from banks
and others in an amount of $87.9 million; (iv) repayment of debentures in an amount of $53.1 million; (v) repayment of lease liabilities
in an amount of $49.7 million; (vi) purchase of non-controlling interests in an amount of $16.8 million; and (vii) a decrease in short-term
bank credit, net in an amount of $7.3 million; offset in part by (a) proceeds from issuance of debentures, net in an amount of $199.1
million (mainly gross proceeds received by Matrix for the issuance of the Series B Debentures and proceeds received by Formula for the
issuance of the additional Series C Secured Debentures); and (b) receipt of long-term loans from banks and others in an amount of $65.7
million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Year Ended December 31, 2021</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2021, Magic Software declared
cash dividends to its shareholders in an aggregate amount of approximately $21.8 million, of which NIS 74.8 million (approximately $23.2
million) were paid to non-controlling interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Over all, net cash used by
financing activities in 2021 was attributable to: (i) a dividend to Formula&#8217;s shareholders in an amount of $22.1 million; (ii) repayment
of long-term loans from banks and others in an amount of $84.2 million; (iii) repayment of debentures in an amount of $47.0 million; (iv)
repayment of lease liabilities in an amount of $44.1 million; and (v) dividends paid to non-controlling interests in subsidiaries in an
amount of $63.0 million; offset in part by (a) an increase in short-term bank credit, net in an amount of $36.3 million; (b) receipt of
long-term loans from banks and others in an amount of $62.7 million; and (c) proceeds from issuance of debentures, net in an amount of
$50.3 million (mainly gross proceeds received by Formula for the issuance of the additional Series C Secured Debentures).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;<i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Cash Used in Investing Activities</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash used in our investing
activities was $74.3 million in 2022 compared to $110.2 million in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash used in investing
activities in 2022 was attributable to: (i) expenditures (net of cash acquired) with respect to business acquisitions in an aggregate
amount of $52.3 million; (ii) purchase of property and equipment and intangible assets in an amount of $25.2 million; (iii) purchase of
other investments in an amount of $15.1 million; (iv) capitalization of software development and other costs in an amount of $14.1 million;
and (v) payments in conjunction with deferred payments and contingent liabilities related to business combinations in an amount of $5.2
million. This cash use was offset in part by the following cash amounts provided by investing activities in 2022: (a) proceeds from sale
of a subsidiary of Matrix net of taxes paid in conjunction of this sale in an amount of $34.5 million; (b) increase in short-term and
long-term deposits, net in an amount of $2.0 million; and (c) proceeds from sale of property and equipment in an amount of $0.7 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash used in investing
activities in 2021 was attributable to: (i) expenditures (net of cash acquired) with respect to business acquisitions in an aggregate
amount of $77.2 million; (ii) purchase of property and equipment in an amount of $17.4 million; (iii) capitalization of software development
and other costs in an amount of $12.8 million; and (iv) payments in conjunction with deferred payments and contingent liabilities related
to business combinations in an amount of $8.6 million. This cash use was offset in part by the following cash amounts provided by investing
activities in 2021: (a) proceeds from sale of property and equipment in an amount of $2.3 million; and (b) increase in short-term and
long-term deposits, net in an amount of $4.8 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Company Commitments</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The total principal amount
of all debentures&#8212;including Series A Secured Debentures and Series C Secured Debentures&#8212;issued by Formula that remain outstanding
as of March 31, 2023 constituted NIS 561.7 million (approximately $155.4 million).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For a description of the amounts
outstanding under these debenture series and the related covenants and restrictions to which we are subject, please see &#8220;Sources
of Financing&#8221; above in this Item 5.B (&#8220;Liquidity and Capital Resources&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We do not have material commitments
for capital expenditures by Formula as of December 31, 2022 or as of the date of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have entered into an undertaking
to indemnify our office holders in specified limited categories of events and in specified amounts, subject to certain limitations. For
more information, see &#8220;Item 7. Major Shareholders and Related Party Transactions&#8212; Related Party Transactions&#8212; Indemnification
of Office Holders.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Subsidiary Commitments</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our subsidiaries do not have
any material commitments for capital expenditures as of December 31, 2022 or as of the date of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As alluded to above (see &#8220;Sources
of Financing&#8212;Subsidiary and Affiliate Financing Activities&#8221; in this Item 5.B (&#8220;Liquidity and Capital Resources&#8221;)),
the loan agreements, debentures and indentures to which we are party contain a number of conditions and limitations on the way in which
we (Matrix, Sapiens, Magic Software and Formula) can operate our businesses, including limitations on our ability to raise debt and sell
or acquire assets not in normal business activity. For example, Matrix&#8217;s loan agreement includes a negative pledge with respect
to Matrix&#8217;s assets, as well as limitations on Matrix&#8217;s ability to provide guarantees to third parties and sell or transfer
its assets. Matrix&#8217;s loan agreements also contain various covenants which require it to maintain certain financial ratios related
to shareholders&#8217; equity and operating results that are customary for companies of comparable size.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our subsidiaries and affiliate
have provided bank guarantees aggregating to approximately $43.3 million as of December 31, 2022 as security for the performance of various
contracts with customers. If our subsidiaries and affiliates were to breach certain terms of such contracts, the customers could demand
that the banks providing the guarantees pay amounts claimed to be due.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our subsidiaries and affiliate
have also provided additional bank guarantees aggregating to $8.2 million as of December 31, 2022 as security for rent to be paid for
their offices. If our subsidiary and affiliate were to breach certain terms of their leases, the lessors could demand that the banks providing
the guarantees pay amounts claimed to be due.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Series A Secured
Debentures and Series C Secured Debentures described above, liens have been incurred over a certain portion of our investment in outstanding
shares of Matrix, Sapiens and Magic Software, in respect of the amounts shown in the table below:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="padding-bottom: 1.5pt">&#160;</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
    <td colspan="6" style="border-bottom: Black 1.5pt solid; text-align: center; font-weight: bold">December&#160;31, 2022</td><td style="padding-bottom: 1.5pt">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-bottom: 1.5pt">&#160;</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
    <td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Formula&#8217;s Series A Secured Debentures</b></span></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
    <td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Formula&#8217;s Series C Secured Debentures</b></span></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%">Matrix ordinary shares, par value NIS 1 per share</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">4,128,865</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">6, 169,761</span></td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td>Magic Software ordinary shares, par value NIS 0.1 per share</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">5,825,681</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">3,141,474</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td>Sapiens common shares, par value &#8364;0.01 per share</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,260,266</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">2,957,590</td><td style="text-align: left">&#160;</td></tr>
  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->117<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We and IAI have granted TSG,
our jointly controlled affiliate, in equal share, a guarantee of NIS 40 million (approximately $12.4 million) as security against TSG&#8217;s
bank credit line and bank guarantees issued by TSG for the performance of various contracts with its customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Research and Development, Patents and Licenses, etc.</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The net amounts that we spent
on research and development activities in 2021 and 2022 were $65.9 million and $72.1 million, respectively. For more information about
our research and development activities, see &#8220;Item 4. Information on the Company&#8212;Business Overview&#8212; Software Development.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For information concerning
our intellectual property rights, see &#8220;Item 4. Information on the Company&#8212; Business Overview&#8212; Intellectual Property
Rights.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-size: 10pt"><b>D.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Trend Information</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>Trends Impacting Our
Industry and Our Business</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>The demands for IT services
in Israel is directly influenced by global trends. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2022 was initially expected
to be slower than 2021 (which was a year of acceleration and significant growth in the demand for IT Services resulting from the slowdown
in 2020 caused by COVID-19) - but still with significant growth. Gartner, a leading global research and advisory company, expected global
IT spending to grow by 5%-6% in 2021, while it actually grew by over 9%, and was expected to continue and grow by 5.1% in 2022 (see https://www.gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five-
point-1-percent-in-2022, which is not incorporated by reference into this annual report).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In practice, due to global
events, including the war in Ukraine, the closures in China and their effect on global economy, IT global activity in 2022 was weaker
than the forecasts and in practice 2022 ended (at the global level, according to Gartner&#8217;s estimate) with a decrease of about 0.2% (see
https://www.gartner.com/en/newsroom/press-releases/2023-01-18-gartner-forecasts-worldwide-it-spending-to-grow-2-percent-in-2023, which
is not incorporated by reference into this annual report). Neutralizing exchange rate fluctuations impact, 2022 ended with a slight increase
of about 0.8%, and the year 2023 is expected to benefit from an increase of only 2.4%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the analysis of the market
according to Gartner, a significant part of the decrease in growth compared to prior years is due to a very sharp decrease in investments
in end point devices (workstations, cellular devices), which reached a decrease of about 10.6% compared to 2021. When you neutralize the
decrease of the end points devices then it is an increase of about 2.3%, that is: less than half of the forecast. According to Forrester
(see https://www.forrester.com/report/european-tech-market-outlook-by-country-2021-to-2022/RES176894?ref_search=1051634_1645482187974,
which is not incorporated by reference into this annual report), global IT expenses increased in 2022 by approximately 0.3% (compared
to a forecast of approximately 6.7%) and are expected to increase in 2023 by approximately 4.7%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to Gartner, a significant
part of the decrease is due to a very sharp decrease in investments in end point devices (workstations, cellular devices), which reached
a decrease of about 10.6% compared to 2021 (See Forecast Analysis: IT Spending, Worldwide, Gartner, ID G00778744, which is not incorporated
by reference into this annual report). When you neutralize the decrease of the end points means then it is an increase of about 2.3%,
that is: less than half of what was originally forecasted for 2022. According to Gartner, global investments in software increased in
2022 by approximately 7.1% and when neutralizing impact of changes in currency rates by approximately 12.1% compared to investments in
global software in 2021, including an increase in infrastructure software, application software and vertical software. Most of the growth
was in software as a service (SAAS).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to Forrester (See
Global Software Industry Forecast, 2022, not incorporated by reference into this annual report), the prominent areas in the field of software
applications are: CRM (increase of about 11.9%), vertical software (increase of about 13.3%), ERP (increase of about 10.5%), content management
and collaboration (increase of about 11.9%) and engineering software (an increase of about 9.9%). According to the same report, cyber
and information security software (increase of about 15.4%), technology management programs (increase of about 13.1%) and data software
(increase of about 12.8%) stand out in the field of infrastructure software.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The growth in the cyber field
is very significant, and not only in the software field. According to Gartner (see https://www.gartner.com/en/newsroom/press-releases/2022-10-13-gartner-identifies-three-factors-influencing-growth-i,
which is not incorporated by reference into this annual report) the growth in 2022 in the Security &amp; Risk Management field is about
7.2%, while application security and cloud security, increased by more than 20%. According to Forrester the total global investments in
the cloud market are expected to increase by about 23% compared to 2021 (see &#8220;The Public Cloud Market Outlook, 2022 To 2026, Forrester&#8221;,
which is not incorporated by reference into this annual report) and according to Gartner (see https://www.gartner.com/en/newsroom/press-releases/2022-10-31-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-nearly-600-billion-in-2023,
which is not incorporated by reference to this annual report) the expected increase is about 20.7%. The infrastructure cloud sector (IaaS)
is expected to grow in 2022 by almost 30%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 0.5in"><b><i>Israeli market:</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2021 was characterized by
a significant shortage of technological human capital and related professions, resulting with fierce competition for every candidate and
employee, and many difficulties in locating and recruiting suitable candidates and then in retaining quality professional personnel. Although
in 2022 there was a significant slowdown in the high-tech sector in Israel and around the world, which was reflected, among other things,
in reductions and layoffs of employees in the high-tech sector, a large part of those who were laid off managed to return to work in other
companies, which still suffers from a shortage of technological manpower. We estimate that the trend of reducing manpower in some high-tech
companies may make it easier on us to recruit and retain employees and moderate the compensation level.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The shortage and competition
in technological manpower and related professions in Israel may also have opposite effects on our business. On the one hand, it is an
inhibiting factor in the development of our business and our ability to satisfy the demand for our services in the technological fields
(compensated to some extent by further increase in the demand for our non-IT services), it leads to salary increases for the company&#8217;s
manpower (and consequently to the reduction of our profitability) and recruitment and retention costs. On the other hand, it increases
the demand for our services - both for projects and for the services of our professional experts.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">These days the Israeli government
is promoting changes to its legal system. The proposed changes arouse controversy, and according to publications in the media and opinions
of various experts, their effects, the controversy surrounding them and the conduct of the parties in connection with them may <b><i>have
a negative impact on Israel&#8217;s economy. Since a significant portion of our activity is in Israel, the negative impact of </i></b>such changes
on the Israeli economy, to the extent that it occurs, could have a negative effect on the company&#8217;s results. As of the date of this annual
report, we are unable to assess the future effects of all of the aforementioned factors, to the extent that they occur, on the Israeli
economy, on the IT industry in Israel in general, and on our activities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 0.5in"><b><i>Technology/Digital Insurance</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There are various sales and
marketing trends that influence Sapiens&#8217; business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Gartner, a leading global
research and advisory company, has stated in its &#8220;2021 CIO Agenda: An Insurance Perspective&#8221; published on November 11, 2020
by Kimberly Harris-Ferrante, that while 2020 was tough for P&amp;C and life insurance, the 2021 Gartner CIO Survey shows optimism for
CX, investment in technologies and stronger approaches to digital insurance. Gartner recommends that CIOs should look beyond obvious pandemic
impacts and adjust digital strategies for long-term impacts as the industry changes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Other analyst reports, which
were published before the global outbreak, highlighted potential growth opportunities and areas of focus for insurers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.5in; text-align: justify; text-indent: 0.5in; background-color: white"><b><i>Other
Trends</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">As
people accumulate more property and live longer, the insurance industry has become more competitive. The competition for the customers&#8217;
business requires insurers to improve customer experience, be faster to market with new products and offer innovative channels, such as
social media and mobile. Innovative technology infrastructure is necessary to support these business initiatives.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">In
addition, insurers are faced with the increasing significance of regulatory changes to protect the policyholder in many markets, particularly
large insurers that are considered important to the stability of the world economic system. Many insurers are integrating enterprise risk
management as standard operating procedure, while spreading ownership of risk throughout the strategic decision-making process.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">As
customers become more sophisticated, the support of innovative products and distribution channels is mandatory. Insurers are identifying
growth opportunities by attracting new customers and retaining current customers by seeking to reinvent the customer experience and provide
quote and policy information to their customers upon request.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">With
today&#8217;s strong trend of shifting attention to the end-customer experience and activities, there is an increasing focus on digital
operations to support the increasing usage of the Internet for sales, recommendations and general communication. This affects the carriers&#8217;
needs to innovate their product proposition through a flexible and modern solution. Another substantial trend is the increasing usage
of data for decision-making, risk analysis, and customers&#8217; evaluation and rating, which requires streamlined data flow and easy
access to information from multiple sources.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Increased
global competition, the need to improve distribution channels and provide an enhanced customer experience, and efforts to expand into
new countries and markets, have required heavy investments from insurers, resulting in a trend towards consolidation. This has mainly
included consolidation of applications, databases, development tools, hardware and data centers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>Property &amp; Casualty
Market</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Property
&amp; casualty insurance protects policyholders against a range of losses on items of value. P&amp;C insurance includes the&#160;<b>personal
segment</b>, which is insurance coverage for individuals, with products such as motor, home, personal property and travel; the&#160;<b>commercial
segment</b>, covering aspects of commercial activity, such as commercial property, car fleets, cyber and professional liability; and&#160;<b>specialty
lines</b>, covering unique domains, such as marine, art and credit insurance. This market also includes workers&#8217; compensation for
market carriers, administrators and state funds, and Medical Professional Liability for health care professionals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">During
the past few years, the P&amp;C market has been characterized by a fast rate of digital adoption. New business and technology models are
adopted rapidly, to launch innovative business offerings. This requires advanced software solutions, both on the core layer, which needs
to be flexible and open, and with the variety of digital tools addressing customer experience needs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>Life, Pension &amp;
Annuity Markets</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Life,
pension &amp; annuity providers offer their customers a wide range of products for long-term savings, protection, pension and insurance.
They assist policyholders with financial planning through life insurance, medical and investment products. Their products can be classified
into several areas, primarily investment and savings, risk and protection, pension and health-related products. These products can be
targeted to individuals, as well as group- and employee-benefit types of products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">The
products in this field are long-term in nature. When insurance providers consider purchasing new platforms from Sapiens, the decision
is typically slower and involves multiple decision-makers throughout the organization.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>Reinsurance Market</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Reinsurance
is insurance that is purchased by an insurance company (ceded reinsurance) from another insurance company (assumed reinsurance) as a means
of risk management. The reinsurer and the insurer enter into a reinsurance agreement, which details the conditions upon which the reinsurer
would pay the insurer&#8217;s losses. The reinsurer is paid a reinsurance premium by the insurer and the insurer issues insurance policies
to its own policyholders. The insurer must maintain an accurate system of records to track its reinsurance contracts and treaties, to
avoid claims leakage.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>Workers&#8217; Compensation</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Workers&#8217;
compensation is one of the largest lines of business in the P&amp;C industry in North America. But future profitability is getting harder
to maintain, with medical and indemnity costs per lost time claim increasing at rates greater than inflation. Insurance organizations
require technology solutions that can adapt quickly to business and market conditions, offering high levels of accuracy and efficiency.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>Financial &amp; Compliance
Market</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Financial
professionals face overwhelming challenges as they struggle to satisfy ever-changing regulatory requirements, while meeting the demands
of managerial reporting. The move towards globalization has introduced new currencies, and CEOs need more performance data for strategic
decision-making. Organizations require one partner to optimize efficiencies with solutions that can be implemented quickly.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Decision Management Market</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Increasing competition, regulatory
burden, customer experience expectations and the proliferation of digital and product innovation requirements have necessitated a shift
in thinking and approach among organizations across verticals. By replacing conventional policy and process management with the discipline
known as &#8220;decision management,&#8221; financial institutions are bridging the gap between business and IT, by enabling business users
to rapidly frame requirements in formal business models that can be easily understood by all stakeholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The decision management processes
affect overall corporate performance, including its impact on customers and competitors. Decision management systems are a key performance
component of every financial services organization, as they help the organization define, avoid and hedge financial risk.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Business Decision Management Market Needs</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Many large organizations,
particularly in the financial services market, must comply with complex regulations. They operate in highly competitive markets that require
quick responses. Business logic drives most of the financial services transactions and is the backbone of an organization&#8217;s policies and
strategies, and its ability to successfully operate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To achieve efficiency, business
owners must assume ownership of the business logic and possess the ability to define, modify, standardize and reuse it across the organization.
Business logic is defined today by business owners and compliance officers, but IT departments translate the requirements into code. This
process raises several key challenges: 1) the result does not always accurately reflect the business requirements; 2) the new requirements
might conflict with, or override, previous requirements; 3) the changes can take a long time and, 4) the entire process is not fully audited.
These gaps often create an inefficient and risk-exposed organization.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For additional trend information,
please see the discussion in Item 4. &#8220;Information on the Company&#8212; Business Overview&#8221; and Item 5. &#8220;Operating and
Financial Review and Prospects&#8212; Results of Operations.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-size: 10pt"><b>E.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Critical Accounting Estimates </b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our discussion and analysis
of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with IFRS. The preparation of our financial statements required us, in certain circumstances, to make estimations, assumptions
and judgments that affect the reporting amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities within the reporting period. We have based our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions. More detailed descriptions of these policies are provided in Note 2 to our consolidated financial statements contained
elsewhere in this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The significant accounting
policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the
following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Consolidated financial
statements:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The consolidated financial
statements comprise the financial statements of companies that we controlled (subsidiaries). Control is achieved when we are exposed,
or have rights, to variable returns from our involvement with the investee and have the ability to affect those returns through our power
over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial
statements commences on the date on which control is obtained and ends when such control ceases.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In a situation when we hold
less than a majority of voting rights in a given entity, but it is sufficient to unilaterally direct the relevant activities of such entity,
then the control is exercised. When assessing whether our voting rights are sufficient to give us power, we consider all facts and circumstances,
including: the size of our holding of voting rights relative to the size and dispersion of other vote holders; our potential voting rights
and other shareholders or parties; rights arising from other contractual arrangements; significant personal ties and any additional facts
and circumstances that may indicate that we have, or do not have the ability to direct the relevant activities when decisions need to
be made, inclusive of voting patterns observed at previous meetings of shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our financial statements and
the financial statements of our investees, after being adjusted to comply with IFRS, are prepared for the same reporting period and using
consistent accounting treatment of similar transactions and economic activities. Any discrepancies in the applied accounting policies
are eliminated by making appropriate adjustments. Significant intragroup balances and transactions and gains or losses resulting from
intragroup transactions are eliminated in full in the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Other than our joint control
of TSG, in which each of we and Israeli Aerospace Industries Ltd. hold 50% of its voting power, we currently have effective control under
IFRS 10 of each of our other investees, Matrix, Sapiens, Magic Software, Zap Group, Michpal, Ofek Aerial Photography, Shamrad and InSync,
despite our lacking absolute majority of voting power in Matrix, Magic Software and Sapiens. As a result of our effective control in these
investees as of December 31, 2022 and in accordance with IFRS 10, we consolidated their financial results with ours throughout the period
covered by the financial statements included in Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Business combinations
and goodwill:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin: 0pt 0; text-align: justify">Business combinations are accounted for by applying
the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred on the acquisition
date with the addition of non-controlling interests in the acquiree. In each business combination, we consider whether to measures the
non-controlling interests in the acquiree based on their fair value on the acquisition date or at their proportionate share in the fair
value of the acquiree&#8217;s net identifiable assets.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Direct acquisition costs are
carried to the statement of profit or loss as incurred.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In a business combination
achieved in stages, equity interests in the acquiree that had been held by the acquirer prior to obtaining control are measured at the
acquisition date fair value while recognizing a gain or loss resulting from the revaluation of the prior investment on the date of achieving
control.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Contingent consideration is
recognized at fair value on the acquisition date and classified as a financial asset or liability in accordance with IFRS 9, &#8220;Financial
Instruments&#8221;. Subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If the contingent
consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Goodwill is initially measured
at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net identifiable
assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognizes the resulting gain on the acquisition
date.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Non-controlling interests:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Non-controlling interests
in subsidiaries, represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests
are presented in equity separately from the equity attributable to the equity holders of Formula. Profit or loss and components of other
comprehensive income are attributed Formula and to non-controlling interests. Losses are attributed to non-controlling interests even
if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. A change in the
ownership interest 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 interests with a corresponding adjustment of the equity attributable to equity holders of Formula less / plus the
consideration paid or received.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Functional currency,
presentation currency and foreign currency:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The presentation currency
of our consolidated financial statements is the U.S. dollar (the &#8220;dollar&#8221;), since we believe that financial statements in
U.S. dollars provide more relevant information to our investors and users of the financial statements. The functional currency applied
by Formula, on a stand-alone basis, until December 31, 2018, was the dollar. Following an examination and reevaluation of the primary
economic environment in which Formula currently operates and expects to continue operating and taking into consideration the recent trends
and its forward-looking business strategy, in accordance with the International Accounting Standard 21 (IAS 21), Formula concluded that
our functional currency on a stand-alone basis commencing January 1, 2019 is the NIS. The functional currencies applied by our subsidiaries
and associates are the currencies of the primary economic environment in which each one of them operates.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Assets, including fair value
adjustments upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each
reporting date. Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences
are recognized in other comprehensive income (loss).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Intragroup loans for which
settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in the foreign
operation and, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded in other comprehensive
income (loss).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Upon the full or partial disposal
of a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which
had been recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is
reattributed to non-controlling interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Investment in joint
arrangements:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Joint arrangements are arrangements
in which we have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require the unanimous consent of the parties sharing control.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">i.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Joint ventures:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">In joint ventures
the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted
for by using the equity method.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">ii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Joint operations:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">In joint operations
the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement.
We recognize in relation to our interest our share of the assets, liabilities, revenues and expenses of the joint operation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">The acquisition
of interests in a joint operation which represents a business, as defined in IFRS 3, is accounted for using the acquisition method, including
the measurement of the identifiable assets and liabilities at fair value, the recognition of deferred taxes arising from this measurement,
the accounting treatment of the related transaction costs and the recognition of goodwill or bargain purchase gains. This applies to the
acquisition of the initial interest and additional interests in a joint operation that represents a business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Investments accounted
for using the equity method:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our investments in associates
and joint ventures are accounted for using the equity method. Associates are companies in which we have significant influence over the
financial and operating policies without having control. An investment in an associate is accounted for using the equity method.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the equity method, the
investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in our share of
net assets, including other comprehensive income of the associate or the joint venture. Gains and losses resulting from transactions between
us and the associate or the joint venture are eliminated to the extent of the interest in the associate or in the joint venture.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Goodwill relating to the acquisition
of an associate or a joint venture is presented as part of the investment in the associate or the joint venture, measured at cost and
not systematically amortized. Goodwill is evaluated for impairment as part of the investment in the associate or in the joint venture
as a whole.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->124<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our financial statements and
of the associate or joint venture are prepared as of the same dates and periods. The accounting policies applied in the financial statements
of the associate or the joint venture are uniform and consistent with the policies applied in our financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Upon the acquisition of an
associate or a joint venture achieved in stages when the former investment in the acquiree was accounted for pursuant to the provisions
of IAS 9, we adopt the principles of IFRS 3 regarding business combinations achieved in stages. Consequently, equity interests in the
acquiree that had been held by us prior to achieving significant influence or joint control are measured at fair value on the acquisition
date and are included in the acquisition consideration while recognizing a gain or loss resulting from the fair value measurement.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The equity method is applied
until the loss of significant influence in the associate or loss of joint control in the joint venture or classification as investment
held for sale. On the date of loss of significant influence or joint control, we measure any remaining investment in the associate or
the joint venture at fair value and recognize in profit or loss the difference between the fair value of any remaining investment plus
any proceeds from the sale of the investment in the associate or the joint venture and the carrying amount of the investment on that date.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Revenue Recognition</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenue from contracts with
customers is recognized when the control over the goods or services is transferred to the customer. The transaction price is the amount
of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third parties
(such as taxes).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In determining the amount
of revenue from contracts with customers, we evaluate whether we are the principal or the agent in the arrangement. We are considered
as the principal when we control the promised goods or services before transferring them to the customer. In these circumstances, we recognize
revenue for the gross amount of the consideration. When we are considered as the agent, we recognize revenue for the net amount of the
consideration, after deducting the amount due to the principal.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">i.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Sale of software licensing, maintenance
services and post implementation consulting services</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A software licensing transaction
that does not require significant implementation services is considered a distinct performance obligation, as the customer can benefit
from the software on its own or together with other readily available resources.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We recognize revenue from
software licensing transactions at a point in time when we provide the customer a right to use our intellectual property as it exists
at the point in time at which the license is granted to the customer. We recognize revenue from software licensing transactions over time
when we provide the customer a right to access our intellectual property throughout the license term.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may generate revenue from
sale of software licensing which includes significant implementation and customization services. In such contracts we are normally committed
to provide the customer with a functional IT system and the customer can only benefit from such functional system, being the final product
that would normally be comprised of proprietary licenses and significant related services. Revenues from these contracts are based on
either fixed price or time and material.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Software licensing transactions
which involve significant implementation, customization, or integration of the our software license to customer-specific requirements,
are considered as one performance obligation satisfied over-time. The underlying deliverable is owned and controlled by the customer and
does not create an asset with an alternative use to the Group. In addition, we have enforceable right to payment for performance completed
throughout the duration of the contract.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->125<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Accordingly, we recognize
revenue from such contracts over time, using the percentage of completion accounting method. We recognize revenue and gross profit as
the work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract. Provisions
for estimated losses on uncompleted contracts are made during the period in which such losses are first determined, in the amount of the
estimated loss for the entire contract.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When post implementation and
consulting services do not involve significant customization, we account for such services as performance obligations satisfied over time
and revenues are recognized as the services are provided.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenue from maintenance is
recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the our performance.
When payments from customers are made before or after the service is performed, we recognize the resulting contract asset or liability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">ii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Sale of hardware and infrastructure</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenue from sale of hardware
and infrastructure is recognized in profit or loss at the point in time when the control of the goods is transferred to the customer,
generally upon delivery of the goods to the customer.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">iii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Sale of training and implementation
services</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenues from training and
implementation services are recognized when the service is provided. revenue from training services in respect of public courses whose
operating range is up to 3 months will be recognized at the end of the course period. Revenues from training services in respect of long-term
courses will be recognized over the term of the course. Revenues from implementation projects ordered by organizations will be recognized
according to actual inputs (actually worked hours).&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">iv.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Revenue of contracts according
to actual inputs</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenue from framework agreements
for the performance of work according to actual inputs is recognized according to the hours invested.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">v.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Revenue of fixed price contracts</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenue from fixed price contracts
is recognized according to the completion rate method when all the following conditions are met: the revenue is known or can be estimated
reliably, the collection of income is expected, the costs involved in performing the work are known or can be estimated, there is no material
uncertainty about the our ability to complete the work, and the customer and the completion rate can be reliably estimated.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We apply a cost-based input
method for measuring the progress of performance obligations that are satisfied over time. In applying this cost-based input method, we
estimate the costs to complete contract performance in order to determine the amount of the revenue to be recognized.&#160;These estimated
costs include the direct costs and the indirect costs that are directly attributable to a contract based on a reasonable allocation method.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In certain circumstances,
we are unable to measure the outcome of a contract, but we expect to recover the costs incurred in fulfilling the contract as of the reporting
date. In such circumstances, we recognize revenue to the extent of 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 from a contract, the loss is recognized in full regardless of the
percentage of completion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 133; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->126<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When appropriate, we also
apply a practical expedient permitted under IFRS 15 whereby if we have a right to consideration from a customer in an amount that corresponds
directly with the value to the customer of our performance completed to date (for example, a service contract in which an entity bills
a fixed amount for each hour of service provided), we may recognize revenue in the amount it is entitled to invoice. Deferred revenues,
which represent a contract liability, include unearned amounts received under maintenance and support (mainly) and amounts received from
customers for which revenues have not yet been recognized.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">vi.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Allocating the transaction price</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For contracts that consist
of more than one performance obligation, at contract inception we allocate the contract transaction price to each performance obligation
identified in the contract on a relative stand-alone selling price basis. The stand-alone selling price is the price at which we would
sell the promised goods or services separately to a customer. We determine the standalone selling price for the purposes of allocating
the transaction price to each performance obligation by considering several external and internal factors including, but not limited to,
transactions where the specific performance obligation is sold separately, historical actual pricing practices and geographies in which
we offer our products and services. If a specific performance obligation, such as the software license, is sold for a broad range of amounts
(that is, the selling price is highly variable) or if we have not yet established a price for that good or service, and the good or service
has not previously been sold on a standalone basis (that is, the selling price is uncertain), we apply the residual approach whereby all
other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective stand-alone
selling prices, with any residual amount of transaction price allocated to the remaining specific performance obligation.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">vii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Variable consideration</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We determine the transaction
price separately for each contract with a customer. When exercising this judgment, we evaluate the effect of each variable amount in the
contract, taking into consideration discounts, penalties, variations, claims, and non-cash consideration. In determining the effect of
the variable consideration, we normally use the &#8220;most likely amount&#8221; method described in the Standard. Pursuant to this method,
the amount of the consideration is determined as the single most likely amount in the range of possible consideration amounts in the contract.
According to the Standard, variable consideration is included in the transaction price only to the extent that it is highly probable that
a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated with the variable consideration
is subsequently resolved.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">viii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Costs of obtaining a contract</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In order to obtain certain
contracts with customers, we incur incremental costs in obtaining the contract (such as sales commissions which are contingent on making
binding sales). Costs incurred in obtaining the contract with the customer which would not have been incurred if the contract had not
been obtained and which we expect to recover are recognized as an asset and amortized on a systematic basis that is consistent with the
provision of the services under the specific contract.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An impairment loss in respect
of capitalized costs of obtaining a contract is recognized in profit or loss when the carrying amount of the asset exceeds the remaining
amount of consideration that we expect to receive for the goods or services to which the asset relates, less the costs that relate directly
to providing those goods or services and that have not been recognized as expenses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have elected to apply the
practical expedient allowed by IFRS 15 according to which incremental costs of obtaining contract are recognized as an expense when incurred
if the amortization period of the asset is one year or less.&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">ix.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Revenues that include warranty
services</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In certain cases, we also
provide a warranty for goods and services sold (i.e., extended warranties when we contractually undertake to repair any errors in the
delivered software within a strictly specified time limit and/or when the scope of which is broader than just an assurance to the customer
that the product/service complies with agreed-upon specifications). We have ascertained that such warranties granted by us meet the definition
of service. The conclusion regarding the extended nature of a warranty is made whenever we contractually undertake to repair any errors
in the delivered software within a strictly specified time limit and/or when such warranty is more extensive than the minimum required
by law. Under IFRS 15, the fact of granting an extended warranty indicates that we provide an additional service. As such, we recognize
an extended warranty as a separate performance obligation and allocate a portion of the transaction price to such service. In all cases
where an extended warranty is accompanied by a maintenance service, which is even a broader category than the extended warranty itself,
revenues are recognized over time because the customer consumes the benefits of such service as it is performed by the provider. If this
is the case, we continue to allocate a portion of the transaction price to such maintenance service. Likewise, in cases where a warranty
service is provided after the project completion and is not accompanied by any maintenance service, then a portion of the transaction
price and analogically recognition of a portion of contract revenues will have to be deferred until the warranty service is actually fulfilled.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">x.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Disaggregation of revenue</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Service revenue includes contracts
primarily for the provision of supplies and services other than design, development, customization, implementation, software maintenance
and support and software updates associated with delivery of products or proprietary software. It may be a standalone service contract
or a service performance obligation which is distinct from a contract or performance obligation for design, development, customization,
support and upgrade or delivery of product. Our service contracts include contracts in which the customer simultaneously receives and
consumes the benefits provided as the performance obligations are satisfied. Our service contracts primarily include operation-type contracts,
outsourcing, consulting, remote development services, digital advertising management, training and similar activities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">xi.</span></td><td style="text-align: justify"><span style="font-size: 10pt">A significant benefit of financing</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In certain contracts, we provide
the customer with financing for a period exceeding one year. In such circumstances, we recognize revenue based on the amount that reflects
the price that would have been paid by the customer in cash on the date of receipt of the goods or services, and the balance is recognized
in finance income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When long-term advances are
received for services which we are to provide in the future, we accrue interest on the advances and recognizes finance expense over the
expected period of the contract, provided that the contract contains a significant financing component. As the advances are recognized
in revenue, we also recognize the accrued interest as part of revenue from services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have elected to apply the
practical expedient allowed by IFRS 15 according to which we do not separate the financing component in transactions for which the period
of financing is one year or less and recognize revenue in the amount of the consideration stated in the contract even if the customer
pays for the goods or services before or subsequent to their receipt.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Income tax:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Current or deferred taxes
are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income or
equity.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">i.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Current taxes:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">The current tax
liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as
adjustments required in connection with the tax liability in respect of previous years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">ii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Deferred taxes:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Deferred taxes are
computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax
purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability is settled,
based on tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are reviewed at each reporting
date and reduced to the extent that it is not probable that they will be utilized. Deductible carry forward losses and temporary differences
for which deferred tax assets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized
to the extent that their utilization is probable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Taxes that would
apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as
the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event
of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution
of dividends does not involve an additional tax liability or since it is our policy not to initiate distribution of dividends from a subsidiary
that would trigger an additional tax liability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->128<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Taxes on income
that relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted for pursuant to IAS
12.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Deferred taxes are
offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate
to the same taxpayer and the same taxation authority.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Research and development
expenditures</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Research expenditures incurred
in the process of software development are recognized in profit or loss when incurred. An intangible asset arising from a software development
project or from the development phase of an internal project is recognized if we can demonstrate the technical feasibility of completing
the intangible asset so that it will be available for use or sale; our intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of
adequate technical, financial and other resources to complete the intangible asset; and the ability to measure reliably the respective
expenditure asset during its development. We establish technological feasibility upon completion of a detailed program design or a working
model.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Capitalized software costs
are measured at cost less any accumulated amortization and any accumulated impairment losses on a product-by-product basis. Amortization
of capitalized software costs begin when development is complete, and the product is available for use or for sale. We consider a product
to be available for use when we complete its internal validation of the product that is necessary to establish that the product meets
its design specifications including functions, features, and technical performance requirements. Internal validation includes the completion
of coding, documentation and testing that ensure bugs are reduced to a minimum. The internal validation of the product takes place a few
weeks before the product is made available to the market. In certain instances, we enter into a short pre-release stage, during which
the product is made available to a selected number of customers as a beta program for their own review and familiarization. Subsequently,
the release is made generally available to customers. Once a product is considered available for use, the capitalization of costs ceases
and amortization of such costs to &#8220;cost of sales&#8221; begins.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Capitalized software costs are amortized on a product-by-product
basis by the straight-line method over the estimated useful life of the software product (between 5-7 years).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Research and development costs
incurred in the process of developing product enhancements are generally charged to expenses as incurred.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We assess the recoverability
of our capitalized software costs on a regular basis by assessing the net realizable value of these intangible assets based on the estimated
future gross revenues from each product reduced by the estimated future costs of completing and disposing of it, including the estimated
costs of performing maintenance and customer support over its remaining economical useful life using internally generated projections
of future revenues generated by the products, cost of completion of products and cost of delivery to customers over its remaining economical
useful life.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the years ended December
31, 2020, 2021, and 2022, no such&#160; unrecoverable amounts were identified.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Intangible assets</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Separately acquired intangible
assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination
are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized
development costs, are recognized in profit or loss when incurred.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Intangible assets with a finite
useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired.
The amortization period and the amortization method for an intangible asset are reviewed at least at each year end.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Intangible assets excluding
capitalized development costs are comprised mainly of customer-related intangible assets, backlogs, distribution rights, brand names,
non-compete agreements and acquired technology and Patent, and are amortized over their useful lives using a method of amortization that
reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up. The useful life of intangible
assets is as follows:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">Years</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Customer relationship, backlog and distribution rights</td><td>&#160;</td>
    <td style="text-align: center">3&#8211;15</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Acquired technology</td><td>&#160;</td>
    <td style="text-align: center">2&#8211;8</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 88%">Patents</td><td style="width: 1%">&#160;</td>
    <td style="width: 11%; text-align: center">10</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Brand names</td><td>&#160;</td>
    <td style="text-align: center">5</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 136; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->129<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Gains or losses arising from
the derecognition of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of
the asset, and are recognized in the statement of profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The useful life of these assets
is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances
do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted for prospectively
as a change in accounting estimate, and on that date the asset is tested for impairment. Commencing from that date, the asset is amortized
systematically over its useful life.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Impairment of non-financial
assets:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We evaluate the need to record
an impairment of non-financial assets (property, plant and equipment, capitalized software costs and other intangible assets, goodwill,
investments in joint venture) whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the
carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable
amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are
discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not
generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized
in profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An impairment loss of an asset,
other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset&#8217;s recoverable amount
since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the
carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset
in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following criteria are
applied in assessing impairment of these specific assets:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">i.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Goodwill in respect of subsidiaries:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">For the purpose
of impairment testing, goodwill acquired in a business combination is allocated, at the acquisition date, to each of our cash-generating
units that are expected to benefit from the synergies of the combination. We review goodwill for impairment once a year, on December 31,
or more frequently if events or changes in circumstances indicate that there is an impairment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Goodwill is tested
for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill
has been allocated.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">An impairment loss
is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated
is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first
to goodwill. Impairment losses recognized for goodwill cannot be reversed in subsequent periods.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 1in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">ii.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Investment in associate or joint venture using the equity method:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">After application
of the equity method, we determine whether it is necessary to recognize any additional impairment loss with respect to the investment
in associates or joint ventures. We determine at each reporting date whether there is objective evidence that the carrying amount of the
investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire investment,
including the goodwill attributed to the associate or the joint venture.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 1in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">iii.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Intangible assets with an indefinite useful life / capitalized development costs that have not yet been systematically amortized:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;The impairment test
is performed annually, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the years ended December
31, 2020, 2021, and 2022, no impairment indicators were identified.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 137; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->130<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Financial instruments:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">A.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Financial assets:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">Financial assets
are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial
assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in
profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">We classify and
measure the debt instruments in our financial statements on the basis of the following criteria:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">our business model for the
management of financial assets; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">the contractual cash flow characteristics
of the financial asset.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">i.</span></td><td style="text-align: justify"><span style="font-size: 10pt">We measure debt instruments at
amortized cost when:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Our business model
is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give
rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial
recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate
method, less any provision for impairment. On the date of initial recognition, we may irrevocably designate a debt instrument as measured
at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency, such
as when a related financial liability is also measured at fair value through profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">ii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">We measure debt instruments at
fair value through other comprehensive income when:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Our business model
is to hold the financial assets in order to both collect their contractual cash flows and to sell the financial assets, and the contractual
terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding. Subsequent to the initial recognition, the instruments in this category are measured at fair value. Gains or losses
from fair value adjustments, excluding interest and exchange rate differences, are recognized in other comprehensive income.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">iii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">We measure debt instruments at
fair value through profit or loss when:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">A financial asset
which is a debt instrument does not meet the criteria for measurement at amortized cost or at fair value through other comprehensive income.
After initial recognition, the financial asset is measured at fair value and gains or losses from fair value adjustments are recognized
in profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">iv.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Equity instruments and other financial
assets held for trading:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Investments in equity
instruments do not meet the above criteria and accordingly are measured at fair value through profit or loss. Other financial assets held
for trading such as derivatives, including embedded derivatives separated from the host contract, are measured at fair value through profit
or loss unless they are designated as effective hedging instruments. In respect of certain equity instruments that are not held for trading,
on the date of initial recognition, we made an irrevocable election to present subsequent changes in fair value in other comprehensive
income which, changes would have otherwise been recorded in profit or loss. These changes will not be reclassified to profit or loss in
the future, even when the investment is disposed of. Dividends from investments in equity instruments are recognized in profit or loss
when the right to receive the dividends is established.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 138; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->131<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">B.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Impairment of financial assets:</span></td>
</tr></table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">We evaluate at the
end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or
loss. We distinguish between two types of loss allowances:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 1in; text-align: justify; text-indent: 0.5in">&#160;</td>
    <td style="width: 0.5in; text-align: justify"><span style="font-size: 10pt">i.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Debt instruments whose credit risk has not increased significantly since initial recognition, or whose credit risk is low - the loss allowance recognized in respect of this debt instrument is measured at an amount equal to the expected credit losses within 12 months from the reporting date; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 1in; text-align: justify; text-indent: 0.5in">&#160;</td>
    <td style="width: 0.5in; text-align: justify"><span style="font-size: 10pt">ii.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Debt instruments whose credit risk has increased significantly since initial recognition, and whose credit risk is not low - the loss allowance recognized is measured at an amount equal to the expected credit losses over the instrument&#8217;s remaining term.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">We have short-term
financial assets such as trade receivables in respect of which we apply a simplified approach in IFRS 9 and measure the loss allowance
in an amount equal to the lifetime expected credit losses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">An impairment loss
on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from
the carrying amount of the financial asset, whereas the impairment loss on debt instruments measured at fair value through other comprehensive
income is recognized in profit or loss with a corresponding loss allowance that is recorded in other comprehensive income and not as a
reduction of the carrying amount of the financial asset in the statement of financial position.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">We apply the low
credit risk simplification in IFRS 9, according to which we assume the debt instrument&#8217;s credit risk has not increased significantly
since initial recognition if on the reporting date it is determined that the instrument has a low credit risk, for example when the instrument
has an external rating of &#8220;investment grade&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">C.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Derecognition of financial
assets:</span></td>
</tr></table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">We derecognize a
financial asset when and only when:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 1in; text-align: justify; text-indent: 0.5in">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">i.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The contractual rights to the cash flows from the financial asset expire; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 1in; text-align: justify; text-indent: 0.5in">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">ii.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">We transferred substantially all the risks and rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 1in; text-align: justify; text-indent: 0.5in">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">iii.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">We retained our contractual rights to receive cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to a third party.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">D.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Financial liabilities:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">i.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Financial liabilities measured
at amortized cost</span></td>
</tr></table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">Financial liabilities
are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, we measure all financial liabilities at amortized cost using the effective interest rate method, except for:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Financial liabilities at fair
value through profit or loss, such as derivatives;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 1in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Financial guarantee contracts;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Contingent consideration recognized
by an acquirer in a business combination as to which IFRS 3 applies.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 139; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->132<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">ii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Financial liabilities measured
at fair value through profit or loss:</span></td>
</tr></table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">At initial recognition,
we measure financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit or
loss. After initial recognition, changes in fair value are recognized in profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">E.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Derecognition of financial
liabilities:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">A financial liability
is derecognized when it is extinguished, that is, when the obligation is discharged or cancelled or expires. A financial liability is
extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services or is legally released
from the liability. When there is a modification to the terms of an existing financial liability, we evaluate whether the modification
is substantial.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">If the terms of
an existing financial liability are substantially modified, such modification is accounted for as an extinguishment of the original liability
and the recognition of a new liability. The difference between the carrying amounts of the above liabilities is recognized in profit or
loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">If the modification
is not substantial, we recalculate the carrying amount of the liability by discounting the revised cash flows at the original effective
interest rate and any resulting difference is recognized in profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">F.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Compound financial instruments:</span></td>
</tr></table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 1in">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">i.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Convertible debentures which contain both an equity component and a liability component are separated into two components. This separation is performed by first determining the liability component based on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined to be the residual amount. Directly attributable transaction costs are apportioned between the equity component and the liability component based on the allocation of proceeds to the equity and liability components.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 1in">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">ii.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Convertible debentures that are denominated in foreign currency contain two components: the conversion component and the debt component. The liability conversion component is initially recognized as a financial derivative at fair value. The balance is attributed to the debt component. Directly attributable transaction costs are allocated between the liability conversion component and the liability debt component based on the allocation of the proceeds to each component.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.75in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">G.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Offsetting financial instruments:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">Financial assets
and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable
right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the
liability simultaneously. The right of set-off must be legally enforceable not only during the ordinary course of business of the parties
to the contract but also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to be currently
available, it must not be contingent on a future event, there may not be periods during which the right is not available, or there may
not be any events that will cause the right to expire.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 140; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->133<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.75in; text-align: justify">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">H.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Put option granted to non-controlling interests:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">When we grant to
non-controlling interests a put option to sell part or all of their interests in a subsidiary, during a certain period, even if such purchase
obligation is conditional on the counterparty&#8217;s exercise of its contractual right to cause such redemption, if the put option agreement
does not transfer to us any benefits incidental to ownership of the equity instrument (i.e. the we do not have a present ownership in
the shares concerned) then at the end of each reporting period the non-controlling interests (to which a portion of net profit attributable
to non-controlling interests is allocated) are classified as a financial liability, as if such put-able equity instrument was redeemed
on that date. The difference between the non-controlling interests carrying amount at the end of the reporting period and the present
value of the liability is recognized directly in our equity, under &#8220;Additional paid-in capital&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">We remeasure the
financial liability at the end of each reporting period based on the estimated present value of the consideration to be transferred upon
the exercise of the put option.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">If the option is
exercised in subsequent periods, the consideration paid upon exercise is treated as settlement of the liability. If the put option expires,
the liability is settled and a portion of the investment in the subsidiary disposed of, without loss of control therein.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">If we have present
ownership of the non-controlling interests, these non-controlling interests are accounted for as if they are held by us, and changes in
the amount of the liability are carried to profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Debentures:</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We account for outstanding
principal amount of debentures as a long-term liability, in accordance with IFRS 9, with current maturities classified as a short-term
liability. We identify and separate equity components contained in convertible debentures by first determining the liability component,
in accordance with IAS 32, based on the fair value of an equivalent non-convertible liability. The conversion component valued is being
determined to be the residual amount. Debt issuance costs are capitalized and reported as deferred financing costs, which are amortized
over the life of the debentures using the effective interest rate method.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Leases</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We account for 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 for consideration.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">i.</span></td><td style="text-align: justify"><span style="font-size: 10pt">We as lessee:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">For leases in which
we are the lessee, we recognize on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases whose
term is up to twelve months and leases for which the underlying asset is of low value. For these excluded leases, we have elected to recognize
the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the lease liability, we
have elected to apply the practical expedient in the Standard and does not separate the lease components from the non-lease components
(such as management and maintenance services, etc.) included in a single contract.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Leases which entitle
employees to a company car as part of their employment terms are accounted for as employee benefits in accordance with the provisions
of IAS 19 and not as subleases.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">On the commencement
date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be
readily determined, or otherwise using our incremental borrowing rate. After the commencement date, we measure the lease liability using
the effective interest rate method.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">On the commencement
date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the
commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the
shorter of its useful life and the lease term.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Following are the
amortization periods of the right-of-use assets by class of underlying asset:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Years</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Mainly</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%; text-align: left">Land and Buildings</td><td style="width: 1%">&#160;</td>
    <td style="width: 11%; text-align: center">2&#8211;23</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: center">3</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Motor vehicles</td><td>&#160;</td>
    <td style="text-align: center">2&#8211;3</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: center">3</td><td style="text-align: left">&#160;</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">We test for impairment
of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">ii.</span></td><td style="text-align: justify"><span style="font-size: 10pt">Variable lease payments that depend
on an index:</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">On the commencement
date, we use the index rate prevailing on the commencement date to calculate the future lease payments.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">For leases in which
we are the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a change
in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the right-of-use asset,
only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease payments
takes effect).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 96px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">iii.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Variable lease payments that depend on an index:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Variable lease payments
that do not depend on an index or interest rate but are based on performance or usage are recognized as an expense as incurred when we
are the lessee.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 96px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">iv.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Lease extension and termination options:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">A non-cancelable
lease term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option
will be exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will
not be exercised.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">In the event of
any change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, we
remeasure the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations.
The total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions
are recognized in profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 96px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">v.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Lease modifications:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">If a lease modification
does not reduce the scope of the lease and does not result in a separate lease, we remeasure the lease liability based on the modified
lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment to
the right-of-use asset.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">If a lease modification
reduces the scope of the lease, we recognize a gain or loss arising from the partial or full reduction of the carrying amount of the right-of-use
asset and the lease liability. We subsequently remeasure the carrying amount of the lease liability according to the revised lease terms,
at the revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use
asset.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Share-based payment
transactions</span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">Our employees and
certain service providers are entitled to remuneration in the form of equity-settled share-based payment transactions. The cost of equity-settled
transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined
using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of
the goods or services received as consideration for equity instruments granted.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">The cost of equity-settled transactions is recognized in profit or
loss together with a corresponding increase in equity during the period which the performance and/or service conditions are to be satisfied
ending on the date on which the relevant employees become entitled to the award (the &#8220;vesting period&#8221;). The cumulative expense
recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the
vesting period has expired and our best estimate of the number of equity instruments that will ultimately vest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">No expense is recognized
for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are
satisfied.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 0.5in">&#160;</p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">If we modify the
conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total
fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification
date.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">If a grant of an
equity instrument is canceled, it is accounted for as if it had vested on the cancelation date and any expense not yet recognized for
the grant is recognized immediately. However, if a new grant replaces the canceled grant and is identified as a replacement grant on the
grant date, the canceled and new grants are accounted for as a modification of the original grant, as described above.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Changes in accounting
policies - initial adoption of new financial reporting and accounting standards </span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">1.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amendment to IAS 16, &#8220;Property, Plant and Equipment&#8221;:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2020, the IASB issued
an amendment to IAS 16, &#8220;Property, Plant and Equipment&#8221; (the &#8220;Amendment&#8221;). The Amendment prohibits a company from
deducting from the cost of property, plant and equipment (&#8220;PP&amp;E&#8221;) consideration received from the sales of items produced
while the company is preparing the asset for its intended use. Instead, the company should recognize such consideration and related costs
in profit or loss.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendment is effective
for annual reporting periods beginning on or after January 1, 2022. The Amendment is applied retrospectively, but only to items of PP&amp;E
made available for use on or after the beginning of the earliest period presented in the financial statements in which the company first
applies the Amendment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The cumulative effect of initially
applying the Amendment is recognized as an adjustment to the opening balance of retained earnings (or other component of equity, as applicable)
at the beginning of the earliest period presented.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The application of the Amendment
did not have a material impact on the Group&#8217;s financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">2.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amendment to IAS 37, &#8220;Provisions, Contingent Liabilities and Contingent Assets&#8221;:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2020, the IASB issued an amendment to IAS 37, regarding which
costs a company should include when assessing whether a contract is onerous (the &#8220;Amendment&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Amendment,
costs of fulfilling a contract include both the incremental costs (for example, raw materials and direct labor) and an allocation of other
costs that relate directly to fulfilling a contract (for example, depreciation of an item of property, plant and equipment used in fulfilling
the contract).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendment is effective
for annual periods beginning on or after January 1, 2022 and applies to contracts for which all obligations in respect thereof have not
yet been fulfilled as of January 1, 2022. The application of the Amendment does not require the restatement of comparative data for property,
plant and equipment. Instead, the opening balance of retained earnings on the initial application date is adjusted for the cumulative
effect of the Amendment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The application of the Amendments
did not have a material impact on the Group&#8217;s financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->136<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">3.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amendments to IFRS 3, &#8220;Business Combinations&#8221;:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;In May 2020, the IASB
issued Amendments to IFRS 3, &#8220;Business Combinations &#8211; Reference to the Conceptual Framework&#8221;, which are intended to replace
a reference to the Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework
for Financial Reporting, which was issued in March 2018, without significantly changing its requirements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The IASB added an exception
to the recognition principle of IFRS 3 to avoid the issue of potential &#8216;day 2&#8217; gains or losses arising for liabilities and
contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies,
if incurred separately.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The exception requires entities
to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine at the acquisition date whether
as a result of a past event, a present obligation exists or whether the event that creates an obligation to pay the levy occurred by the
acquisition date.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendments also clarify
that contingent assets do not qualify for recognition at the acquisition date.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendments are applied
prospectively for annual reporting periods beginning on or after January 1, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The application of the Amendments
did not have a material impact on the Group&#8217;s financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">4.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Annual improvements to IFRSs 2018-2020:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2020, the IASB adopted
certain amendments in the context of the Annual Improvements to IFRSs 2018-2020 Cycle. The main amendment is to IFRS 9, &#8220;Financial
Instruments&#8221; (the &#8220;Amendment&#8221;). The Amendment clarifies which fees a company should include in the &#8220;10% test&#8221;
described in paragraph B3.3.6 of IFRS 9 when assessing whether the terms of a debt instrument that has been modified or exchanged are
substantially different from the terms of the original debt instrument.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Amendment,
fees paid net of any fees received that are included in the cash flows are only those fees paid or received between the borrower and the
lender, including fees paid or received by either the borrower or lender on the other&#8217;s behalf.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendment is effective
for annual periods beginning on or after January 1, 2022. The Amendment is applied to financial liabilities that are modified or exchanged
on or after the beginning of the annual reporting period in which the entity first applies the Amendment, that is from January 1, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i><span style="text-decoration:underline">Disclosure of new
standards in the period prior to their adoption </span></i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">1.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amendment to IAS 1, &#8220;Presentation of Financial Statements&#8221;:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In January 2020, the IASB
issued an amendment to IAS 1, &#8220;Presentation of Financial Statements&#8221; regarding the criteria for determining the classification
of liabilities as current or non-current (the &#8220;Original Amendment&#8221;). In October 2022, the IASB issued a subsequent amendment
(the &#8220;Subsequent Amendment&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Subsequent
Amendment:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">&#9679;</td><td style="text-align: justify">Only covenants with which an entity must comply on or before the reporting date will affect a liability&#8217;s
classification as current or non-current.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">&#9679;</td><td style="text-align: justify">An entity should provide disclosure when a liability arising from a loan agreement is classified as non-current
and the entity&#8217;s right to defer settlement is contingent on compliance with future covenants within twelve months from the reporting date.
This disclosure is required to include information about the covenants and the related liabilities. The disclosures must include information
about the nature of the future covenants and when compliance is applicable, as well as the carrying amount of the related liabilities.
The purpose of this information is to allow users to understand the nature of the future covenants and to assess the risk that a liability
classified as non-current could become repayable within twelve months. Furthermore, if facts and circumstances indicate that an entity
may have difficulty in complying with such covenants, those facts and circumstances should be disclosed.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the Original
Amendment, the conversion option of a liability affects the classification of the entire liability as current or non-current unless the
conversion component is an equity instrument.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Original Amendment and
Subsequent Amendment are both effective for annual periods beginning on or after January 1, 2024 and must be applied retrospectively.
Early application is permitted.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We estimate that the Amendments
are not expected to have a material impact on the Group&#8217;s financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt"></p><div>

</div><!-- Field: Page; Sequence: 144; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->137<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">2.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amendment to IAS 8, &#8220;Accounting Policies, Changes to Accounting Estimates and Errors&#8221;:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In February 2021, the IASB
adopted an amendment to IAS 8, &#8220;Accounting Policies, Changes to Accounting Estimates and Errors&#8221; (the &#8220;Amendment&#8221;),
which introduces a new definition of &#8220;accounting estimates&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Accounting estimates are defined
as &#8220;monetary amounts in financial statements that are subject to measurement uncertainty&#8221;. The Amendment clarifies the distinction
between changes in accounting estimates and changes in accounting policies and the correction of errors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendment is to be applied
prospectively for annual reporting periods beginning on or after January 1, 2023 and is applicable to changes in accounting policies and
changes in accounting estimates that occur on or after the start of that period. Early application is permitted.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">3.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amendment to IAS 12, &#8220;Income Taxes&#8221;:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2021, the IASB issued
an amendment to IAS 12, &#8220;Income Taxes&#8221; (&#8220;IAS 12&#8221;), which narrows the scope of the initial recognition exception under
IAS 12.15 and IAS 12.24 (the &#8220;Amendment&#8221;).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to the recognition
guidelines of deferred tax assets and liabilities, IAS 12 excludes recognition of deferred tax assets and liabilities in respect of certain
temporary differences arising from the initial recognition of certain transactions. This exception is referred to as the &#8220;initial
recognition exception&#8221;. The Amendment narrows the scope of the initial recognition exception and clarifies that it does not apply
to the recognition of deferred tax assets and liabilities arising from transactions that are not a business combination and that give
rise to equal taxable and deductible temporary differences, even if they meet the other criteria of the initial recognition exception.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendment applies for
annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. In relation to leases and decommissioning
obligations, the Amendment is to be applied commencing from the earliest reporting period presented in the financial statements in which
the Amendment is initially applied. The cumulative effect of the initial application of the Amendment should be recognized as an adjustment
to the opening balance of retained earnings (or another component of equity, as appropriate) at that date.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We estimate that the initial
application of the Amendment is not expected to have a material impact on the Group&#8217;s financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">4.</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amendment to IAS 1 - Disclosure of Accounting Policies:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.9pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In February 2021, the IASB
issued an amendment to IAS 1, &#8220;Presentation of Financial Statements&#8221; (the &#8220;Amendment&#8221;), which replaces the requirement
to disclose &#8217;significant&#8217; accounting policies with a requirement to disclose &#8216;material&#8217; accounting policies. One of the main reasons for
the Amendment is the absence of a definition of the term &#8217;significant&#8217; in IFRS whereas the term &#8216;material&#8217; is defined in several standards
and particularly in IAS&#160;1.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendment is applicable
for annual periods beginning on or after January 1, 2023. Early application is permitted.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We estimate that the Amendment
is not expected to have a material impact on the Group&#8217;s financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">5.</span></td>
    <td><span style="font-size: 10pt">Amendment to IFRS 16, &#8220;Leases&#8221;:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In September 2022, the IASB
issued an amendment to IFRS 16, &#8220;Leases&#8221; (the &#8220;Amendment&#8221;), which provides guidance on how a seller-lessee should
measure the lease liability arising in a sale and leaseback transaction with variable lease payments that do not depend on an index or
rate. The seller-lessee has to choose between two accounting policies for measuring the lease liability on the inception date of the lease.
The accounting policy chosen must be applied consistently.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Amendment is applicable
for annual periods beginning on or after January 1, 2024. Early application is permitted. The Amendment is to be applied retrospectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We estimate that the Amendment
is not expected to have a material impact on the Group&#8217;s financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="a_010"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Directors and Senior Management</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table sets forth
information about our directors and senior management as of April 30, 2023.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr>
    <td style="vertical-align: bottom; width: 25%; border-bottom: black 1.5pt solid"><span style="font-size: 10pt"><b>Name</b></span></td>
    <td style="vertical-align: top; width: 1%; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom; width: 10%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt"><b>Age</b></span></td>
    <td style="vertical-align: top; width: 1%; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom; width: 25%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt"><b>Position</b></span></td>
    <td style="vertical-align: top; width: 1%; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom; width: 37%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt"><b>Expiration of Current Term of Directorship/Office</b></span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="vertical-align: top"><span style="font-size: 10pt">Guy Bernstein </span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">55</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Chief Executive Officer </span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">No formal arrangement regarding expiration of term of office</span></td></tr>
  <tr style="background-color: White">
    <td style="vertical-align: top"><span style="font-size: 10pt">Asaf Berenstein</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">45</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Chief Financial Officer</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">No formal arrangement regarding expiration of term of office</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="vertical-align: top"><span style="font-size: 10pt">Maya Solomon-Ella</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">45</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Chief Operational Officer</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">No formal arrangement regarding expiration of term of office</span></td></tr>
  <tr style="background-color: White">
    <td style="vertical-align: top"><span style="font-size: 10pt">Marek Panek</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">53</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Chairman of the Board of Directors</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">2023 annual shareholders meeting</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="vertical-align: top"><span style="font-size: 10pt">Rafal Kozlowski</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">49</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Director</span></td>
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    <td style="vertical-align: bottom"><span style="font-size: 10pt">2023 annual shareholders meeting</span></td></tr>
  <tr style="background-color: White">
    <td style="vertical-align: top"><span style="font-size: 10pt">Ohad Melnik<sup>(1) (3)</sup></span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">52</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Director</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">2023 annual shareholders meeting</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
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    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">51</span></td>
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    <td style="vertical-align: top"><span style="font-size: 10pt">External director</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">May 2025</span></td></tr>
  <tr style="background-color: White">
    <td style="vertical-align: top"><span style="font-size: 10pt">Relly Danon<sup>(1) (2) (3)</sup></span></td>
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    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">52</span></td>
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    <td style="vertical-align: top"><span style="font-size: 10pt">External director</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">May 2025</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
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    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">37</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Director</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">2023 annual shareholders meeting</span></td></tr>
  <tr style="background-color: White">
    <td style="vertical-align: top"><span style="font-size: 10pt">Gabriela &#379;ukowicz</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt">48</span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: top"><span style="font-size: 10pt">Director </span></td>
    <td style="vertical-align: top; text-align: justify">&#160;</td>
    <td style="vertical-align: bottom"><span style="font-size: 10pt">2023 annual shareholders meeting</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">(1)</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">(2)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Serves as an external director under the Companies Law. See &#8220;Item 6. Directors, Senior Management and Employees&#8212;Board Practices&#8212;External Directors under the Companies Law; Audit Committee; Internal Auditor; Approval of Certain Transactions under the Companies Law,&#8221; below.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">(3)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Serves on the compensation committee of our board of directors.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Guy Bernstein</b> has served
as our Chief Executive Officer since January 2008. Mr. Bernstein served as a member of our board of directors from November 2006 to December
2008. Mr. Bernstein served as a director of Emblaze Ltd., or Emblaze, our former controlling shareholder and a publicly traded company
listed on the London Stock Exchange, from April 2004 until February 2011. From December 2006 to November 2010, Mr. Bernstein also served
as chief executive officer of Emblaze, and, prior thereto, from April 2004 to December 2006, as the chief financial officer of Emblaze.
Mr. Bernstein serves as the chairman of the board of directors of each of Matrix and Sapiens and as chief executive officer and director
of Magic Software, where he served as the chief financial and operations officer from 1999 until 2004, when he joined Emblaze. He joined
Magic Software from Kost Forer Gabbay &amp; Kasierer, a member of Ernst &amp; Young Global, where he served as senior manager from 1994
to 1997. Mr. Bernstein also serves as a director of Michpal Micro Computers (1983) Ltd., a director at TSG IT Advanced Systems Ltd., and
is a director at InSync staffing, all of them are subsidiaries of Formula Systems Mr. Bernstein holds a B.A. degree in accounting and
economics from the College of Management Academic Studies and is a certified public accountant in Israel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Asaf Berenstin</b> has
served as our Chief Financial Officer since November 2011. Mr. Berenstin also serves as the Chief Financial Officer of our subsidiary,
Magic Software, since April 2010. Prior to such time, beginning in August 2008, Mr. Berenstin served as Magic Software&#8217;s corporate
controller. Mr. Berenstin also serves as a director of Michpal Micro Computers (1983) Ltd., a director at TSG IT Advanced Systems Ltd.,
and is a director at InSync staffing, all of them are subsidiaries of Formula Systems. Prior to joining our company, Mr. Berenstin served
as a controller at Gilat Satellite Networks Ltd. (Nasdaq: GILT), commencing in July 2007. From October 2003 to July 2007, Mr. Berenstin
practiced as a certified public accountant at Kesselman &amp; Kesselman, a member of PriceWaterhouseCoopers. Mr. Berenstin holds a B.A.
degree in accounting and economics and an M.B.A. degree, both from Tel-Aviv University, and is a certified public accountant (CPA) in
Israel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Maya Solomon-Ella</b> has
served as our Chief Operational Officer since September 2016. In her last position Maya served as the Transaction Support leader in Ernst
&amp; Young Israel (Tel-Aviv branch). Maya served in Ernst &amp; Young 13 years, three of which were with the Assurance Services team
(Hi Tech) and 10 of which have been spent in the Transaction Advisory Services (TAS) group. Since joining the TAS group at Ernst &amp;
Young, Ms. Solomon-Ella has been involved in M&amp;A transactions across the globe.&#160;Ms. Solomon-Ella holds a B.A. degree in Economics-Accounting
from Bar Ilan University and is a Certified Public Accountant (CPA) in Israel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Marek Panek </b>has served
as one of our directors since November 2010. Since January 2007 he has been the Executive Board Member of Asseco Poland S.A. and he is
responsible for supervising the Capital Group Development Division and the EU Projects Office. Mr. Panek also holds and has held several
other positions at Asseco and its affiliates, including Executive Board Member in Asseco International, a.s. (since October 2017), Supervisory
Board Member of Asseco Central Europe, a.s. (since September 2011), Member of Board of Directors of Asseco Denmark (since March 2011)
and Peak Consulting Group ApS (since January 2016), Supervisory Board Member of Asseco Lietuva UAB (since June 2011), Chairman of GSTN
Consulting Sp. z o.o. (since November 2017), Supervisory Board Member of Asseco Innovation Fund Sp. z o.o. (since December 2018), Chairman
of the Supervisory Board of Nextbank Software (since March 2019) and Supervisory Board Member of adesso banking solutions GMBH (since
September 2020). Mr. Panek first joined Asseco in 1995, having served in the following positions for the following periods of time: Marketing
Specialist (from September 1995 to September 1996); Marketing Director (from October 1996 to March 2003); Sales and Marketing Director
(from April 2003 to March 2004); and Member of the Board, Sales and Marketing Director (from March 2004 to January 2007). Prior to joining
Asseco, Mr. Panek was employed at the ZE Gantel Sp. z o.o. from 1993 to 1995. Mr. Panek graduated from the Faculty of Mechanical Engineering
and Aeronautics of the Rzesz&#243;w University of Technology in 1994, having been awarded a master&#8217;s degree in engineering.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Rafal Kozlowski</b> has
served as one of our directors since August 2012. From December 2020 Mr. Kozlowski has started as a President of the Management Board
of Asseco Enterprise Solutions. Since June 2012 to March 2021, Mr. Kozlowski has served as Vice President of the Management Board and
Chief Financial Officer of Asseco. Mr. Kozlowski but still is a member of the Asseco Group Board of Directors responsible for finance.
From May 2008 to May 2012, Mr. Kozlowski served as Vice President of Asseco South Eastern Europe S.A. responsible for the company&#8217;s
financial management. Mr. Kozlowski was directly involved in the acquisitions of companies incorporated within the holding of Asseco South
Eastern Europe, as well as in the holding&#8217;s IPO process at the Warsaw Stock Exchange From 1996 to 1998, he served as Financial Director
at Delta Software, and subsequently, from 1998 to 2003 as Senior Manager at Veraudyt. In the years 2004-2006, he was Head of Treasury
Department at Softbank S.A. where he was delegated to act as Vice President of Finance at the company&#8217;s subsidiary Sawan S.A. From
2007 through June 2009, he served as Director of Controlling and Investment Division at Asseco Poland S.A. Mr. Kozlowski graduated of
the University of Warsaw, obtaining Master&#8217;s degree at the Faculty of Organization and Management in 1998. He completed the Project
Management Program organized by PMI in 2004, the International Accounting Standards Program organized by Ernst &amp; Young Academy of
Business in the years 2005-2006 and the Emerging CFO: Strategic Financial Leadership Program by Stanford GSB in 2019.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Ohad Melnik</b> was elected
to our board of directors in January 2019. Mr. Melnik has served as the director of the payment methods department and the finance compliance
department of IFOREX International Group since 2004. From 2002 through 2004, Mr. Melnik served as the security officer and logistic planner
of Danagis Ltd. In addition, from 2008 through 2015, Mr. Melnik served as a director of Peninsula Group Ltd. From 2012 through 2015, Mr.
Melnik served as a director of Jerusalem Technology Investments Ltd. Mr. Melnik holds a B.A. degree in business administration and an
M.B.A. degree (cum laude) from the College of Management. Mr. Melnik also graduated from the Executive MS Finance Program of the Baruch
College, City University of New York (with Honors).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Relly Danon</b>&#160;was
elected to our board of directors as an external director in May 2022. Ms. Danon currently serves as legal counsel at Netline Communications
Technologies (NCT) Ltd., a position held since 2000. In addition, Ms. Danon serves as an external director at Y.D. More Investments Ltd.,
a position held since 2017. From 2008 through 2017, Ms. Danon served as an external director as Mega Or Holdings Ltd. Ms. Relly also served
as an external director at Jerusalem Technology Investments Ltd. from 2012 through 2014. From 2007 through 2009, Ms. Relly served as a
director at Apex Portfolio Management Ltd. Mr. Relly holds a B.A. degree in law from Tel Aviv University.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Tomer Jacob</b><i>&#160;</i>was
elected to our board of directors as an external director in May 2022. Mr. Jacob currently serves as a Managing Partner at Hanaco VC.
From 2000 to 2021 Mr. Jacob served as a Managing Director at UBS. Mr. Jacob also currently serves as a director of Max, Israel&#8217;s
second largest credit card company. Mr. Jacob holds a B.A. degree in Economics &amp; Management and a B.Sc degree in Computer Science
from the academic college of Tel Aviv&#8211;Jaffa.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Karolina Rzonca-Bajorek</b>&#160;was
elected to our board of directors in August 2022. Ms. Rzonca-Bajorek&#160;has served in various financial managerial capacities within
the Asseco Group since 2015, and during the period from 2012 to 2014. Since April 2021, Ms. Rzonca-Bajorek has served as Vice President
of Finance, and a member of the Management Board, of Asseco. Prior to that period, from 2019 through March 2021, Ms. Rzonca-Bajorek served
as&#160;<span style="background-color: #FAFAFA">the Director of the Finance Division of the Asseco Group. Before that, from 2015 until
2019,&#160;</span>Ms. Rzonca-Bajorek&#160;<span style="background-color: #FAFAFA">served as the Director of the Reporting Department of
the Asseco Group. From 2014 to 2015,&#160;</span>Ms. Rzonca-Bajorek&#160;<span style="background-color: #FAFAFA">was the Stock Exchange
Reporting Expert at PHZ Baltona S.A. From 2012 to 2014&#160;</span>Ms. Rzonca-Bajorek&#160;<span style="background-color: #FAFAFA">worked
at Asseco Poland S.A. as the Finance Specialist in the Reporting Department of the Asseco Group. She started her professional career in
2009 at Ernst &amp; Young Audit Sp. z o.o. in the audit department, where she participated in audits of large corporate clients.&#160;</span>Ms.
Rzonca-Bajorek<span style="background-color: #FAFAFA">&#160;is a graduate of the Warsaw School of Economics, the faculty of finance and
accounting (specialization: corporate finance and accounting).&#160;</span>Ms. Rzonca-Bajorek&#160;<span style="background-color: #FAFAFA">holds
the FCCA title and a Certificate of the Minister of Finance of Poland authorizing her to provide accounting services, and is in the process
of becoming a certified auditor.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>Gabriela &#379;ukowicz</b><i>&#160;</i>was
elected to our board of directors in August 2022. Ms. &#379;ukowicz has served since October 1, 2017 as Vice President of the Management
Board of Asseco Poland S.A. responsible for the Legal Office and the Management Office, as well as the Human Resources Division, the Personnel
Administration Division, the Compliance Division, the Maintenance and Development of Internal Systems Division, the Administration Division
and the Purchasing Division of Asseco. Ms. &#379;ukowicz has been working at Asseco Poland since 1998. Ms. &#379;ukowicz served as the
Director of the Management Board Office (October 2004 - December 2009) and since January 2010 as the Director of the Legal and Organizational
Department. In addition, from August 2012 to September 2017, Ms. &#379;ukowicz held the position of Asseco&#8217;s Proxy. She is the Chairman
of the Supervisory Board of Park Wodny Sopot, the Vice Chairman of the Supervisory Board in Asseco Services and Asseco Innovation Fund,
and the Member of the Supervisory Boards in the companies Asseco Western Europe, Sintagma and Asseco Lietuva. In 1998, Ms. &#379;ukowicz
graduated from the Faculty of Law of the Jagiellonian University in Krak&#243;w and completed her legal adviser&#8217;s training in 2002.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#160;<b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Arrangements for the Election of Directors;
Family Relationships</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The previously disclosed October
2017 shareholders agreement between Asseco, our largest shareholder, and our chief executive officer, Mr. Guy Bernstein, under which Mr.
Bernstein granted an irrecoverable proxy to vote an additional 1,797,973 of our ordinary shares to Asseco, was terminated on December
5, 2022. Asseco has significant influence over the election of the members of our board of directors (other than our external directors).
Other than as described immediately above, there are no arrangements or understandings with major shareholders, customers, suppliers or
others pursuant to which any of our directors or members of senior management were selected as such.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Mr. Guy Bernstein and Mr.
Asaf Berenstin are first cousins. Other than such relationship, there are no family relationships among our executive officers and directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Board Diversity Matrix</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td colspan="5" style="border: black 1pt solid; text-align: center"><span style="font-size: 10pt"><b>Board Diversity Matrix (as of March 15, 2023)</b></span></td></tr>
  <tr style="vertical-align: top">
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-left: 5.65pt"><span style="font-size: 10pt">Country of Principal Executive Offices:</span></td>
    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-left: 5.4pt"><span style="font-size: 10pt">Israel</span></td></tr>
  <tr style="vertical-align: top">
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-left: 5.65pt"><span style="font-size: 10pt">Foreign Private Issuer</span></td>
    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-left: 5.4pt"><span style="font-size: 10pt">Yes</span></td></tr>
  <tr style="vertical-align: top">
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-left: 5.65pt"><span style="font-size: 10pt">Disclosure Prohibited under Home Country Law</span></td>
    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-left: 5.4pt"><span style="font-size: 10pt">No</span></td></tr>
  <tr style="vertical-align: top">
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-left: 5.65pt"><span style="font-size: 10pt">Total Number of Directors</span></td>
    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-left: 5.4pt"><span style="font-size: 10pt">7</span></td></tr>
  <tr style="vertical-align: top; background-color: #D9D9D9">
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; text-align: center">&#160;</td>
    <td style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 11.65pt; padding-left: 11.1pt; text-align: center"><span style="font-size: 10pt"><b>Female</b></span></td>
    <td style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 16pt; padding-left: 15.7pt; text-align: center"><span style="font-size: 10pt"><b>Male</b></span></td>
    <td style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 13.4pt; padding-left: 13.9pt; text-align: center; text-indent: 3.1pt"><span style="font-size: 10pt"><b>Non- Binary</b></span></td>
    <td style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 10.6pt; padding-left: 10.4pt; text-align: center; text-indent: 0.95pt"><span style="font-size: 10pt"><b>Did Not Disclose Gender</b></span></td></tr>
  <tr style="vertical-align: top; background-color: #D9D9D9">
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  <tr style="vertical-align: top; background-color: #D9D9D9">
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  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>B.</b></span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Aggregate Compensation Paid to Directors and
Executive Officers</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Formula paid to its directors
and executive officers, consisting of the individuals listed above in the table under &#8220;&#8212;Directors and Senior Management&#8221;,
direct remuneration and provided related benefits of approximately $12,726 million, in the aggregate, with respect to 2022. This aggregate
compensation amount includes amounts set aside or accrued to provide pension, retirement or similar post-employment benefits, which themselves
totaled $0.1 million in 2022. This aggregate compensation amount furthermore includes expenses recorded with respect to equity-based compensation
in a total amount of $8,104 million for 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The above aggregate compensation
amount does not, however, include the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">as amounts incurred for such
expenses and benefits in 2022 were paid in reimbursement of activities carried out by our directors and executive officers for strict
business purposes in carrying out their duties on behalf of Formula and were therefore not compensatory in nature.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The above aggregate compensation
amount includes payment of directors&#8217; fees. Formula compensates its external directors and other directors in accordance with the
regulations promulgated under the Companies Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Summary Compensation Table</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For so long as we qualify
as a foreign private issuer, we are not required to comply with the executive compensation disclosure requirements applicable to U.S.
domestic companies, including the requirement to disclose information concerning the amount and type of compensation paid to our chief
executive officer, chief financial officer and the three other most highly compensated executive officers on an individual basis. Nevertheless,
regulations promulgated under the Companies Law require us to disclose the annual compensation of our five most highly compensated office
holders (as defined in the Companies Law) on an individual basis. Under the Companies Law regulations, this disclosure is required to
be included in the annual proxy statement for our annual meeting of shareholders, which we furnish to the SEC under cover of a Report
of Foreign Private Issuer on Form 6-K. Because of that disclosure requirement under Israeli law, we are also including that information
in this annual report, pursuant to the disclosure requirements of Form 20-F.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The table below reflects the
compensation paid to our five most highly compensated office holders (each of whom is a member of our management) during or with respect
to the year ended December 31, 2022. All amounts reported in the table reflect the cost to the Company, as recognized in our financial
statements for the year ended December 31, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Compensation of Management</i><sup>(1)</sup></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Maya Solomon-Ella &#8211; COO</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">173</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">39</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">71</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">23</td><td style="text-align: left">&#160;</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">(1)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">All amounts reported in the table are in terms of cost to Formula, as recorded in Formula&#8217;s financial statements. We have three office holders who are members of management who are compensated by Formula (CEO, CFO and COO). For disclosure concerning compensation paid by us to our remaining four most highly compensated office holders (all of whom are directors), please see the table under &#8220;Compensation of Directors&#8221; below.</span></td></tr>
  </table><div>

</div><p style="margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">(2)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The executive officers listed in the table serve as employees or consultants of Formula. Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into U.S. dollars at the average conversion rate for 2022. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">(3)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Our Chief Financial Officer, Asaf Berenstin, also serves as the chief financial officer of our subsidiary Magic Software.&#160;Pursuant to an agreement between Magic Software and Formula, Mr. Berenstin allocates 40%-50% of his time to Formula. Because he is not regularly compensated by Formula, except for variable compensation and equity-based compensation, Mr. Berenstin salary is not listed in this table. As of January 1, 2021, for his role as our Chief Financial Officer and Magic Software chief financial officer Mr. Berenstin, is entitled to an annual bonus in an amount equal to 0.3% of our net profit (including capital gains). </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">(4)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the executive officer, payments, contributions and/or allocations for savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accident), convalescence pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent with our guidelines.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">(5)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Amounts reported in this column represent the expense recorded in our financial statements for the year ended December&#160;31, 2022 with respect to equity-based compensation. Assumptions and key variables used in the calculation of such amounts are described in Note 17(b) to our consolidated financial statements, contained elsewhere in this annual report.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">(6)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Under his service agreement with us, our Chief Executive Officer, is entitled to an annual bonus in an amount equal to 3.3% of our net profit (including capital gains) after tax. Additionally, Mr. Bernstein&#8217;s variable compensation includes payments due with respect to 611,771 RSUs granted to him by Formula in consideration of dividends that Formula distributes to its shareholders in an amount equal to the pro-rata portion of the overall dividend amount that the RSUs constitute out of the issued and outstanding share capital of the Company as of the date of the distribution. For the purpose of payment of the dividend amounts, the portion of the dividend amount to be released to Mr Bernstein, will in each case be based on the proportion of the number of fiscal quarters that have lapsed at the time of distribution of the dividend from January 1, 2020 until December 31, 2027. An advance of 70% of the estimated annual bonus with respect to each year is paid over the course of the year, divided into quarterly installments, which is estimated based on our quarterly financial statements and is subject to final adjustment at the end of the year.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Compensation of Directors</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table sets forth
information with respect to compensation of our directors (none of whom served as an employee of our company) during fiscal year 2022.
The fees to the directors were paid by Formula.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="font-weight: bold; border-bottom: Black 1.5pt solid">Name and Principal Position</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 88%; text-align: left">Marek Panek &#8211; Chairman</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">41,400</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Rafal Kozlowski &#8211; Director</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">41,400</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Ohad Melnick &#8211;&#160;Director</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">51,800</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Karolina Rzonca-Bajorek</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">9,950</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Gabriela &amp;Zdot;ukowicz</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">9,950</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Tomer Jacob - External Director</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">58,450</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">39,650</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Eli Zamir &#8211; Former External Director</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Iris Yahal- Former External Director</td><td>&#160;</td>
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  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify"><span style="font-size: 10pt">(1)</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Option Grants to, and Service Agreement
with, Chief Executive Officer</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under his service agreement
with us, Mr. Guy Bernstein, as our Chief Executive Officer, is entitled to a monthly salary, as well as an annual bonus in an amount equal
to 3.3% of our net profit (including capital gains). An advance of 70% of the estimated bonus with respect to each year is paid over the
course of the year, divided into quarterly installments, which is estimated based on our quarterly financial statements and is subject
to final adjustment at the end of the year.</p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 3, and 4, 2020,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, re-approved an eight-year
equity-based award of compensation&#8212;in the form of 611,771 restricted share units, or RSUs&#8212; to our chief executive officer,
Mr. Guy Bernstein. The terms of the grant were described in Proposal 5 of the proxy statement for our November 2, 2020 annual general
meeting of shareholders (referred to as the Proxy Statement and Annual Meeting, respectively), which was attached as Exhibit 99.1 to our
Report of Foreign Private Issuer on Form 6-K furnished to the SEC on September 17, 2020 and available at the following link:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">https://www.sec.gov/Archives/edgar/data/1045986/000121390020027121/ea127015ex99-1_formulasys.htm</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The re-approved grant modified the composition of the RSUs being granted
to our chief executive officer from what was proposed in Proposal 5 at the Annual Meeting, adjusting the ratio between time-based-vesting
and performance-based-vesting RSUs from 80%-20% to 66.67%-33.33%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As previously reported by
Formula in its Form 6-K furnished to the SEC on November 2, 2020, the originally-proposed grant was not approved pursuant to Proposal
5 at the Annual Meeting. In re-considering and re-approving the grant, our compensation committee and board of directors acknowledged
that the requisite majority of our shareholders for the approval of Proposal 5 had not been achieved at the Annual Meeting. The committee
and board nevertheless evaluated our Group&#8217;s performance and achievements under the management of our chief executive officer, and
in view of his expected further contribution to the Group&#8217;s success, determined that the proposed grant is strongly linked to the
Group&#8217;s performance and the resulting increase in shareholders&#8217; value. Consequently, consistent with their authorities under
the Companies Law, the compensation committee and board of directors approved the modified (as described above) award of the RSUs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">In December 2020, a motion
to certify a derivative suit, referred to as the Motion, was filed against our Company by a shareholder, who is also referred to as the
Plaintiff, in the district court (economic division) of Tel Aviv-Jaffa, Israel, naming each of our then acting five directors, as well
as our chief executive officer and chief financial officer as defendants.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">The suit challenged the
legality, under the Companies Law, of, among other things, compensation approved for the chief executive officer, including the re-approval
by our compensation committee and board of the subject eight-year RSU award to our chief executive officer.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On January 12, 2023, we held
a special general meeting of shareholders for our shareholders to re-approve the subject grant of RSUs (reflecting the adjusted 66.67%-33.33%
ratio of time-based-vesting to performance-based-vesting RSUs) to our chief executive officer. Although we believe that the legal challenge
to the original re-approval, in November 2020, by the compensation committee and the board of directors of this RSU grant were without
merit, we nevertheless brought the re-approval to our shareholders for the following primary reasons:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>Changed circumstances</i>.
The voting agreement&#160;<span style="background-color: white">between Asseco and our chief executive officer, which</span>&#160;covered&#160;<span style="background-color: white">1,797,973
of our ordinary shares owned by the chief executive officer, and by virtue of which Asseco formerly possessed the right to vote those
shares&#8211; which stood at the heart of plaintiff&#8217;s allegation in the motion&#8211; was</span>&#160;cancelled on December 5,
2022; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>Certainty</i>. We believed
that it was in the best interest of the Company and its shareholders to provide clarity and certainty regarding the CEO&#8217;s compensation
and position in the Company by having his equity-based grant re-approved by the shareholders.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The January 12, 2023 special
general shareholders meeting did not re-approve the RSU grant. On January 15, and 16, 2023, our compensation committee and board of directors,
respectively, acting in accordance with the Companies Law, re-approved the RSUs grant once again.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Please see Item 8.A, &#8220;Legal
Proceedings&#8221; below for a description of the legal proceedings that have been brought in respect of the CEO&#8217;s RSU grant.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The award, to be granted to
Emil Sharvit (2001) Consulting and Project Management Ltd., through which our chief executive officer, provides services to us grants
611,771 restricted stock units (&#8220;RSUs&#8221;) in respect of ordinary shares of Formula Systems. 66.67% of the RSUs (i.e., 407,847
RSUs) are subject to time-based vesting that shall start as of the grant date and shall end at December 31, 2027 subject to the continued
engagement of our chief executive officer with us as of that date (the &#8220;Vesting Period&#8221;); and up to 33.33% of the RSUs (i.e.,
203,924 RSUs as of the date hereof) are subject to performance-based vesting, and shall vest at December 31, 2027 on a pro-rata basis
with respect to each fiscal year (starting as of January 1, 2020) during the Vesting Period in which the Target EBITDA (as defined below)
is achieved, subject to the continued engagement of our chief executive officer with us. At the end of the vesting period, the number
of performance based RSUs that vests shall be equal to (i) the number of fiscal years in which the Target EBITDA was achieved multiplied
by (ii) 25,490.50 RSUs (rounded to the nearest whole number, up to a cap of 203,924 RSUs in total).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The &#8220;Target EBITDA&#8221;
in a given fiscal year during the Vesting Period shall mean our EBITDA in that certain fiscal year (as reflected in the our annual audited
consolidated financial statements), excluding the cost attributed to the applicable portion of the RSUs in the our annual audited consolidated
financial statements for the applicable fiscal year (as to which the review of performance is made to determine whether one eighth of
the Performance Based RSUs (i.e., 25,490.50 RSUs) shall become vested at the end of the Vesting Period). The Target EBITDA shall be not
less than 105% of 75% of our consolidated EBITDA in the previous fiscal year, excluding the cost attributed to the applicable portion
of the RSUs in our annual audited consolidated financial statements for such previous fiscal year (the &#8220;Previous Year&#8221;). Such
examination of EBITDA shall be made on the basis of the our annual audited consolidated financial statements as reflected in our annual
report on Form 20-F, and in the event that we sells any of our operations, the Target EBITDA shall be adjusted as applicable for future
reference by removing the results of the operations that were sold.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event that with respect
to any specific fiscal year (the &#8220;Specific Year&#8221;), the Target EBITDA is not achieved, the Target EBITDA with respect to such
Specific Year will still be deemed to have been met for the purpose of vesting of RSUs in the event that either: (i) the EBITDA in the
fiscal year immediately following the Specific Year was at least 110.25% of 75% of our EBITDA in the year preceding the Specific Year,
or (ii) in case that the condition in the foregoing clause (i) was not met, then the EBITDA in the second fiscal year following the Specific
Year was at least 115.7625% of 75% of our EBITDA in the year preceding the Specific Year. Accordingly, in case that either clause (i)
or (ii) was met for a certain Specific Year, then the vesting with respect to such Specific Year shall be deemed to have been achieved,
and those RSUs shall become vested as of the end of the Vesting Period. In the event that neither of the conditions described in clauses
(i) or (ii) was met, the portion of RSUs for the applicable Specific Year shall automatically expire and terminate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Notwithstanding the foregoing,
in case the Target EBITDA is met (in accordance with the above terms) in a certain fiscal year, yet the Target EBITDA is less than 105%
of 75% of the average EBITDA for the three fiscal years that consist of the subject fiscal year and the two preceding years (excluding
the cost attributed to the applicable portion of the RSUs in our annual audited consolidated financial statements for such applicable
fiscal years), then regardless of meeting the Target EBITDA, the number of performance-based RSUs that vests shall be reduced by 20%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Total fair value of the grant was calculated based on Formula Systems
share price on the grant date and equaled to NIS 170.7 million (NIS 279 per share). The total compensation expense we recorded in our
statement of profit or loss, in accordance with accounting principles, for the year ended December 31, 2022, was NIS 23.8 million (approximately
$7.1 million).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition to the RSU grant
terms described above, our board of directors has approved, following the approval by Formula&#8217;s compensation committee, an adjustment
to the above-described RSU grant based on dividends that we distribute to our shareholders. During the Vesting Period of the RSUs, in
the event that any dividend, in cash or in kind, is distributed to our shareholders, then in addition to the distribution to all shareholders,
there will be an equivalent payment to our chief executive officer with respect to all RSUs that were not converted into shares (whether
or not vested) in an amount equal to the pro-rata portion of the overall dividend amount that the RSUs constitute out of our issued and
outstanding share capital as of the date of the distribution. For those purposes, the RSUs will be counted as if they are already vested
and converted into shares. These special RSU dividend amounts shall be paid and/or set aside by us for the benefit of our chief executive
officer, all as described below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 42.55pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 42.55pt"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->145<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 42.55pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the purpose of payment
of the Dividend Amounts to our chief executive officer, the Vesting Period shall be regarded as if it has commenced on January 1, 2021
(other than with respect to distributions and any related dividend amount which were made prior to the grant of the RSUs and which are
explicitly excluded) and will be divided into 32 fiscal quarters (each, referred to as a Fiscal Quarter). The dividend amount within each
dividend distributed to our shareholders will be released to, or set aside for, our chief executive officer together with the distribution
of the dividend. The portion of the Dividend Amount to be released to our chief executive officer will in each case be based on the number
of Fiscal Quarters that have lapsed at the time of distribution of the dividend. The remainder of the Dividend Amount will be set aside
and paid to our chief executive officer on a pro-rata basis upon the expiration of each Fiscal Quarter until the Dividend Amount is released
in full at the end of the Vesting Period for the RSUs. The total expense we recorded in our statement of profit or loss, in accordance
with accounting principles, with respect to such dividend amounts for the year ended December 31, 2022 amounted to $0.5 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 42.55pt">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event of termination
of our chief executive officer services agreement, by us for Cause (as defined in the services agreement), the RSUs will immediately terminate
and become null and void, and all interests and rights of our chief executive officer in and to the same will expire. In case of termination
of our chief executive officer services agreement by us not for Cause, or due to the resignation of our chief executive officer for Good
Reason, all unvested RSUs that could have vested from the grant date until December 31, 2027, assuming all performance and time conditions
and future targets would have been fulfilled (including all targets that would have resulted in vesting with respect to any Previous Year
which could have still been met in future years), will accelerate and become immediately vested and exercisable, regardless of the actual
occurrence or failure to occur of any of the future performance targets relating to those RSUs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 42.55pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event of resignation
by our chief executive officer not for Good Reason, our chief executive officer RSUs will vest, in an accelerated manner, in such portion
equal to the pro-rata portion of the Vesting Period that has already lapsed (based on the full number of Fiscal Quarters that have lapsed
from January 1, 2020 until the actual resignation date, including notice period). However, any Performance Based RSUs for which the applicable
target was not achieved up until the resignation date (including the notice period) will expire and terminate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 42.55pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Restricted Share Grants
to Chief Financial Officer</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 42.55pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 13, and 14, 2021,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, awarded our Chief Financial
Officer, Asaf Berenstin, 21,000 additional restricted shares under the 2021 Plan. These additional restricted shares vest on a quarterly
basis over approximately five-year period, with 3,750 restricted shares, approximately 18% of the grant, vesting on the grant date with
the remaining amount vested in 23 quarterly equal amounts of 750 restricted shares per quarter commencing on June 30, 2022 and concluding
on December 31, 2027, provided that during such time the Chief Financial Officer continues to serve as (i) an officer of the Company and/or
(ii) an officer in one of our directly held affiliates. If he fails to meet the service condition due to the request of the board of directors
of either Formula or any of its directly held affiliates (other than a termination of his provision of services which is based on actions
or omissions by him that will constitute &#8220;cause&#8221; under his grant agreement with Formula); then, the Chief Financial Officer
will be deemed to have complied with clauses (i) or (ii) above. Notwithstanding the foregoing, if a change of control of Formula occurs,
then all unvested additional restricted shares will immediately become vested. Total fair value of the grant was calculated based on the
Formula share price on the grant date and amounted to NIS 6.7 million (approximately $2.0 million), based on a share price of NIS 318.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Restricted Share Grants to Chief
Operational Officer</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 11 and 13, 2014,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, awarded our Chief Operational
Officer, Maya Solomon, 10,000 restricted shares under the 2011 Plan. These restricted shares vested on an annual basis over a four-year
period, which commenced on November 19, 2018 and concluded on November 18, 2022, provided that during such time the Chief Operational
Officer continued to serve as (i) an officer of the Company and/or (ii) an officer in one of our directly held affiliates (we refer to
this as the Service Condition). The total fair value of the grant was calculated based on the Formula share price on the grant date and
amounted to $382,150 ($38.21 per share). As of April 30, 2023, all 10,000 restricted shares had vested and remained depositedwith the
trustee.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On January 15 and 16, 2023,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, awarded our Chief Operational
Officer, Maya Solomon, 15,000 restricted shares under the 2021 Plan. These restricted shares vest at certain points in time over a seven-year
period, which commenced on January 16, 2023 and concluding on December 31, 2029, provided that during such time the Chief Operational
Officer continued to serve as (i) an officer of the Company and/or (ii) an officer in one of our directly held affiliates (we refer to
this as the Service Condition). The total fair value of the grant was calculated based on the Formula share price on the grant date and
amounted to $1.2 million ($81.65 per share). As of April 30, 2023, none of the 15,000 restricted shares had vested.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For a description of our 2011
Share Incentive Plan and our 2021 Share Incentive Plan pursuant to which options or share awards may be granted from time to time to our
directors, executive officers, employees and consultants, see &#8220;Item 6.E. Share Ownership<b>&#8212; </b>Arrangements Involving the
Issuance or Grant of Equity Awards&#8221; below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Board Practices</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to our amended and
restated articles of association, or our articles, directors are generally elected at the annual general meeting of shareholders by a
vote of the holders of a majority of the voting power represented at the meeting. Our existing board of directors may also appoint a new
director to the board, assuming that the then-authorized size of the board, as last approved by our shareholders, exceeds the number of
directors then serving on the board, whether due to a resignation or otherwise, in which case the newly appointed director holds office
until the next annual general meeting of shareholders immediately following such appointment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On July 19, 2022, our Board
received a request in writing from Asseco Poland S.A., or Asseco, the Company&#8217;s largest shareholder, requesting the appointment
of two nominees as directors, Ms. Karolina Rzonca-Bajorek, and Ms. Gabriela &#379;ukowicz. The Board held a meeting on July 20, 2022 to
discuss the request and concluded, due to the considerations described below, that the fulfillment of the request would serve the best
interest of the Company and its shareholders, and therefore resolved to bring the election of those nominees as additional directors (including
the accompanying increase in the authorized size of our Board), to our shareholders for approval at a special general meeting of shareholders.
The election of the nominees proposed by Asseco (and the accompanying increase in the authorized size of the Board), were presented to
our shareholders for approval at our August 25, 2022 special general meeting, and approved thereat.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a result, our board is
currently comprised of seven persons, of which each of Ohad Melnik, Tomer Jacob and Relly Danon has been determined by the board to be
independent within the meaning of the Listing Rules of the Nasdaq Stock Market (or the Nasdaq listing rules), on which our ADSs are listed
for trading. Concurrently with the election of Ms. Karolina Rzonca-Bajorek and Ms. Gabriela &#379;ukowicz to the board, we opted, as a
foreign private issuer under SEC rules, to follow Israeli law practice in lieu of the Nasdaq majority board independence requirement.
Please see Item 16G below. Mr. Jacob and Ms. Danon serve as our external directors (succeeding Ms. Iris Yahal and Mr. Eli Zamir, as of
May 2022, whose third three year term as external directors ended in April 2022) as mandated under Israeli law, and are therefore subject
to additional criteria to help ensure their independence. See &#8220;External Directors Under the Companies Law&#8221; below. Each of
our directors, except for the external directors, holds office until the next annual general meeting of shareholders and may then be re-elected.
Our officers are appointed by our board of directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Companies Law, a
person who lacks the necessary qualifications and the ability to devote an appropriate amount of time to the performance of his or her
duties as a director shall not be appointed director of a publicly traded company. While determining a person&#8217;s compliance with
such provisions, the company&#8217;s special requirements and its scope of business shall be taken into consideration. Where the agenda
of a shareholders meeting of a publicly traded company includes the appointment of directors, each director nominee should submit a declaration
to the company confirming that he or she has the necessary qualifications and that he or she is able to devote an appropriate amount of
time to performance of his or her duties as a director. In the declaration, the director nominee should specify his or her qualifications
and confirm that the restrictions set out in the Companies Law do not apply.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Companies Law, if
a director ceases to comply with any of the requirements provided in the Companies Law, such director must immediately notify the company,
and his or her term of service shall terminate on the date of the notice.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 154; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>External Directors Under the Companies
Law</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Companies Law, companies
incorporated under the laws of Israel whose shares have been offered to the public in or outside of Israel, are required to appoint at
least two external directors. This law provides that a person may not be appointed as an external director if the person is a relative
of the controlling shareholder of the company or if that person or his or her relative, partner, employer, another person to whom he or
she was directly or indirectly subject, or any entity under the person&#8217;s control, has, as of the date of the person&#8217;s appointment
to serve as external director, or had, during the two years preceding that date: (a) any affiliation or other disqualifying relationship
with the company, with any person or entity controlling the company or a relative of such person, or with any entity controlled by or
under common control with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had
at the date of appointment as an external director, any affiliation or other disqualifying relationship with a person then serving as
chairman of the board or chief executive officer, a holder of 5% or more of the issued share capital or voting power in the company or
the most senior financial officer. The term &#8220;affiliation&#8221; and the similar types of prohibited relationships include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">an employment relationship;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">a business or professional relationship,
even if not maintained on a regular basis (but excluding a <i>de minimis</i> level relationship);</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">control; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">service as an office holder.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The term &#8220;office holder&#8221;
is defined under the Companies Law as a general manager (i.e., chief executive officer), chief business manager, deputy general manager,
vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person&#8217;s title,
a director and any other manager directly subordinate to the general manager.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No person may serve as an
external director if the person&#8217;s position or other business activities create, or may create, a conflict of interest with the person&#8217;s
responsibilities as an external director or may otherwise interfere with the person&#8217;s ability to serve as an external director or
if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. A person may furthermore not continue
to serve as an external director if he or she received, during his or her tenure as an external director, direct or indirect compensation
from the company including amounts paid pursuant to indemnification or exculpation contracts or commitments and insurance coverage for
his or her service as an external director, other than as permitted by the Companies Law and the regulations promulgated thereunder. If,
at the time of election of an external director, all other directors who are not the company&#8217;s controlling persons or their relatives
are of the same gender, the external director to be elected must be of the other gender. A director of one company may not be appointed
as an external director of another company if a director of the other company is acting as an external director of the first company at
such time.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">External directors are elected
by a majority vote at a shareholders&#8217; meeting, provided that either:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a conflict of interest (referred to under the Companies Law as a &#8220;personal interest&#8221;) in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority, or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director against the election of the external director does not exceed two percent (2%) of the aggregate voting rights in the company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">According to regulations promulgated
under the Companies Law, a person may be appointed as an external director only if he or she has professional qualifications or if he
or she has accounting and financial expertise (each, as defined below). In addition, at least one of the external directors must be determined
by our board of directors to have accounting and financial expertise. A director with &#8220;accounting and financial expertise&#8221;
is a director that due to his or her education, experience and skills has a high expertise and understanding in financial and accounting
matters and financial statements, in such a manner which allows him to deeply understand the financial statements of the company and initiate
a discussion about the presentation of financial data. A director is deemed to have &#8220;professional qualifications&#8221; if he or
she either (i) has an academic degree in economics, business management, accounting, law or public service, (ii) has an academic or other
degree or has completed other higher education, all in the field of business of the company or relevant for his/her position, or (iii)
has at least five years experience serving in one of the following capacities, or at least five years of cumulative experience serving
in two or more of the following capacities: (a) a senior business management position in a company with a significant volume of business;
(b) a senior position in the company&#8217;s primary field of business; or (c) a senior position in public administration or service.
Our board of directors has determined that each of Mr. Jacob and Ms. Danon possesses requisite financial and accounting expertise, as
required of our external directors under the Companies Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An external director may be
removed from office only: (i) by a court, upon determination that the external director to be so removed ceased to meet the statutory
qualifications for his or her appointment or if he or she violated his or her duty of loyalty to the company or (ii) by the same percentage
of shareholders, acting through a shareholders meeting, as is required for his or her election, if the board of directors has determined
that the external director to be so removed has ceased to meet the statutory qualifications for his or her appointment or violated his
or her duty of loyalty to the company and has proposed the removal to the shareholders. An external director who ceases to meet the conditions
for his or her service as such must notify the company immediately and such service shall cease immediately upon such notification.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The initial term of an external
director is three years and may be extended by the general meeting of shareholders, for up to two additional three year terms, provided
that (i) his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company&#8217;s
voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non-controlling,
disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company, provided that the external
director and certain of his or her related parties meet additional independence requirements; or (ii) his or her service for each such
additional term is recommended by the board of directors and is approved at a meeting of shareholders by the same majority required for
the initial election of an external director.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In May 2022, Mr. Jacob and
Ms. Danon were initially appointed for a three-year term as our external directors, each to hold office until May 2025. In accordance
with the regulations under the Companies Law (Relief for Public Companies Whose Shares are Listed on a Stock Exchange Outside of Israel,
2000), dual listed companies, like us, whose securities are listed on the Nasdaq Global Select Market or one of a number of other non-Israeli
stock exchanges, may re-appoint an external director for additional three-year terms, in excess of the nine years as described above,
if the audit committee and the board of directors confirm that, due to the expertise and special contribution of the external director
to the work of the board and its committees, his or her re-appointment is in the best interests of the company. The same special majority
is required for election of the external director for each additional three-year term.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each committee of a company&#8217;s
board of directors is required to include at least one external director and the audit committee must include all of the external directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An external director is entitled
to compensation as provided in regulations promulgated under the Companies Law and is otherwise prohibited from receiving any compensation,
directly or indirectly, in connection with services provided as an external director or otherwise to the company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Following the termination
of an external director&#8217;s service on a board of directors, such former external director and his or her spouse and children may
not be provided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder&#8217;s
control, including engagement to serve as an executive officer or director of the company or a company controlled by its controlling shareholder
or employment by, or providing services to, any such company for consideration, either directly or indirectly, including through a corporation
controlled by the former external director. This restriction extends for a period of two years with regard to the former external director
and his or her spouse or child and for one year with respect to other relatives of the former external director.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under regulations promulgated under the Companies Law, Israeli public
companies whose shares are traded on certain U.S. stock exchanges, such as the Nasdaq Global Select Market, and that lack a controlling
shareholder (as defined below) are exempt from the requirement to appoint external directors. Any such company is also exempt from the
Companies Law requirements related to the composition of the audit and compensation committees of the board. Eligibility for these exemptions
is conditioned on compliance with U.S. stock exchange listing rules related to majority board independence and the composition of the
audit and compensation committees of the board, as applicable to all listed domestic U.S. companies. Because we have a controlling shareholder
as determined under the Companies Law (Asseco), we are not eligible for these exemptions under the subject regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Qualifications of Directors Generally
Under the Companies Law</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Companies Law, the
board of directors of a publicly traded company is required to make a determination as to the minimum number of directors (not merely
external directors) who must have accounting and financial expertise (according to the same criteria described above with respect to external
directors under &#8220;&#8212;External Directors Under the Companies Law&#8221;). In accordance with the Companies Law, the determination
of the board should be based on, among other things, the type of the company, its size, the volume and complexity of its activities and
the number of directors. Based on the foregoing considerations, our board determined that the number of directors with financial and accounting
expertise in our company shall not be less than one. As described above under &#8220;&#8212;External Directors Under the Companies Law,&#8221;
currently Mr. Tomer Jacob and Ms. Relly Danon have been determined by the board to possess such accounting and financial expertise.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Unaffiliated Directors Under the
Companies Law</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Companies Law, the
audit committee of a publicly traded company must consist of a majority of unaffiliated directors. An &#8220;unaffiliated director&#8221;
is defined as an external director or a director who meets the following criteria:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify">&#160;</td>
    <td style="width: 24px; text-align: justify"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">he or she meets the qualifications for being appointed as an external director, except for (i) the requirement that the director be an Israeli resident (which does not apply to companies whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our audit committee complies
with the foregoing required majority of unaffiliated directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Audit Committee</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition to the foregoing
requirement concerning the audit committee&#8217;s unaffiliated director members, the Companies Law also requires more generally that
public companies such as ours must appoint an audit committee, comprised of at least three directors, including all of the external directors,
one of whom must serve as chairman of the committee. The chairman of the board of directors, or any director employed by or otherwise
providing services on a regular basis to the company or to a controlling shareholder or any entity controlled by a controlling shareholder,
may not be a member of the audit committee. Under the Companies Law, our audit committee is responsible for (i) determining whether there
are deficiencies in the business management practices of the company, including in consultation with the company&#8217;s internal auditor
or the independent auditor, and making recommendations to the board of directors to improve such practices, (ii) determining whether to
approve certain related party transactions, including transactions in which an office holder has a personal interest and whether such
transaction is extraordinary or material, (iii) establishing the approval process (including, potentially, the approval of the audit committee)
for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (iv) where the
board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board and
propose amendments thereto, (v) examining the company&#8217;s internal controls and internal auditor&#8217;s performance, including whether
the internal auditor has sufficient resources and tools to dispose of his responsibilities (taking into consideration the company&#8217;s
special needs and size), (vi) examining the scope of the company&#8217;s auditor&#8217;s work and compensation and submitting a recommendation
with respect thereto to the board of directors or the general meeting of shareholders, depending on which of them is considering the appointment
of our auditor and (vii) establishing procedures with respect to the handling of company employees&#8217; complaints as to the management
of the company&#8217;s business and the protection to be provided to such employees. In compliance with regulations under the Companies
Law, our audit committee also approves our financial statements, thereby fulfilling the requirement that a board committee provide such
approval. An audit committee may not approve an action requiring its approval, unless at the time of approval a majority of the committee&#8217;s
members are present, of whom a majority consist of unaffiliated directors and at least one of them is an external director.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;The Nasdaq listing
rules and U.S. securities laws likewise require that we maintain an audit committee, all of whose members are independent of management.
In accordance with the Sarbanes-Oxley Act of 2002 and the Nasdaq requirements, our audit committee&#8217;s direct responsibilities include
the appointment, compensation, retention and oversight of our independent auditors (which itself also requires shareholder ratification
under Israeli law). The committee&#8217;s U.S. and Nasdaq mandated responsibilities also include assisting the board in monitoring our
financial statements and the effectiveness of our internal controls. We have adopted a formal audit committee charter that we have implemented,
embodying these responsibilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our audit committee consists
of our two external directors, Mr. Tomer Jacob and Ms. Relly Danon, as well as Mr. Ohad Melnik. Each of Mr. Jacob, Ms. Danon and Mr. Melnik
qualifies as an independent director under both the Nasdaq listing rules and Rule 10A-3 of the Exchange Act. The board has furthermore
determined that Mr. Jacob is an &#8220;audit committee financial expert&#8221; as defined by applicable SEC regulations. See &#8220;Item
16A. Audit Committee Financial Expert.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Compensation Committee and Compensation
Policy</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Companies Law, the
board of directors of a public company must appoint a compensation committee. The compensation committee must be comprised of at least
three directors, including all of the external directors, who must constitute a majority of the members of the compensation committee.
Each compensation committee member who is not an external director must be a director whose compensation does not exceed an amount that
may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee
as to who may not be a member of the compensation committee. As noted above (under &#8220;External Directors Under the Companies Law&#8221;),
Israeli companies whose securities are traded on stock exchanges such as the Nasdaq Global Select Market, and who do not have a controlling
shareholder, do not have to meet the compensation committee composition requirements under the Companies Law. Reliance on this leniency
is conditioned upon the compensation committee meeting the composition requirements of the jurisdiction where the company&#8217;s securities
are traded. This leniency does not apply to our company, as we have a controlling shareholder (Asseco).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The duties of the compensation
committee include the recommendation to the company&#8217;s board of directors of a policy regarding the terms of engagement of office
holders, to which we refer as a compensation policy. That policy must be adopted by the company&#8217;s board of directors, after considering
the recommendations of the compensation committee, and will need to be brought for approval by the company&#8217;s shareholders, which
approval requires what we refer to as a Special Majority Approval for Compensation. A Special Majority Approval for Compensation requires
shareholder approval by a majority vote of the shares present and voting at a meeting of shareholders called for such purpose, provided
that either:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a conflict of interest (referred to under the Companies Law as a &#8220;personal interest&#8221;) in such compensation arrangement; or;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">the total number of shares of non-controlling shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company&#8217;s aggregate voting rights.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We initially adopted a compensation
policy during 2013. Our compensation policy was not re-approved at our Annual General Meeting of Shareholders that was held on December
21, 2016. In April 2018, in accordance with Section 276A(c) of the Companies Law, our compensation committee and the board determined
that the approval of the compensation policy is in the best interest of the company and exercised their right to adopt the compensation
policy notwithstanding it not having been approved by the shareholders at the Annual Meeting. In December 2022, our compensation committee
and board of directors re-approved our compensation policy and submitted it to our shareholders for approval at our January 12, 2023 special
general shareholders meeting. Our shareholders did not approve the compensation policy at that meeting. On January 15, and 16, 2023, our
compensation committee and board of directors, respectively, acting in accordance with the Companies Law, re-approved the compensation
policy notwithstanding that our shareholders had not approved it.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The compensation policy serves
as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance,
indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must
relate to certain factors, including advancement of the company&#8217;s objectives, the company&#8217;s business plan and its long-term
strategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the company&#8217;s risk
management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the knowledge, skills, expertise and accomplishments of the relevant office holder;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the office holder&#8217;s roles and responsibilities and prior compensation agreements with him or her;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the relationship between the terms offered and the average compensation of the other employees of the company, including those employed through manpower companies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the impact of disparities in salary upon work relationships in the company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">the possibility of reducing variable compensation at the discretion of the board of directors;</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company&#8217;s performance during that period of service, the person&#8217;s contribution towards the company&#8217;s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The compensation policy must
also include the following principles:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the link between variable compensation and long-term performance and measurable criteria;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company&#8217;s financial statements;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the minimum holding or vesting period for variable, equity-based compensation; and</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">maximum limits for severance compensation.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The compensation committee
is responsible for (a) recommending the compensation policy to a company&#8217;s board of directors for its approval (and subsequent approval
by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company&#8217;s office holders as
well as functions previously fulfilled by a company&#8217;s audit committee with respect to matters related to approval of the terms of
engagement of office holders, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three (3) years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years, or for a new public company, five years initially);</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">recommending to the board of directors periodic updates to the compensation policy;</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">assessing implementation of the compensation policy; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board of directors has
adopted a compensation committee charter setting forth the responsibilities of the compensation committee, which include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our compensation committee
consists of our two external directors Mr. Tomer Jacob and Ms. Relly Danon, as well as Mr. Ohad Melnik. Each of the members of our compensation
committee qualifies as an independent director under the Nasdaq listing rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Internal Auditor</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the Companies Law, the
board of directors is required to appoint an internal auditor, nominated by the audit committee. The role of the internal auditor is to
examine, among other matters, whether the company&#8217;s actions comply with the law and orderly business procedure. Under the Companies
Law, the internal auditor may be an employee of the company but not an office holder, or an interested party (i.e., a holder of 5% or
more of the voting rights in the company or of the issued share capital, the chief executive officer of the company or any of its directors,
or a person who has the authority to appoint the company&#8217;s chief executive officer or any of its directors), or a relative of an
office holder or of an interested party. In addition, the company&#8217;s independent auditor or its representative may not serve as the
company&#8217;s internal auditor. Our internal auditor is Mr. Eyal Weitzman.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Nasdaq Exemptions for a Foreign Private
Issuer</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are a foreign private issuer
within the meaning of Nasdaq listing rule 5005(a)(18), since we are incorporated in Israel and we meet the other criteria set forth for
a &#8220;foreign private issuer&#8221; under Rule 3b-4(c) under the Exchange Act. Therefore, pursuant to Nasdaq listing rule 5615(a)(3),
we may follow home country practice in lieu of certain provisions of the Nasdaq listing rule 5600 series and certain other Nasdaq listing
rules. Please see &#8220;Item 16G. Corporate Governance&#8221; below for a description of the manner in which we rely upon home country
practice in lieu of complying with certain Nasdaq listing rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Exculpation, Insurance and Indemnification
of Directors and Officers</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our office holders consist
of the individuals listed in the table under &#8220;Directors and Senior Management,&#8221; which is displayed under &#8220;Item 6. Directors,
Senior Management and Employees.&#8221; Under the Companies Law, an Israeli company may not exempt an office holder from liability with
respect to a breach of his or her duty of loyalty, but may exempt in advance an office holder from his or her liability to the company,
in whole or in part, with respect to a breach of his duty of care, provided, however, that such a breach is not related to a distribution
of a dividend or any other distribution by the company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Office Holders&#8217; Insurance.</i>
Our articles provide that, subject to the provisions of the Companies Law, we may enter into a contract for the insurance of the liability
of any of our office holders imposed on the office holder in respect of an act performed in his or her capacity as an office holder, with
respect to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a breach of his duty of care to us or to another person;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a financial liability imposed upon him in favor of another person.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have obtained an insurance
policy covering the Formula Group&#8217;s directors&#8217; and officers&#8217; liability. Certain of our subsidiaries (Magic Software
and its subsidiaries, Sapiens and its subsidiaries, Insync, Zap Group and its subsidiaries, Shamrad and Michpal and its subsidiaries)
participate in the premium payments of the insurance, on a proportional basis. The total premium we paid during 2022 was approximately
$2,300,000 for the entire Group. On a stand-alone basis, the portion allocated to Formula and its privately-held subsidiaries amounted
in 2022 to $279,000. For 2023, the total premium we paid as a Group amounted to $1,600,000. On a stand-alone basis, the portion allocated
to Formula and its privately-held subsidiaries with respect to 2023 amounted to $235,060.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Indemnification of Office
Holders.</i> Our articles provide that we may indemnify an office holder in respect of an obligation or expense imposed on or expended
by an office holder in respect of an act performed in his capacity as an office holder as specified below:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">a financial obligation imposed on him in favor of another person by any judgment, including a settlement or an arbitrator&#8217;s award approved by a court;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">(ii)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reasonable litigation expenses, including attorney&#8217;s fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him, and either (i) concluded without the imposition of any financial liability in lieu of criminal proceedings; or (ii) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">(iii)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reasonable litigation expenses, including attorneys&#8217; fees, expended by the office holder or charged to him by a court, in proceedings instituted against him by another person, or in a criminal charge from which he was acquitted or in any criminal proceedings of a crime which does not require proof of criminal intent;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">(iv)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">expenses, including reasonable litigation expenses and legal fees, incurred by an office holder as a result of a proceeding instituted against such office holder in relation to (1) infringements that may impose financial sanction pursuant to the provisions of Chapter H&#8217;3 under the Israeli Securities Law, which we refer to as the Securities Law, or (2) administrative infringements pursuant to the provisions of Chapter H&#8217;4 under the Securities Law or (3) infringements pursuant to the provisions of Chapter I&#8217;1 under the Securities Law; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">(v)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">payments made by the office holder to an injured party for damages suffered under Section 52(54)(a)(1)(a) of the Securities Law.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may undertake to indemnify
an office holder as aforesaid, (a) prospectively, provided that in respect of (i) above, the undertaking is limited to categories of events
that in the opinion of our board of directors are foreseeable in light of our actual operations at the time that the undertaking to indemnify
is given, and to the amounts or criteria that our board of directors deems reasonable under the circumstances, and further provided that
such events and amount or criteria are set forth in the undertaking to indemnify, but in any event no more than 25% of Formula&#8217;s
shareholders equity according to its most recent financial statements as of the date of the actual payment of indemnification; and (b)
retroactively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Limitations on Exemption,
Insurance and Indemnification.</i> The Companies Law provides that a company may not indemnify an office holder, enter into an insurance
contract which would provide coverage for any monetary liability, or exempt an office holder from liability, with respect to any of the
following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a breach by the office holder of his duty of loyalty unless the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a breach by the office holder of his duty of care if the breach was done intentionally or recklessly, except for a breach that was made in negligence;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">any fine levied against the office holder; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, under the Companies
Law, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our
board of directors and, in specified circumstances, by our shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have entered into undertakings
to indemnify our office holders in specified limited categories of events and in specified amounts, subject to the limitations set by
the Companies Law and our articles, as described above. For more information, see &#8220;Item 7.B. Related Party Transactions &#8211;
Indemnification of Office Holders.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Directors&#8217; Severance Benefits Upon Termination
of Employment</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not entered into any
service contracts with any members of our board of directors that provide for specific benefits upon termination of employment, as none
of our directors is employed by us or otherwise subject to a consulting or similar contract with us that provides benefits upon termination
of employment or service. The only severance pay benefits that we provide are provided to employees as required under Israeli law and
are described below in the section titled &#8220;Employees&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>D.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Employees</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The table below sets forth
the average number of employees employed by us, as allocated among our eight subsidiaries in which we have effective control through December
31, 2022, during each of the last three fiscal years:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 64%">Matrix</td><td style="width: 1%">&#160;</td>
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    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">10,820</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">11,200</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">3,677</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">4,161</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">3,438</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">4,044</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">4,754</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">419</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">216</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">273</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">92</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">94</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">90</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td>Insync</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">572</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">762</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">788</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">301</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">311</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 1.5pt">Shamrad</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-bottom: 4pt">Total</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The table below sets forth
the average number of employees employed by us, as allocated by geographical area of employment, during each of the last three fiscal
years:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: bottom">
    <td>&#160;</td>
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    <td style="padding-bottom: 1.5pt">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td>&#160;</td>
    <td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="padding-bottom: 1.5pt">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="width: 64%"><span style="font-size: 10pt">Israel</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 9%; text-align: right"><span style="font-size: 10pt">12,473</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 9%; text-align: right"><span style="font-size: 10pt">13,074</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 9%; text-align: right"><span style="font-size: 10pt">13,629</span></td>
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">3,006</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">3,569</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">3,198</span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td><span style="font-size: 10pt">Europe</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">1,405</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">1,756</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">2,771</span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">1,561</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">1.922</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-size: 10pt">2,453</span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="padding-bottom: 1.5pt"><span style="font-size: 10pt">South Africa</span></td>
    <td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-size: 10pt">12</span></td>
    <td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-size: 10pt">12</span></td>
    <td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-size: 10pt">8</span></td>
    <td style="padding-bottom: 1.5pt">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
    <td style="padding-bottom: 4pt"><span style="font-size: 10pt">Total</span></td>
    <td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: right"><span style="font-size: 10pt">18,457</span></td>
    <td style="padding-bottom: 4pt">&#160;</td>
    <td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: right"><span style="font-size: 10pt">20,333</span></td>
    <td style="padding-bottom: 4pt">&#160;</td>
    <td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: right"><span style="font-size: 10pt">22,059</span></td>
    <td style="padding-bottom: 4pt">&#160;</td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to our employees
in Israel, we are subject to various Israeli labor laws and labor practices, and to administrative orders extending certain provisions
of collective bargaining agreements between the Histadrut (Israel&#8217;s General Federation of Labor) and the Coordinating Bureau of
Economic Organizations (the Israeli federation of employers&#8217; organizations) to all private sector employees. For example, mandatory
cost of living adjustments, which compensate Israeli employees for a portion of the increase in the Israeli consumer price index, are
determined, from time to time, on a nationwide basis. Israeli law also requires the payment of severance benefits upon the termination,
retirement (in some instances) or death of an employee. We meet this requirement by (i) contributing on an ongoing basis towards &#8220;managers&#8217;
insurance&#8221; funds that combine pension, insurance and, if applicable, severance pay benefits and (ii) payment of differences, if
applicable. In addition, Israeli employers and employees are required to pay specified percentages of wages to the National Insurance
Institute. Other provisions of Israeli law or regulation govern matters such as the length of the workday, minimum wages, other terms
of employment and restrictions on discrimination.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are also subject to the
labor laws and regulations of other jurisdictions in the world where we have employees.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>E.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Share Ownership</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of April&#160;30, 2023,
none of our directors or officers owned any shares of our company (whether actual ordinary shares or shares issuable upon exercise of
options), except for Mr. Guy Bernstein, our Chief Executive Officer, Mr. Asaf Berenstin, our Chief Financial Officer and Ms. Maya Solomon,
our Chief Operational Manager, as described under &#8220;Item 6. Directors, Senior Management &amp; Employees&#8212; B. Compensation&#8212;
Option Grants to, and Service Agreement with, Chief Executive Officer&#8221; and &#8220;Item 6. Directors, Senior Management &amp; Employees&#8212;
Restricted Share Grants to Chief Financial Officer&#8221; above. None of the ordinary shares beneficially owned by Messrs. Bernstein and
Berenstin or Ms. Solomon has voting rights different from those possessed by other holders of Formula&#8217;s ordinary shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">At the current time, based
on information that he has provided to us, Mr. Guy Bernstein beneficially owns 1,797,973 of Formula&#8217;s ordinary shares, in the aggregate.
Please see &#8220;Item 7. Major Shareholders and Related Party Transactions&#8212;A. Major Shareholders&#8221; below for more information.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">At the current time, based
on information that he has provided to us, Mr. Asaf Berenstin owns 31,833 of Formula&#8217;s ordinary shares, consisting of 10,000 restricted
shares, 833 restricted shares and 21,000 restricted shares which were granted to him on November 13, 2014, August 17, 2017 and March 14,
2022, respectively (as described above under &#8220;Item 6. Directors, Senior Management and Employees&#8212; B. Compensation&#8212; Restricted
Share Grants to Chief Financial Officer&#8221; and in Note 18(b) to our consolidated financial statements contained elsewhere in this
annual report). As of April 30, 2023, 17,583 restricted shares were fully vested, with the remaining 14,250 restricted shares to be vested
over 19 equal quarterly periods, which commenced on April 1, 2023 and will conclude on December 31, 2027. All restricted shares, whether
vested or not, are held in the trust.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">At the current time, based
on information that she has provided to us, Ms. Maya Solomon owns 25,000 of Formula&#8217;s ordinary shares, consisting of 10,000 restricted
shares and 15,000 restricted shares which were granted to her on November 19, 2018 and on January 16, 2023, respectively (as described
above under &#8220;Item 6. Directors, Senior Management and Employees&#8212; B. Compensation&#8212; Restricted Share Grants to Chief Operational
Officer&#8221; and in Note 18(b) to our consolidated financial statements contained elsewhere in this annual report). Of those shares,
as of April 30, 2023, 10,000 restricted shares were fully vested, with the remaining 15,000 restricted shares to be vested at certain
points in time over a seven-year period, which commenced on January 16, 2023 and concluding on December 31, 2029. All restricted shares,
whether vested or not, are held in the trust.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;<b><i>Arrangements Involving the Issuance
or Grant of Equity Awards</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Formula&#8217;s 2011 Share
Incentive Plan</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In March 2011, our board of
directors adopted Formula&#8217;s 2011 Share Incentive Plan, which we refer to as the 2011 Plan. Pursuant to the 2011 Plan, we may grant
from time to time to our and our subsidiaries&#8217; employees, office holders (which are not Formula&#8217;s controlling shareholders)
and consultants&#8217; options to purchase, share based awards or restricted shares with respect to, up to an aggregate of 545,000 ordinary
shares of Formula. The 2011 Plan is administered by our board of directors. The 2011 Plan provides that options, restricted shares or
other stock-based awards may be granted, from time to time, to such grantees to be determined by our board of directors, at such exercise
prices and with such vesting or other terms as shall be determined by the board at its sole and absolute discretion. Options may no longer
be granted under the 2011 Plan.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In March 2012, our board of
directors increased the amount of ordinary shares reserved for issuance under the 2011 Share Incentive Plan by 1,200,000 shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Of the options available for
grant under the 2011 Plan, we approved the grant, in March 2011, of options to purchase 543,840 ordinary shares to our Chief Executive
Officer, each to be exercisable for no consideration and, in March 2012, we approved the grant of options to purchase 1,122,782 ordinary
shares to our Chief Executive Officer, each to be exercisable for NIS 0.01 per share. Please see &#8220;Item 6. Directors, Senior Management
and Employees&#8212; B. Compensation&#8212; Option Grants to, and Service Agreement with, Chief Executive Officer&#8221; for a description
of those grants. We have also approved the grant of 10,000 restricted shares to our Chief Financial Officer on each of November 13, 2014
and August 17, 2017 and the grant of 10,000 restricted shares to our Chief Operational Officer on November 19, 2017, in each case under
the 2011 Plan. Please see &#8220;Item 6. Directors, Senior Management and Employees&#8212; B. Compensation&#8212; Restricted Share Grants
to Chief Financial Officer&#8221; for a description of those grants.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Formula&#8217;s 2021 Share
Incentive Plan</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In August 2021, our board
of directors adopted Formula&#8217;s 2021 Share Incentive Plan, which we refer to as the 2021 Plan. Pursuant to the 2021 Plan, we may
grant from time to time to our and our subsidiaries&#8217; employees, office holders (which are not Formula&#8217;s controlling shareholders)
and consultants&#8217; options to purchase, share based awards or restricted shares with respect to, up to an aggregate of 350,000 ordinary
shares of Formula (including 48,378 Ordinary shares that were reserved for issuance under the 2011 Plan and not subject to outstanding
grants and transferred to the 2021 Plan). The 2021 Plan is administered by our board of directors. The 2021 Plan provides that options,
restricted shares, or other stock-based awards may be granted, from time to time, to such grantees to be determined by our board of directors,
at such exercise prices and with such vesting or other terms as shall be determined by the board at its sole and absolute discretion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Of the options available for
grant under the 2021 Plan, we approved the grant, in March 2022, of 21,000 restricted shares to our Chief Financial Officer and an aggregate
of 2,400 restricted shares to employees of the Company and the grant in January 2023, of 15,000 restricted shares to our Chief Operaion
Officer. Please see &#8220;Item 6. Directors, Senior Management and Employees&#8212; B. Compensation&#8221; for a description of those
grants.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Equity Incentive Plans
of Our Subsidiaries</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our subsidiaries generally
have equity incentive plans pursuant to which qualified directors, employees and consultants may be granted options or other share-based
awards consisting of securities of the subsidiaries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>F. &#160;Disclosure of a registrant&#8217;s action to recover erroneously
awarded compensation.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_011"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Major Shareholders</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table presents
information regarding the beneficial ownership (as defined in Form 20-F promulgated by the SEC) of Formula&#8217;s ordinary shares (including
shares represented by ADSs) as of April 30, 2023 by each person known to us to be the beneficial owner of 5% or more of Formula&#8217;s
ordinary shares, and by our directors and executive officers as a group, based on information provided to us by our shareholders or disclosed
in public filings with the SEC. None of the holders of the ordinary shares listed in the below table has voting rights different from
other holders of Formula&#8217;s ordinary shares. Except where indicated otherwise, we believe, based on information furnished by these
owners, that each of the beneficial owners of Formula&#8217;s ordinary shares listed below has sole investment and voting power with respect
to such shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->156<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Percentage of<br/> Ownership&#160;(2)</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%; text-align: left">Asseco Poland S.A.(3)</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">3,958,154</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">25.8</td><td style="width: 1%; text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td>Guy Bernstein(4)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,797,973</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">11.7</td><td style="text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Harel Insurance Investments &amp; Financial Services Ltd. (5)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,300,305</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">8.5</td><td style="text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Menora Mivtachim Holdings Ltd.(6)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,104,524</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">7.2</td><td style="text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Meitav Dash Investments Ltd. (7)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,168,940</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">7.6</td><td style="text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">The Phoenix Holdings Ltd.(8)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">909,582</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">5.9</td><td style="text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Yelin Lapidot Holdings Management Ltd. (9)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">858,747</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">5.6</td><td style="text-align: left">%</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">All directors and executive officers as a group (8 persons)(10)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,825,556</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">11.9</td><td style="text-align: left">%</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(1)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting or investment power with respect to securities. Ordinary shares underlying options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the ownership percentage of the person holding such options but are not deemed outstanding for computing the ownership percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(2)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The percentages shown are based on 15,332,667 ordinary shares (including shares represented by ADSs, and shares subject to restrictions and repurchase by us) issued and outstanding as of April 30, 2023.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(3)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Based on Amendment No. 5 to Schedule 13D filed by Asseco Poland S.A., or Asseco, with the SEC on December 7, 2022 and written notification received from Asseco on March 31, 2023. Due to the public ownership of its shares, Asseco is not controlled by any other corporation or any one individual or group of shareholders.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(4)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Based on Amendment No. 4 to Schedule 13D filed by Mr. Bernstein with the SEC on December 7, 2022. Consists of (a) (i) 1,362,822 ordinary shares held in trust for Mr. Bernstein, and (b) an additional 435,151 ordinary shares held by Mr. Bernstein. Asseco no longer possesses any voting rights to any such shares held by Mr. Bernstein due to the recent termination of the voting agreement that had been in effect between Asseco and Mr. Bernstein.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.5in">&#160;&#160;</p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.5in"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(5)</span></td>
    <td>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Based on Amendment No. 5 to Schedule 13G/A filed
    by Harel Insurance Investments &amp; Financial Services Ltd., or Harel Insurance, on January 17, 2023. Harel Insurance is a publicly held
    Israeli company. Out of the 1,300,305&#160;ordinary shares beneficially owned by Harel Insurance as of December 31, 2022: (i) <span style="background-color: white">1,159,013</span>
    are held for members of the public through, among others, provident funds and/or mutual funds and/or pension funds and/or insurance policies
    and/or exchange traded funds, which are managed by subsidiaries of Harel Insurance, each of which subsidiaries operates under independent
    management and makes independent voting and investment decisions; and (ii) 141,292&#160;ordinary shares are beneficially held for Harel
    Insurance&#8217;s own account.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-size: 10pt">(6)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Based on written notification received from Menora Mivtachim Holdings Ltd., or Menora Holdings, on April 3, 2023. As of March 31, 2023, the subject ordinary shares are beneficially owned by Menora Holdings or by entities that are direct or indirect, wholly-owned or majority-owned, subsidiaries of Menora Holdings. Out of the 1,104,524 ordinary shares beneficially owned by Menora Holdings as of March 31, 2023: (i) 1,079,528 ordinary shares are held for members of the public through, among others, provident funds and/or mutual funds and/or pension funds and/or insurance policies and/or exchange traded funds, which are managed by subsidiaries of Menora Holdings, each of which subsidiaries operates under independent management and makes independent voting and investment decisions and (ii) 24,996 ordinary shares are beneficially held for Menora Holdings&#8217; own account.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.5in">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(7)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Based on Amendment No. 7 to Schedule 13G/A filed by Meitav Dash Investments Ltd., or Meitav Dash, with the SEC on January 11, 2023. The ordinary shares held by Meitav Dash as of December 31, 2021, are beneficially owned by various direct or indirect, majority or wholly-owned, subsidiaries of Meitav Dash. The Meitav Dash subsidiaries operate under independent management and make independent investment decisions and have no voting power in the securities held in their clients&#8217; accounts.&#160;The subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded notes or members of pension or provident funds, unit holders of mutual funds, and portfolio management clients. Each of the subsidiaries operates under independent management and makes its own independent voting and investment decisions. Out of the <span style="background-color: white">1,168,940</span> ordinary shares beneficially owned by Meitav Dash: (i) <span style="background-color: white">812,717</span> are held by Meitav Dash Provident Funds and Pension Ltd. (ii) 149,636 ordinary shares are beneficially held for Meitav Dash Portfolio Management Ltd.; and (iii) 206,587 ordinary shares are beneficially held for Meitav Tachlit Mutual Funds Ltd.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->157<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(8)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Based on Amendment No. 3 to Schedule 13G filed by The Phoenix Holdings Ltd., or Phoenix Holdings, on February 14, 2023. The ordinary shares held by Phoenix Holdings are beneficially owned by various direct or indirect, majority or wholly-owned, subsidiaries of Phoenix Holdings, or the Phoenix Subsidiaries. The Phoenix Subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded notes or various insurance policies, members of pension or provident funds, unit holders of mutual funds, and portfolio management clients. Each of the Phoenix Subsidiaries operates under independent management and makes its own independent voting and investment decisions. As of December 31, 2022, the subject ordinary shares were held as follows: (i) Excellence trust funds: 299,063; The Phoenix Nostro accounts: 6; The Phoenix Pension and Provident Funds: 207; <span style="background-color: white">partnership for Israeli shares</span>: 603,688; and partnership for investing in shares indexes: 6,618. (All ownership rights in these partnerships belong to companies that are part of the Phoenix Group. The percentage ownership rights held by such companies in the partnership changes frequently according to a mechanism provided in the partnership agreement.) </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 49.7pt">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.35in"><span style="font-size: 10pt">(9)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Based on Amendment No. 4 to Schedule 13G filed by Yelin Lapidot on February 9, 2023. Out of the 858,747 ordinary shares beneficially owned by Yelin Lapidot as of December 31, 2022: (i) 472,439 are beneficially owned by provident funds managed by Yelin Lapidot Provident Funds Management Ltd., or Yelin Provident; and (ii) 386,308are beneficially owned by mutual funds managed by Yelin Lapidot Mutual Funds Management Ltd., or Yelin Mutual. Each of Yelin Provident and Yelin Mutual is a wholly-owned subsidiary of Yelin Lapidot. Each of Messrs. Dov Yelin and Yair Lapidot owns 24.38% of the share capital and 25.004% of the voting rights of Yelin Lapidot, and is responsible for the day-to-day management of Yelin Lapidot Holdings. The ordinary shares beneficially owned are held for the benefit of the members of the provident funds and the mutual funds managed by Yelin Provident and Yelin Mutual, respectively. Each of Yelin Lapidot, Yelin Provident, Yelin Mutual and Messrs. Yelin and Lapidot disclaims beneficial ownership of the subject ordinary shares.&#160;</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td><span style="font-size: 10pt">(10)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Includes the shares beneficially owned by Guy Bernstein described in note (4) above, as well as 17,583 vested restricted shares granted to Asaf Berenstin, the Company&#8217;s Chief Financial Officer, on each of November 13, 2014, on August 17, 2017 and on March 14, 2022, under the Company&#8217;s 2011 and 2021 Employee and Officer Share Incentive Plans. Besides Mr. Bernstein, Mr. Berenstin, and Ms. Maya Solomon-Ella, the Company&#8217;s Chief Operations Officer (who was granted 10,000 restricted shares in November 2018, all of which are vested), none of our other directors or executive officers beneficially owns any ordinary shares (whether actual ordinary shares or shares issuable upon exercise of options).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Recent Significant Changes in Holdings
of Major Shareholders</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 22, 2020, Asseco
acquired an additional 37,755 of our ordinary shares, representing 0.25% of our outstanding share capital as of March 31, 2020, in the
open market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 11, 2020, Mr. Guy
Bernstein sold 154,000 of our ordinary shares, representing 1% of our outstanding share capital, to an Israeli financial institution,
in privately negotiated sale transaction. The selling price in that transaction was NIS 260.00 per share.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 29, 2021, Mr.
Guy Bernstein sold 20,000 of our ordinary shares, representing 0.13% of our outstanding share capital, in the open market. The sales price
in that transaction was NIS 368.56 per share.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 5, 2022, Asseco
and Mr. Guy Bernstein <span style="background-color: white">terminated a voting agreement that had been in effect between them and which
had granted Asseco certain voting rights with respect to the 1,797,973 ordinary shares owned by Mr. Bernstein. That termination reduced
Asseco&#8217;s beneficial ownership of our ordinary shares from 37.3% to 25.6%.&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 30, 2023, Asseco
acquired an additional 42,553 of our ordinary shares, representing 0.28% of our outstanding share capital as of March 31, 2023, in the
open market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of April 30, 2023, we had
two shareholders of record, one of which was a United States record holder. The number of record holders is not representative of the
number of beneficial holders of our ordinary shares, as the shares of all shareholders (including shares represented by ADSs) are recorded
in the name of our Israeli share registrar, Israel Discount Bank Limited&#8217;s registrar company. All of our ordinary shares (including
shares represented by ADSs) have equal voting rights. However, under applicable Israeli law, the shares that we have repurchased and currently
hold have no voting rights and, therefore, are excluded from the number of our outstanding shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of April 30, 2023, 127,670
ADSs were issued and outstanding pursuant to a depositary agreement with The Bank of New York Mellon, representing approximately 1% of
our outstanding ordinary shares. As of that date, there were approximately 15 registered holders of our ADSs, of whom approximately 13
record holders were United States residents. Such number of record holders is not representative of the actual number of beneficial holders
of our ADSs in the United States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are unaware of any arrangements
which may at a subsequent date result in a change in control of Formula.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Related Party Transactions</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><i>Indemnification of Office Holders</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have undertaken to indemnify
each of our office holders. Our office holders&#8217; indemnification letters provide, among other things, that we will indemnify each
of our office holders to the maximum extent permitted by our articles. Advance payments for coverage of legal expenses in criminal proceedings
will be required to be repaid by an office holder to the company if such office holder is found guilty of a crime which requires proof
of criminal intent, or if it is determined that the office holder is not lawfully entitled to such indemnification.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All of the indemnification
letters granted to our office holders are identical, including indemnification letters granted to office holders who are or may be considered
&#8220;controlling persons&#8221; under the Companies Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The indemnification is limited
to the expenses and matters detailed in the indemnification letters insofar as they result from an office holder&#8217;s actions in connection
with, among other things, the following matters: the offering of securities by us to the public or to private investors; the offer by
us to purchase securities from the public, private investors or other holders, whether pursuant to a prospectus, agreement, notice, report,
tender or any other proceeding; our labor relations and/or employment matters and our trade relations; the development or testing of products
developed by us, or the distribution, sale, license or use of such products; and occurrences in connection with investments made by us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our undertaking for indemnification
is limited to up to 25% of our shareholders&#8217; equity as it appears in our latest financial statements known at the date of indemnification,
calculated with respect to each director and officer of Formula.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our undertaking for indemnification
does not apply to a liability incurred as a result of any of the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">(i)</span></td><td style="text-align: justify"><span style="font-size: 10pt">a breach by an office holder
of his or her fiduciary duty, except, to the extent permitted by law, for a breach while acting in good faith and having reasonable cause
to assume that the action was in our best interest;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">(ii)</span></td><td style="text-align: justify"><span style="font-size: 10pt">a grossly negligent or intentional
violation of the office holder&#8217;s duty of care;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">(iii)</span></td><td style="text-align: justify"><span style="font-size: 10pt">an intentional action in which
the office holder intended to reap a personal gain illegally;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">(iv)</span></td><td style="text-align: justify"><span style="font-size: 10pt">a fine, civil fine or financial
sanction levied against and/or imposed upon the office holder;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">(v)</span></td><td style="text-align: justify"><span style="font-size: 10pt">a proceeding instituted against
the office holder pursuant to the provisions of Chapter H&#8217;3, H&#8217;4 or I&#8217;1 under the Securities Law, except as otherwise
permitted in the undertaking; or</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">(vi)</span></td><td style="text-align: justify"><span style="font-size: 10pt">a counterclaim brought by us
or in our name in connection with a claim against us filed by the office holder, other than by way of defense or by way of third party
notice in connection with a claim brought against the office holder by us, or in specific cases in which our board of directors has approved
the initiation or bringing of such suit by the office holder, which approval shall not be unreasonably withheld.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are not required to indemnify
an office holder if the office holder, or anyone on his or her behalf, already received payment in respect of a liability subject to indemnification,
under an effective insurance coverage or an effective indemnification arrangement with a third party. However, if that payment made to
the office holder does not cover the entire liability subject to the indemnification, we will indemnify the office holder in respect of
the difference between the amount paid to the office holder and the liability subject to the indemnification.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Office Holders&#8217; Insurance</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have obtained an insurance
policy covering the Formula Group&#8217;s D&amp;O liability. Our subsidiaries participate in the premium payments of the insurance policy,
on a proportional basis. The current coverage of that policy is up to a maximum of $40.0 million both per incident and in the aggregate,
plus $10.0 million of Side A DIC coverage, for a total annual premium of $2,300,000 for the period starting on February 14, 2022 and ending
on February 13, 2023. On February 14, 2023, we have renewed our insurance policy covering the Formula Group&#8217;s D&amp;O liability
for another year for a total annual premium of $1,679,000 million to be allocated between our subsidiaries excluding Matrix.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Service Agreement with our Chief Executive
Officer</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are party to a written
service agreement with our Chief Executive Officer, Mr. Guy Bernstein, which was entered into in December 2008 and was amended in March
2011 and in March 2012. This agreement provides for early termination by either side upon 180 days advance written notice, during which
time the Chief Executive Officer will continue to receive service fees. This agreement furthermore contains customary provisions regarding
nondisclosure, confidentiality of information and assignment of inventions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 166; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->159<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>RSU Grant to Chief Executive Officer</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 3, and 4, 2020,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, re-approved an eight-year
equity-based award of compensation&#8212;in the form of 611,771 restricted share units, or RSUs&#8212; to our chief executive officer,
Mr. Guy Bernstein. The terms of the grant were described in Proposal 5 of the proxy statement for Formula&#8217;s November 2, 2020 annual
general meeting of shareholders (referred to as the Proxy Statement and Annual Meeting, respectively), which was attached as Exhibit 99.1
to Formula&#8217;s Report of Foreign Private Issuer on Form 6-K furnished to the SEC on September 17, 2020 and available at the following
link:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">https://www.sec.gov/Archives/edgar/data/1045986/000121390020027121/ea127015ex99-1_formulasys.htm</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The re-approved grant modifies
the composition of the RSUs being granted to our chief executive officer from what was proposed in Proposal 5 at the Annual Meeting, adjusting
the ratio between time-based-vesting and performance-based-vesting RSUs from 80%-20% to 66.67%-33.33%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As we have previously reported
in our Form 6-K furnished to the SEC on November 2, 2020, the originally-proposed grant was not approved pursuant to Proposal 5 at the
Annual Meeting. In re-considering and re-approving the grant, our compensation committee and board of directors acknowledged that the
requisite majority of our shareholders for the approval of Proposal 5 had not been achieved at the Annual Meeting. The committee and board
nevertheless evaluated our Group&#8217;s performance and achievements under the management of Mr. Bernstein, and in view of his expected
further contribution to the Group&#8217;s success, determined that the proposed grant is strongly linked to the Group&#8217;s performance
and the resulting increase in shareholders&#8217; value. Consequently, consistent with their authorities under the Companies Law, the
compensation committee and board of directors approved the modified (as described above) award of the RSUs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In December 2020, a motion
to certify a derivative suit, referred to as the Motion, was filed against our Company by a shareholder, who is also referred to as the
Plaintiff, in the district court (economic division) of Tel Aviv-Jaffa, Israel, naming each of our then acting five directors, as well
as our chief executive officer and chief financial officer as defendants.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The suit challenged the
legality, under the Companies Law, of, among other things, compensation approved for the chief executive officer, including the re-approval
by our compensation committee and board of the subject eight-year RSU award to our chief executive officer.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On January 12, 2023, we held
a special general meeting of shareholders for our shareholders to re-approve the subject grant of RSUs (reflecting the adjusted 66.67%-33.33%
ratio of time-based-vesting to performance-based-vesting RSUs) to our chief executive officer. Although we believe that the legal challenge
to the original re-approval, in November 2020, by the compensation committee and the board of directors of this RSU grant were without
merit, we nevertheless brought the re-approval to our shareholders for the following primary reasons:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>Changed circumstances</i>.
The voting agreement&#160;<span style="background-color: white">between Asseco and our chief executive officer, which</span>&#160;covered&#160;<span style="background-color: white">1,797,973
of our ordinary shares owned by the chief executive officer, and by virtue of which Asseco formerly possessed the right to vote those
shares&#8211; which stood at the heart of plaintiff&#8217;s allegation in the motion&#8211; was</span>&#160;cancelled on December 5,
2022; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><i>Certainty</i>. We believed
that it was in the best interest of the Company and its shareholders to provide clarity and certainty regarding the CEO&#8217;s compensation
and position in the Company by having his equity-based grant re-approved by the shareholders.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The January 12, 2023 special
general shareholders meeting did not re-approve the RSU grant. On January 15, and 16, 2023, our compensation committee and board of directors,
respectively, acting in accordance with the Companies Law, re-approved the RSUs grant once again.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Please see Item 8.A, &#8220;Legal
Proceedings&#8221; below for a description of the legal proceedings that have been brought in respect of the CEO&#8217;s RSU grant.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><i>Services Obtained from
Asseco</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During 2022, Asseco provided
back-office services, professional services and fixed assets to Sapiens&#8217; wholly-owned subsidiary, Sapiens Poland, in an amount totaling
approximately $0.2 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt"><i>Services Provided to
Asseco</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">During 2022, Sapiens Poland
performed services as a sub-contractor on behalf of Asseco for clients of Asseco in a total amount of approximately $2.9 million. For
historical reasons, Asseco issues invoices to those clients and then Sapiens in turn invoices Asseco on a back-to-back basis (with no
margin to Asseco).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt"><i>Fees Paid for Board Services
in Affiliates</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">Sapiens paid us approximately
$28,593 U.S. dollar in respect of their share of the director&#8217;s fees of Guy Bernstein, their Chairman, for the year ended December
31, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">Matrix paid us approximately
$33,195 in respect of their share of the director&#8217;s fees of Guy Bernstein, their Chairman, for the year ended December 31, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">Mr. Bernstein serves as
the Chief Executive Officer of Formula.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt"><i>Other Transactions</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 28.35pt">As of December 31, 2022,
we had trade payables balances due to, and trade receivables balances due from, our related parties in amounts of approximately $2.9 million
and $1.1 million, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">From time to time, in our
ordinary course of business, we engage in non-material transactions with our subsidiaries and affiliates where the amount involved in,
and the nature of, the transactions are not material to any party to the transaction. We believe that these transactions are made on an
arms&#8217; length basis upon terms and conditions no less favorable to us, our subsidiaries and affiliates, as we could obtain from unaffiliated
third parties. If we engage with our subsidiaries and affiliates in transactions which are not in the ordinary course of business, we
receive the approvals required under the Companies Law. These approvals include audit committee approval, board approval and, in certain
circumstances, shareholder approval. See &#8220;Item 6.C. Board Practices.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Interests of Experts and Counsel</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><div><a id="a_012"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>ITEM 8. FINANCIAL INFORMATION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 48px; text-align: justify"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Consolidated Statements and Other Financial Information</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Financial Statements</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our consolidated financial
statements and other financial information are incorporated herein by reference to &#8220;Item 18. Financial Statements&#8221; below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Export Sales</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In 2022, 39% of our revenues
originated from customers located outside of Israel. For information on our revenues breakdown by geographic market for the past three
years, see &#8220;Item 4.&#8212;Information on the Company&#8212; Business Overview&#8212; Geographical Distribution of Revenues.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->161<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Legal Proceedings</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">From time to time, we are
subject to legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business, including
claims with respect to intellectual property, contracts, employment and other matters. In Accordance with IFRS, we accrue a liability
when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment
is required in the determination of both the probability and as to whether a loss is reasonably estimable. These accruals are reviewed
at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information
and events pertaining to a particular matter. We intend to vigorously defend ourselves against the above claims, and we generally intend
to vigorously defend any other legal claims to which we are subject. While for most litigation, the outcome is difficult to determine,
to the extent that there is a reasonable possibility that the losses to which we may be subject could exceed the amounts (if any) that
it has already accrued, we attempt to estimate such additional loss, if reasonably possible, and disclose it (or, if it is an immaterial
amount, indicate accordingly). The aggregate provision that we have recorded for all other legal proceedings (other than the particular
material proceedings described below) is not material. Furthermore, in respect of our ordinary course legal, administrative and regulatory
proceedings (i.e., other than the particular material proceeding described below), we estimate, in accordance with the procedures described
above, that as of the current time there is no reasonable possibility that we will incur material losses exceeding the non-material amounts
already recognized.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Legal Proceedings Related to Formula&#8217;s
CEO&#8217;s RSU Grant</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 23, 2020, Olir
Trade and Industries Ltd. (&#8220;Olir&#8221;) filed a derivative action and a motion to certify a derivative action, with the District
Court (Economic Division) of Tel Aviv-Jaffa, Israel (Derivative Action No. 58348-11-20) (the &#8220;Claim&#8221; and the &#8220;Motion
to Certify&#8221;, respectively) (as reported in our Report of Foreign Private Issuer on Form 6-K furnished to the SEC on December 9,
2020). In the framework of the Motion to Certify, Olir requested permission to file the Claim, on our behalf, against each of our five
directors, as well as our chief executive officer, Mr. Guy Bernstein, and chief financial officer, Mr. Asaf Berenstin, as defendants.
We and the named defendants are all listed as respondents to the Motion to Certify.&#160;The Claim challenges the legality, under the
Companies Law, of compensation awarded to the our chief executive officer and chief financial officer, including past engagements with
our chief executive officer and our compensation committee and board of directors recent re-approval (as reported in our Report of Foreign
Private Issuer on Form 6-K furnished to the Securities and Exchange Commission on November 4, 2020), of the eight-year equity-based award
of compensation&#8212;in the form of 611,771 restricted share units&#8212; to our chief executive officer. The Claim includes allegations
of breaches of fiduciary duties (duty of care and duty of loyalty) and the oppression of minority shareholders and unjust enrichment.
The Claim seeks an accounting from the defendants as to the alleged harm caused to Formula Systems, as well as compensation to Formula
Systems for such harm. The Claim also seeks a declaratory order preventing the board of directors from using voting powers allegedly granted
to it under agreements related to 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 in accordance with the Companies Law, for Formula&#8217;s benefit, and based upon advice of legal counsel.
All respondents intend to vigorously defend against the Motion to Certify, and on May 13, 2021, all respondents filed their responses
to the Motion to Certify.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On May 19, 2021, we filed
a motion asking the court to order Olir to deposit a guarantee for our costs in the proceedings. On June 23, 2021, Olir filed its response
to the motion. The parties held mediation meetings. The mediation meetings took place on February 16, 2022, May 17, 2022 and May 24, 2022.
The mediation ended without the parties reaching an agreement. On June 16, 2022, following the oral argument at the pre-trial hearing,
the district court accepted our request and ordered Olir to deposit a guarantee for the Formula&#8217;s costs. Olir deposited the guarantee
and paid Formula the costs as ordered. in the proceedings in the amount of NIS 0.2 million. On January 24, 2023, we submitted a request
for dismissal in limine of the motion to certify due to a change in the factual grounds of the motion including, among other things, the
reapproval of the compensation given to our chief executive officer by a new and independent board of directors made on January 15, 2023.
The court asked the other parties to respond to the request for dismissal by March 1,2023. A cross examinations hearing was held on January
31, 2023. On March 1, 2023, the other respondents to the motion to certify submitted their responses to the request for dismissal in which
they supported the request. On March 8, 2023, Olir filed its objection to the dismissal in limine. On April 13, we submitted our response
to Olir&#8217;s response. Olir should file its briefs by the beginning of July 2023. The respondents should file their briefs 60 days thereafter
and Olir has a right to respond 30 days thereafter. At this stage of the proceedings, we believe that the chances for the approval of
the motion to certify are low.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Legal Proceedings related to Zap Group:</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 24, 2019, a motion
for the approval of a class action (#60508-02-20), in an amount of NIS 793.8 million (approximately $225.6 million), was filed against
Zap Group with the Israeli district court (central district), claiming that Zap Group had allegedly generated income illegally from paying
customers through the &#8216;ZAP&#8217;s price comparison&#8217; website. At the pre-trial hearing, it was decided that the plaintiffs
would 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
prohibited clicks on their competitor&#8217;s websites through Zap Group&#8217;s website. In addition, the plaintiffs were requested to
update whether they were willing to reduce the amount of the claim. On July 15, 2021, the plaintiffs filed a motion to reduce the amount
of the claim to NIS 63 million (approximately $17.9 million). On December 15, 2021, a pre-trial hearing took place, in which the court
clarified that it does not intend to interfere with Zap Group&#8217;s business considerations regarding the click filtering mechanisms
that it operates. The court recommended that the plaintiffs reach an agreed solution with Zap Group on the issue of the necessary disclosure
that Zap Group should include in its contracts with customers (as available on its website). The parties were requested to file a joint
notice in accordance with the court&#8217;s recommendation by January 15, 2022. The plaintiffs submitted a request for an extension to
file the notice. On April 5, 2022, the plaintiffs filed a notice with the court stating that they had not reached agreements with Zap
Group and therefore seek to set the case for evidentiary hearing. On December 12, 2022 the parties filed a joint notice with the court
stating their agreement to initiate a mediation process. A mediation meeting took place on February 6, 2023. The mediation ended without
the parties reaching an agreement. A date for a hearing has not yet been set. As this claim was filed against Zap Group prior to its acquisition
by Formula, any potential liability of Zap Group resulting from the proceedings is covered by the indemnification obligations of the former
shareholders of Zap Group to Formula.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 30, 2021, Ronen
Har Even, Galit Har Even and TV Center Ltd. (the &#8220;Plaintiffs&#8221;) submitted a monetary claim in the sum of NIS 24.5 million (approximately
$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
Zap Group constitutes a monopoly in the provision of price comparison services in the online arena in Israel, and excluded the Plaintiffs&#8217;
business from the E-commerce arena in Israel. According to the Plaintiffs, Zap Group prevented price comparisons between the prices of
the Plaintiffs&#8217; televisions and the prices of the televisions of the official importers, by causing systemic manipulations aimed
at excluding the television models sold by the Plaintiffs and blurring the fact that they are cheaper in the search results. As mentioned
in the Statement of Claim, concurrent with submission of the Claim, on April 19, 2021, the Plaintiffs submitted a complaint against Zap
Group to the Israel Competition Authority, and on August 18, 2021 and October 21, 2021, submitted supplements to the aforesaid complaint.
On June 1, 2022, Zap Group submitted a statement of defense, denying the Plaintiffs&#8217; allegations and in particular the Plaintiffs&#8217;
argument that Zap Group has a monopoly in the provision of price comparison services in the online arena in Israel. On July 19, 2022,
a pre-trial hearing took place, at the end of which it was held that the Parties must conclude the discovery proceedings by September
10, 2022, and that should any of the Parties wish to submit a motion following receipt of the answers, they must do so by November 15,
2022. On November 15, 2022 the Plaintiffs submitted a motion for the grant of an order of discovery of documents and answer to interrogatories.
On December 20, 2022, Zap Group submitted its response to the motion, in which it rejected all of the Plaintiffs&#8217; demands. The Plaintiffs
provided Zap Group with the documents that had been disclosed by them in the case, without a suitable legend. On January 13, 2023, the
Plaintiffs submitted a response to the motion. On January 16, 2023, a pre-trial hearing took place, in which Zap Group insisted on the
receipt of a suitable legend for the documents that had been disclosed to it by the Plaintiffs. The Court held that the Plaintiffs would
deliver a suitable legend within 45 days, after which Zap Group would be entitled to submit a suitable motion in this regard within 30
days, should the need to do so arise. On March 5, 2023, the Plaintiffs submitted a new document file in the context of the discovery proceedings,
and an updated legend that was almost identical to the previous one. For that reason, on April 3, 2023, Zap Group submitted a motion to
strike out the Statement of Claim due to breach of the Court&#8217;s decision to provide the discovery materials in a proper manner or,
alternatively, for the for the lack of performing the court&#8217;s decision. The Plaintiffs are required to respond to the motion by May 21,
2023. An additional pre-trial proceeding has been scheduled for October 2023. As this claim was filed against Zap Group with respect to
the period prior to its acquisition by Formula, any liability resulting from it is covered by the indemnification provided to Formula
by the former shareholders of Zap Group.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Dividend Policy</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under Israeli law, dividends
may 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
recent financial statements or as accrued over a period of two years, whichever amount is greater, and provided that there is no reasonable
concern that payment of a dividend will prevent the company from satisfying its existing and foreseeable obligations as they become due.
See &#8220;Item 10. Additional Information&#8212;Memorandum and Articles of Association&#8212;Dividend and Liquidation Rights&#8221; below
(the content of which is incorporated by reference to Exhibit 2.2 to this annual report) for more information.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Formula</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Under
Formula Systems&#8217; dividend policy adopted by our board of directors, sums that are not planned to be used for investments in the
near future may be distributed to its shareholders as a cash dividend, to the extent that our performance allows such distribution. In
the three most recent fiscal years (and in 2022 up to the date of this annual report), Formula has made the following distributions:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
November 2022, Formula declared a cash dividend to its shareholders of NIS 2.16 per share (approximately $0.62 per share), which was
paid on December 20, 2022. The aggregate amount of the dividend was approximately NIS 33.1 million (approximately $9.6 million).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2022, Formula declared a cash dividend to its shareholders of NIS 2.56 per share (approximately $0.78 per share), which was paid
in April 2022. The aggregate amount distributed by Formula was approximately NIS 39.2 million (approximately $12.0 million).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2021, Formula declared a cash dividend to its shareholders of NIS 2.53 per share (approximately $0.78 per share), which was paid
in September 2021. The aggregate amount distributed by Formula was approximately NIS 38.7 million (approximately $11.9 million).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
February 2021, Formula declared a cash dividend to its shareholders of NIS 2.16 per share (approximately $0.66 per share), which was
paid in March 2021. The aggregate amount distributed by Formula was approximately NIS 33.0 million (approximately $10.2 million).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Magic
Software</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In August 2017, Magic Software&#8217;s
board of directors amended its dividend distribution policy, whereas, each year Magic Software will distribute a dividend of up to 75%
of its annual net income attributable to its shareholders (previously 50%), subject to applicable law. Magic Software&#8217;s board of
directors may at its discretion and at any time, change, whether as a result of a one-time decision or a change in policy, the rate of
dividend distributions or decide not to distribute a dividend. The dividend is to be distributed on a semi-annual basis.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2023, Magic Software declared a cash dividend to its shareholders of $0.3 per share (or approximately $14.7 million, in the aggregate),
which was paid during April 2023, of which $7.9 million was paid to non-controlling interests.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2022, Magic Software declared a cash dividend to its shareholders of $0.29 per share (or approximately $14.2 million, in the aggregate),
which was paid during September 2022, of which $7.7 million was paid to non-controlling interests.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2022, Magic Software declared a cash dividend to its shareholders of $0.216 per share (or approximately $10.6 million, in the aggregate),
which was paid during April 2022, of which $5.8 million was paid to non-controlling interests.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2021, Magic Software declared a cash dividend to its shareholders of $0.234 per share (or approximately $11.5 million, in the
aggregate), which was paid during September 2021, of which $6.3 million was paid to non-controlling interests.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2021, Magic Software declared a cash dividend to its shareholders of $0.21 per share (or approximately $10.3 million, in the aggregate),
which was paid during April 2021, of which $5.6 million was paid to non-controlling interests.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Matrix</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2010, Matrix&#8217;s board of directors decided to change Matrix&#8217;s dividend distribution policy, whereby in every year,
Matrix will distribute a dividend at a rate of 75% (instead of 50% before) of its annual net income. The dividend is to be distributed
on a quarterly basis.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
May 2023, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 45.1 million (approximately $12.4 million),
of which $6.4 million is due to non-controlling interests in June 2023.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2023, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 37.5 million (approximately $10.2 million),
of which $5.3 million was paid to non-controlling interests in April 2022.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
November 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 34.6 million (approximately $10.2 million),
of which $5.3 million was paid to non-controlling interests in December 2022.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 164.2 million (approximately $50.4 million),
of which $25.6 million was paid to non-controlling interests in August 2022.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
May 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 44.7 million (approximately $12.9 million),
of which $6.6 million was paid to non-controlling interests in June 2022.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 40.9 million (approximately $12.7 million),
of which $6.5 million was paid to non-controlling interests in April 2022.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
November 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 32.5 million (approximately $10.2 million),
of which $5.2 million was paid to non-controlling interests in November.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 37.6 million (approximately $11.7 million),
of which $6.0 million was paid to non-controlling interests in September 2021.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
May 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 36.3 million (approximately $11.1 million),
of which $5.7 million was paid to non-controlling interests in June 2021.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 40.0 million (approximately $12.0 million),
of which $6.1 million was paid to non-controlling interests.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Sapiens
</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
August 2019, Sapiens&#8217; board of directors adopted a dividend policy, and in May 2022, it updated that policy. Under that updated
policy, on a semi-annual basis, after publishing (i) its annual audited consolidated financial statements in its annual report on Form
20-F, and (ii) its financial statements for the quarter and six months ended June 30, Sapiens&#8217; board of directors will announce, and distribute, a semi-annual cash dividend in an aggregate amount (between both dividends in total) of up to 40% of its annual net
profit (on a non-GAAP basis). Sapiens&#8217; board of directors may change, whether as a result of a one-time decision or a change in
policy, the rate or frequency of dividend distributions and/or decide not to distribute a dividend. The distribution of dividends will
be made in compliance with Cayman Islands law, Sapiens&#8217; articles of association, as well as its contractual obligations. Since
the adoption of this dividend policy, Sapiens has declared cash dividends, initially on an annual basis and subsequently on a semi-annual
basis, most recently in amounts of $0.37 per share, $0.47 per share, $0.23 per share and $0.25 per share, or $20.2 million, $25.9 million,
$12.7 million and $13.8 million, in the aggregate, which were paid in May 2021, May 2022, August 2022 and April 2023, of which $11.4
million, $14.5 million, $7.1 million and $7.7 million were paid to non-controlling interests, respectively.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 172; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->165<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>B.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Significant
    Changes</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Since
the date of our consolidated financial statements included in this annual report, there has not been a significant change in our company.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_013"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
9. THE OFFER AND LISTING</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>A.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Offer
    and Listing Details</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
ordinary shares have been trading on the TASE under the symbol &#8220;FORTY&#8221; since our initial public offering in 1991.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
ADSs are listed on the Nasdaq Global Select Market since October 1997 under the symbol &#8220;FORTY.&#8221; Each ADS represents one ordinary
share.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">For
a description of the ADSs, see &#8220;Item 12. Description of Securities Other Than Equity Securities&#8212; D. American Depositary Shares.&#8221;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>B.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Plan
    of Distribution</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>C.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Markets</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Since
our initial public offering in 1991, our ordinary shares have been traded in Israel on the TASE under the symbol &#8220;FORT.&#8221;
No U.S. trading market exists for the ordinary shares. Since October 1997, our ADSs have been traded on the Nasdaq Global Select Market,
under the symbol &#8220;FORTY.&#8221; Each ADS represents one ordinary share and is evidenced by an American depositary receipt, or ADR.
The ADRs were issued pursuant to a Depositary Agreement entered into with the Bank of New York Mellon.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>D.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Selling
    Shareholders</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>E.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Dilution</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>F.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Expenses
    of the Issue</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_014"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
10. ADDITIONAL INFORMATION</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>A.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Share
    Capital</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>B.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Memorandum
    and Articles of Association</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; background-color: white">The
information called for by this Item 10.B of Form 20-F has been provided in Exhibit 2.2 to this annual report. The content of Exhibit
2.2 is incorporated by reference herein.</span><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 173; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->166<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>C.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Material
    Contracts</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Please
see &#8220;Item 5. Operating and Financial Review and Prospects&#8212;B. Liquidity and Capital Resources&#8212;Company Commitments&#8221;
for a description of the terms of the trust agreements to which we are party in connection with our Series A Secured Debentures and Series
C Secured Debentures, and Sapiens&#8217; Series B Debentures. Please see &#8220;Item 6. Directors, Senior Management and Employees&#8212;B.
Compensation&#8212;Option Grants to, and Service Agreement with, Chief Executive Officer&#8221; for a description of our service agreement
with our Chief Executive Officer, Mr. Guy Bernstein. Beyond those agreements, Formula is not party to, and has not been party to in the
last two years, any material contract entered into outside of its ordinary course of business. In addition, while our subsidiaries are
party and have been party in the last two years to numerous contracts with customers, resellers and distributors, such contracts are
entered into in the ordinary course of business. Furthermore, we do not deem any other individual contract entered into by any of our
subsidiaries outside of the ordinary course of business (such as investment or acquisition agreements) during the last two years to be
material to us on a consolidated basis.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>D.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Exchange
    Controls</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Under
current Israeli regulations, we may pay dividends or other distributions in respect of our ordinary shares either in Israeli or non-Israeli
currencies. If we make these payments in Israeli currency, they will be freely converted, transferred and paid in non-Israeli currencies
at the rate of exchange prevailing at the time of conversion. We expect, therefore, that dividends, if any, that we pay to holders of
ADSs, will be paid in dollars, net of conversion expenses, expenses of the depositary for our ADSs, the Bank of New York Mellon, and
Israeli income taxes (if applicable). Because exchange rates between the NIS and the dollar fluctuate continuously, a U.S. shareholder
will be subject to the risk of currency fluctuations between the date when we declare NIS-denominated dividends and the date when we
pay them in NIS. See &#8220;Item 3. Key Information&#8212;Risk Factors.&#8221;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Non-residents
of Israel may freely hold and trade our ADSs or ordinary shares pursuant to the general permit issued under the Israeli Currency Control
Law, 1978. Neither our articles nor the laws of the State of Israel restrict in any way the ownership of our ordinary shares by non-residents,
except that these restrictions may exist with respect to citizens of countries that are in a state of war with Israel.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>E.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Taxation
    </b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>&#160;</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>The
following is a short summary of the material provisions of the tax environment to which shareholders may be subject. This summary is
based on the current provisions of tax law. To the extent that the discussion is based on new tax legislation that has not been subject
to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the
appropriate tax authorities or the courts.</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>The
summary does not address all of the tax consequences that may be relevant to all holders of our ordinary shares and ADSs in light of
each holder&#8217;s particular circumstances and specific tax treatment. For example, the summary below does not address the tax treatment
of residents of Israel and traders in securities who are subject to specific tax regimes. As individual circumstances may differ, holders
of our ordinary shares and ADSs should consult their own tax adviser as to the United States, Israeli or other tax consequences of the
purchase, ownership and disposition of ordinary shares and ADSs. The following is not intended, and should not be construed, as legal
or professional tax advice and is not exhaustive of all possible tax considerations. Each individual should consult his or her own tax
or legal adviser.</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Israeli
Taxation Considerations for Our Shareholders</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Tax
Consequences Regarding Disposition of Our ADSs or Ordinary Shares</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Israeli
law generally imposes a capital gain tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes,
and on the sale of assets located in Israel, including shares of Israeli companies, by both residents and non-residents of Israel, unless
a specific exemption is available or unless a tax treaty between Israel and the shareholder&#8217;s country of residence provides otherwise.
The Tax Ordinance distinguishes between &#8220;Real Capital Gain&#8221; and &#8220;Inflationary Surplus&#8221;. The Inflationary Surplus
is a portion of the total capital gain which is equivalent to the increase of the relevant asset&#8217;s purchase price which is attributable
to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date
of purchase and the date of sale. The Real Capital Gain is the excess of the total capital gain over the Inflationary Surplus.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Capital
gain</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Israeli
Resident Individuals</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
of January 1, 2012, the tax rate applicable to Real Capital Gain derived by Israeli individuals from the sale of shares, whether or not
listed on a stock exchange, is 25%, unless such shareholder claims a deduction for interest and linkage differences expenses in connection
with the purchase and holding of such shares, in which case the gain will generally be taxed at a rate of 30%. However, if such shareholder
is considered a Substantial Shareholder (i.e., a person who holds, directly or indirectly, alone or together with another person who
collaborates with such person on a permanent basis, 10% or more of any of the company&#8217;s &#8220;means of control&#8221; (including,
among other things, the right to receive profits of the company, voting rights, the right to receive the company&#8217;s liquidation
proceeds and the right to appoint a director)) at the time of sale or at any time during the preceding 12-month period, such gain will
be taxed at the rate of 30%. Individual shareholders dealing in securities in Israel are taxed at their marginal tax rates applicable
to business income (up to 47% in 2018 and thereafter, excluding excess tax, if applicable, as described below).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Israeli
Resident Corporations</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Under
current Israeli tax legislation, the tax rate applicable to Real Capital Gain derived by Israeli resident corporations from the sale
of shares of an Israeli company is the general corporate tax rate. As described above, the corporate tax rate since 2018 has been 23%.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Non-Israeli
Resident Shareholders</i>&#160;</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Israeli
capital gain tax is imposed on the disposal of capital assets by a non-Israeli resident if such assets are either (i) located in Israel;
(ii) shares or rights to shares in an Israeli resident company; or (iii) represent, directly or indirectly, rights to assets located
in Israel, unless a tax treaty between Israel and the seller&#8217;s country of residence provides otherwise. As mentioned above, Real
Capital Gain is generally subject to tax at the corporate tax rate (23% in 2018 and thereafter) if generated by a company, or at the
rate of 25% if generated by an individual, or 30%, if generated by an individual who is a &#8220;substantial shareholder&#8221; (as defined
under the Tax Ordinance) , at the time of sale or at any time during the preceding 12-month period (or if the shareholder claims a deduction
for interest and linkage differences expenses in connection with the purchase and holding of such shares) . A &#8220;substantial shareholder&#8221;
is generally a person who alone or together with such person&#8217;s relative or another person who collaborates with such person on a permanent
basis, holds, directly or indirectly, at least 10% of any of the &#8220;means of control&#8221; of the corporation. &#8220;Means of control&#8221;
generally include, among others, the right to vote, receive profits, nominate a director or an executive officer, receive assets upon
liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Individual and
corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate
for a corporation and a marginal tax rate of up to 47% for an individual in 2018 and thereafter (excluding excess tax as discussed below))
unless contrary provisions in a relevant tax treaty apply.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Notwithstanding
the foregoing, shareholders who are non-Israeli residents (individuals and corporations) generally should be exempt from Israeli capital
gain tax on any gains derived from the sale, exchange or disposition of shares publicly traded on the Tel Aviv Stock Exchange or on a
recognized stock exchange outside of Israel, provided, among other things, that (i) such gains are not generated through a permanent
establishment that the non-Israeli resident maintains in Israel, (ii) the shares were purchased after being listed on a recognized stock
exchange. However, non-Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (a) have a controlling
interest of more than 25% in such non-Israeli corporation, or (b) are the beneficiaries of or are entitled to 25% or more of the revenues
or profits of such non-Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person whose gains
from selling or otherwise disposing of the shares are deemed to be business income.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
addition, a sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example,
under the U.S.-Israel Tax Treaty, or the U.S-Israel Treaty, the sale, exchange or disposition of shares of an Israeli company by a shareholder
who is a U.S. resident (for purposes of the U.S.-Israel Treaty) holding the shares as a capital asset is exempt from Israeli capital
gain tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting rights during
any part of the 12-month period preceding such sale, exchange or disposition; (ii) the shareholder, if an individual, has been present
in Israel for a period or periods of 183 days or more in the aggregate during the applicable taxable year; (iii) the capital gain arising
from such sale are attributable to a permanent establishment of the shareholder which is maintained in Israel; (iv) the capital gain
arising from such sale, exchange or disposition is attributed to real estate located in Israel; (v) the capital gain arising from such
sale, exchange or disposition is attributed to royalties; or (vi) the shareholder is a U.S. resident (for purposes of the U.S.-Israel
Treaty) and is not holding the shares as a capital asset. In each case, the sale, exchange or disposition of such shares would be subject
to Israeli tax, to the extent applicable; however, under the U.S.-Israel Treaty, a U.S. resident would be permitted to claim a credit
for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations
in U.S. laws applicable to foreign tax credits. The U.S-Israel Treaty does not provide such credit against any U.S. state or local taxes.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares and ADSs, the payment of the
consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt
from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving
a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the ITA may require from shareholders
who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the
ITA to confirm their status as non-Israeli resident, and, in the absence of such declarations or exemptions, may require the purchaser
of the shares to withhold taxes at source.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Taxes
Applicable to Dividends</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Israeli
Resident Shareholders</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Israeli
Resident Individuals</i>. Israeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our
ordinary shares (other than bonus shares or share dividends) at 25%, or 30% if the recipient of such dividend is a Substantial Shareholder
(as detailed above) at the time of distribution or at any time during the preceding 12-month period. Sapiens received a Tax Ruling, which
was extended, under which dividends paid by Sapiens to Israeli shareholders who are individuals will be subject to withholding tax at
source at the rate of 25% and in case of Israeli resident corporations&#8212; 0%, regardless the source of the dividends. We cannot guarantee
that the Tax Ruling will be extended beyond December 31, 2024.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Israeli
Resident Corporations</i>. Israeli resident corporations are generally exempt from Israeli corporate tax for dividends paid on shares
of Israeli resident corporations (like our ordinary shares and ADSs).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Non-Israeli
Resident Shareholders</i></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Non-Israeli
residents (whether individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary
shares or ADSs, at the rate of 25% or 30% (if the dividend recipient is a Substantial Shareholder at the time of distribution or at any
time during the preceding 12-month period).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Sapiens
received a Tax Ruling according to which dividends paid by Sapiens to non-Israeli (individuals and corporations) will be subject to withholding
tax at source at a rate of 25%. We cannot guarantee that the Tax Ruling will be extended beyond December 31, 2024.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in
Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer,
(ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and (iii)
the taxpayer is not obliged to pay excess tax (as further explained below).</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Excess
Tax</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Individuals
who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an
additional tax at a rate of 3% on annual income exceeding NIS 663,240 for 2022 (approximately $0.2 million), which amount is linked to
the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Estate
and gift tax</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Israeli
law presently does not impose estate or gift taxes.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>United
States Federal Income Tax Considerations</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Subject
to the limitations described herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership
and disposition of our ordinary shares or ADSs to a U.S. holder. A U.S. holder is a holder of our ordinary shares or ADSs who is:</span></p><div>

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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">An individual
    who is a citizen or resident of the U.S. for U.S. federal income tax purposes</span></td></tr>
  </table><div>
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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A corporation (or another
    entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any
    political subdivision thereof, or the District of Columbia</span></td></tr>
  </table><div>
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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
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    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">An estate, the income of
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  </table><div>
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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A trust (i) if, in general,
    a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control
    all of its substantial decisions or (ii) an electing trust that was in existence on August 19, 1996 and was treated as a domestic
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Unless
otherwise specifically indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (which
we refer to as a non-U.S. holder) and considers only U.S. holders that will own our ordinary shares or ADSs as capital assets (generally,
for investment).</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">This
discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, or the Code, current and proposed Treasury
Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect and all
of which are subject to change, possibly with a retroactive effect. This discussion does not address all aspects of U.S. federal income
taxation that may be relevant to any particular U.S. holder based on the U.S. holder&#8217;s particular circumstances. In particular,
this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers, insurance companies,
real estate investment trusts, regulated investment companies, grantor trusts, individual retirement and tax-deferred accounts, certain
former citizens or long-term residents of the U.S., tax-exempt organizations, financial institutions, &#8220;financial service entities&#8221;
or who own, directly, indirectly or constructively, 10% or more of the vote or value of the our outstanding shares, U.S. holders holding
our ordinary shares or ADSs as part of a hedging, straddle or conversion transaction, U.S. holders whose functional currency is not the
U.S. dollar, U.S. holders that acquired our ordinary shares or ADSs upon the exercise of employee stock options or otherwise as compensation,
and U.S holders who are persons subject to the alternative minimum tax, who may be subject to special rules not discussed below.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Additionally,
the tax treatment of persons who are, or hold our ordinary shares or ADSs through a partnership or other pass-through entity is not considered,
nor is the possible application of U.S. federal estate or gift taxes or any aspect of state, local or non-U.S. tax laws.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Furthermore,
unless otherwise indicated, this discussion assumes that our company is not, and will not become, a &#8220;passive foreign investment
company,&#8221; or a PFIC, for U.S. federal income tax purposes. See &#8220;&#8212;Passive Foreign Investment Companies&#8221; below.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Prospective
investors should be aware that this discussion does not address the tax consequences to investors who are not U.S. holders. Prospective
investors should consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase,
ownership and disposition of ordinary shares or ADSs, including the applicability of U.S. federal, state and local tax laws and non-U.S.
tax laws</b>.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Taxation
of Distributions on our Ordinary Shares or ADSs</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Subject
to the discussion below under &#8220;Tax Consequences if We Are a Passive Foreign Investment Company,&#8221; a distribution paid by us
with respect to our ordinary shares or ADSs to a U.S. holder will be treated as dividend income to the extent that the distribution does
not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Dividends
that are received by U.S. holders that are individuals, estates or trusts generally will be taxed at the rate applicable to long-term
capital gains, provided those dividends meet the requirements of &#8220;qualified dividend income.&#8221; The maximum long-term capital
gains rate is 20% for individuals with annual taxable income that exceeds certain thresholds. In addition, under the Patient Protection
and Affordable Care Act, higher income taxpayers must pay an additional 3.8 percent tax on net investment income to the extent certain
threshold amounts of income are exceeded. See &#8220;Tax on Net Investment Income&#8221; in this Item below. For this purpose, qualified
dividend income generally includes dividends paid by a foreign corporation if certain holding period and other requirements are met and
either (a) the stock of the foreign corporation with respect to which the dividends are paid is &#8220;readily tradable&#8221; on an
established securities market in the U.S. (e.g., the Nasdaq Global Select Market) or (b) the foreign corporation is eligible for benefits
of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory
by the U.S. Secretary of the Treasury. Dividends that fail to meet such requirements and dividends received by corporate U.S. holders
are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend (i) if the U.S. holder held the
ordinary share or ADS with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date
that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section
246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made (and not closed)
a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk
of loss by holding other positions with respect to, such ordinary share or ADS (or substantially identical securities); or (ii) to the
extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions
in property substantially similar or related to the ordinary share and ADS with respect to which the dividend is paid. If we were to
be a &#8220;passive foreign investment company&#8221; (as such term is defined in the Code), or PFIC, for any taxable year, dividends
paid on our ordinary shares or ADSs in such year or in the following taxable year would not be qualified dividends. See the discussion
below regarding our PFIC status under &#8220;Tax Consequences if We Are a Passive Foreign Investment Company.&#8221; In addition, a non-corporate
U.S. holder will be able to take qualified dividend income into account in determining its deductible investment interest (which is generally
limited to its net investment income) only if it elects to do so; in such case the dividend income will be taxed at ordinary income rates.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
amount of any distribution which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing
the U.S. holder&#8217;s tax basis in our ordinary shares or ADSs to the extent thereof, and then as capital gain from the deemed disposition
of the ordinary shares or ADSs. Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares
and ADSs.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Distributions
of current or accumulated earnings and profits paid in foreign currency to a U.S. holder will be includible in the income of a U.S. holder
in a U.S. dollar amount calculated by reference to the exchange rate on the day the distribution is received. A U.S. holder that receives
a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt may have foreign exchange gain
or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally
be U.S. source ordinary income or loss.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Taxation
of the Disposition of the Ordinary Shares or ADSs</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Subject
to the discussion below under &#8220;Tax Consequences if We Are a Passive Foreign Investment Company,&#8221; upon the sale, exchange
or other disposition of our ordinary shares or ADSs, a U.S. holder will recognize capital gain or loss in an amount equal to the difference
between the amount realized on the disposition and the U.S. holder&#8217;s tax basis in our ordinary shares or ADSs. The gain or loss
recognized on the disposition of the ordinary shares or ADSs will be long-term capital gain or loss if the U.S. holder held the ordinary
shares or ADSs for more than one year at the time of the disposition and would be eligible for a reduced rate of taxation for certain
non-corporate U.S. holders. The maximum long-term capital gains rate is 20% for individuals with annual taxable income that exceeds certain
thresholds. In addition, under the Patient Protection and Affordable Care Act, higher income taxpayers must pay an additional 3.8 percent
tax on net investment income to the extent certain threshold amounts of income are exceeded. See &#8220;Tax on Net Investment Income&#8221;
in this Item below. Capital gain from the sale, exchange or other disposition of ordinary shares or ADSs held for one year or less is
short-term capital gain and taxed as ordinary income. Gain or loss recognized by a U.S. holder, who does not have a tax home outside
the United States, on a sale, exchange or other disposition of our ordinary shares or ADSs generally will be treated as U.S. source income
or loss. The deductibility of capital losses is subject to certain limitations.&#160;&#160;</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
U.S. holder that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that
the sale settles. However, a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds
of the sale as of the trade date and may therefore realize foreign currency gain or loss. A U.S. holder that uses the accrual method
may avoid realizing foreign currency gain or loss by electing to use the settlement date to determine the proceeds of sale for purposes
of calculating the foreign currency gain or loss. In addition, a U.S. holder that receives foreign currency upon disposition of its ordinary
shares or ADSs and converts the foreign currency into dollars after the settlement date or trade date (whichever date the U.S. holder
is required to use to calculate the value of the proceeds of sale) may have foreign exchange gain or loss based on any appreciation or
depreciation in the value of the foreign currency against the dollar, which will generally be U.S. source ordinary income or loss.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Tax
Consequences if We Are a Passive Foreign Investment Company</i></b></span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
would be a passive foreign investment company, or PFIC, for a taxable year if either (1) 75% or more of our gross income in the taxable
year is passive income; or (2) the average percentage (by value determined on a quarterly basis) in a taxable year of our assets that
produce, or are held for the production of, passive income is at least 50%. Passive income for this purpose generally includes, among
other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale
or exchange of property that gives rise to passive income. If we own (directly or indirectly) at least 25% by value of the stock of another
corporation, we would be treated for purposes of the foregoing tests as owning our proportionate share of the other corporation&#8217;s
assets and as directly earning our proportionate share of the other corporation&#8217;s income. As discussed below, we believe that we
were not a PFIC for 2022.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
we were a PFIC, each U.S. holder would (unless it made one of the elections discussed below on a timely basis) be taxable on gain recognized
from the disposition of our ordinary shares or ADSs (including gain deemed recognized if our ordinary shares or ADSs are used as security
for a loan) and upon receipt of certain excess distributions (generally, distributions that exceed 125% of the average amount of distributions
in respect to such shares received during the preceding three taxable years or, if shorter, during the U.S. holder&#8217;s holding period
prior to the distribution year) with respect to our ordinary shares or ADSs as if such income had been recognized ratably over the U.S.
holder&#8217;s holding period for the shares. The U.S. holder&#8217;s income for the current taxable year would include (as ordinary
income) amounts allocated to the current taxable year and to any taxable year prior to the first day of the first taxable year for which
we were a PFIC. Tax would also be computed at the highest ordinary income tax rate in effect for each other taxable year to which income
is allocated, and an interest charge on the tax as so computed would also apply. The tax liability with respect to the amount allocated
to the taxable year prior to the taxable year of the distribution or disposition cannot be offset by any net operating losses. Additionally,
if we were a PFIC, U.S. holders who acquire our ordinary shares or ADSs from decedents (other than nonresident aliens) would be denied
the normally-available step-up in basis for such shares to fair market value at the date of death and, instead, would have a tax basis
in such shares equal to the lesser of the decedent&#8217;s basis or the fair market value of such shares on the decedent&#8217;s date
of death.</span></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
an alternative to the tax treatment described above, a U.S. holder could elect to treat us as a &#8220;qualified electing fund&#8221;
(a QEF), in which case the U.S. holder would be taxed, for each taxable year that we are a PFIC, on its pro rata share of our ordinary
earnings and net capital gain (subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge).
Special rules apply if a U.S. holder makes a QEF election after the first taxable year in its holding period in which we are a PFIC.
We have agreed to supply U.S. holders with the information needed to report income and gain under a QEF election if we were a PFIC. Amounts
includable in income as a result of a QEF election will be determined without regard to our prior year losses or the amount of cash distributions,
if any, received from us. A U.S. holder&#8217;s basis in its ordinary shares or ADSs will increase by any amount included in income and
decrease by any amounts not included in income when distributed because such amounts were previously taxed under the QEF rules. So long
as a U.S. holder&#8217;s QEF election is in effect with respect to the entire holding period for its ordinary shares or ADSs, any gain
or loss realized by such holder on the disposition of its ordinary shares or ADSs held as a capital asset generally will be capital gain
or loss. Such capital gain or loss ordinarily would be long-term if such U.S. holder had held such ordinary shares or ADSs for more than
one year at the time of the disposition and would be eligible for a reduced rate of taxation for certain non-corporate U.S. holders.
The maximum long-term capital gains rate is 20% for individuals with annual taxable income that exceeds certain thresholds. The QEF election
is made on a shareholder-by-shareholder basis, applies to all ordinary shares or ADSs held or subsequently acquired by an electing U.S.
holder and can be revoked only with the consent of the IRS. The QEF election must be made on or before the U.S. holder&#8217;s tax return
due date, as extended, for the first taxable year to which the election will apply.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
an alternative to making a QEF election, a U.S. holder of PFIC stock that is &#8220;marketable stock&#8221; (e.g., &#8220;regularly traded&#8221;
on the Nasdaq Global Select Market) may, in certain circumstances, avoid certain of the tax consequences generally applicable to holders
of stock in a PFIC by electing to mark the stock to market as of the beginning of such U.S. holder&#8217;s holding period for our ordinary
shares or ADSs. Special rules apply if a U.S. holder makes a mark-to-market election after the first year in its holding period in which
we are a PFIC. As a result of such an election, in any taxable year that we are a PFIC, a U.S. holder would generally be required to
report gain or loss to the extent of the difference between the fair market value of the ordinary shares or ADSs at the end of the taxable
year and such U.S. holder&#8217;s tax basis in such shares at that time. Any gain under this computation, and any gain on an actual disposition
of our ordinary shares or ADSs in a taxable year in which we are PFIC, would be treated as ordinary income. Any loss under this computation,
and any loss on an actual disposition of our ordinary shares or ADSs in a taxable year in which we are PFIC, would be treated as ordinary
loss to the extent of the cumulative net-mark-to-market gain previously included. Any remaining loss from marking our ordinary shares
or ADSs to market will not be allowed, and any remaining loss from an actual disposition of our ordinary shares or ADSs generally would
be capital loss. A U.S. holder&#8217;s tax basis in its ordinary shares or ADSs is adjusted annually for any gain or loss recognized
under the mark-to-market election. There can be no assurances that there will be sufficient trading volume with respect to our ordinary
shares or ADSs for the ordinary shares or ADSs to be considered &#8220;regularly traded&#8221; or that our ordinary shares or ADSs will
continue to trade on the Nasdaq Global Select Market. Accordingly, there are no assurances that our ordinary shares or ADSs will be marketable
stock for these purposes. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis, applies to
all ordinary shares or ADSs held or subsequently acquired by an electing U.S. holder and can only be revoked with consent of the IRS
(except to the extent our ordinary shares or ADSs no longer constitute &#8220;marketable stock&#8221;).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 180; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->173<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Based
on an analysis of our assets and income, we believe that we were not a PFIC for 2022. We currently expect that we will not be a PFIC
in 2023. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of future income
and assets, which are relevant to this determination. Accordingly, there can be no assurance that we will not become a PFIC in any future
taxable years. U.S. holders who hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing
rules, even if we cease to be a PFIC, subject to certain exceptions for U.S. holders who made QEF, mark-to-market or certain other special
elections. U.S. holders are urged to consult their tax advisors about the PFIC rules, including the consequences to them of making a
mark-to-market or QEF election with respect to our ordinary shares or ADSs in the event that we qualify as a PFIC.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>U.S.
holders are urged to consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner
and advisability of making, the QEF election or the mark-to-market election.</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Tax
on Net Investment Income</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from the tax,
will be subject to a 3.8% tax on the lesser of (1) the U.S. holder&#8217;s &#8220;net investment income&#8221; for the relevant taxable
year and (2) the excess of the U.S. holder&#8217;s modified adjusted gross income for the taxable year over a certain threshold (which
in the case of individuals will be between $125,000 and $250,000, depending on the individual&#8217;s circumstances). A U.S. holder&#8217;s
net investment income generally will include its dividends on our ordinary shares or ADSs and net gains from dispositions of our ordinary
shares or ADSs, unless those dividends or gains are derived in the ordinary course of the conduct of trade or business (other than trade
or business that consists of certain passive or trading activities). Net investment income, however, may be reduced by deductions properly
allocable to that income. A U.S. holder that is an individual, estate or trust is urged to consult its tax adviser regarding the applicability
of the Medicare tax to its income and gains in respect of its investment in the ordinary shares or ADSs.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Non-U.S.
Holders of Ordinary Shares or ADSs</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Except
as provided below, a non-U.S. holder of our ordinary shares or ADSs will not be subject to U.S. federal income or withholding tax on
the receipt of dividends on, or the proceeds from the disposition of, our ordinary shares or ADSs, unless, in the case of U.S. federal
income taxes, that item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States
and, in the case of a resident of a country which has an income tax treaty with the United States, such item is attributable to a permanent
establishment in the United States or, in the case of an individual, a fixed place of business in the United States. In addition, gain
recognized on the disposition of our ordinary shares or ADSs by an individual non-U.S. holder will be subject to tax in the United States
if the non-U.S. holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions
are met.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->174<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Information
Reporting and Backup Withholding</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
U.S. holder generally is subject to information reporting and may be subject to backup withholding at a rate of up to 28% with respect
to dividend payments on, or receipt of the proceeds from the disposition of, our ordinary shares or ADSs. Backup withholding will not
apply with respect to payments made to exempt recipients, including corporations and tax-exempt organizations, or if a U.S. holder provides
a correct taxpayer identification number, certifies that such holder is not subject to backup withholding or otherwise establishes an
exemption. Non-U.S. holders are not subject to information reporting or backup withholding with respect to dividend payments on, or receipt
of the proceeds from the disposition of, our ordinary shares or ADSs in the U.S., or by a U.S. payor or U.S. middleman, provided that
such non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption.
Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a holder,
or alternatively, the holder may be eligible for a refund of any excess amounts withheld under the backup withholding rules, in either
case, provided that the required information is furnished to the IRS.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><i>Information
Reporting by Certain U.S. Holders</i></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">U.S.
citizens and individuals taxable as resident aliens of the United States that own &#8220;specified foreign financial assets&#8221; with
an aggregate value in a taxable year in excess of certain threshold (as determined under Treasury regulations) and that are required
to file a U.S. federal income tax return generally will be required to file an information report with respect to those assets with their
tax returns. IRS Form 8938 has been issued for that purpose. &#8220;Specified foreign financial assets&#8221; include any financial accounts
maintained by foreign financial institutions, foreign stocks held directly, and interests in foreign estates, foreign pension plans or
foreign deferred compensation plans. Under those rules, our ordinary shares or ADSs, whether owned directly or through a financial institution,
estate or pension or deferred compensation plan, would be &#8220;specified foreign financial assets&#8221;. Under Treasury regulations,
the reporting obligation applies to certain U.S. entities that hold, directly or indirectly, specified foreign financial assets. Penalties
can apply if there is a failure to satisfy this reporting obligation. A U.S. Holder is urged to consult his tax adviser regarding his
reporting obligation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>The
above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition
of our Ordinary Shares or ADSs. You should consult your tax advisor concerning the tax consequences of your particular situation.</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>F.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Dividends and Paying
    Agents</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>G.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Statement by Experts</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>H.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Documents on Display</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
are currently subject to the information and periodic reporting requirements of the Exchange Act that are applicable to foreign private
issuers. Although as a foreign private issuer we are not required to file periodic information as frequently or as promptly as United
States companies, we generally do publicly announce our quarterly and year-end results promptly and file periodic information with the
United States Securities and Exchange Commission under cover of Form 6-K. As a foreign private issuer, we are also exempt from the rules
under the Exchange Act prescribing the furnishing and content of proxy statements and our officers, directors and principal shareholders
are exempt from the reporting and other provisions in Section 16 of the Exchange Act. Our SEC filings are filed electronically on the
EDGAR reporting system and may be obtained through that medium. The SEC also maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC. The address of that web site is http://www.sec.gov.
The Exchange Act file number for our Securities and Exchange Commission filings is 000-29442.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->175<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Copies
of our SEC filings and submissions are also submitted to the Israel Securities Authority, or ISA, and the TASE. Such copies can be retrieved
electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (maya.tase.co.il).</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
copy of each report that we submit in accordance with applicable United States law is available for public review at our principal executive
offices, at 1 Yahadut Canada Street, Or Yehuda 6037501, Israel. Information about us is also available on our website at http://www.formulasystems.com.
Such information is not part of this annual report.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>I.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Subsidiary Information</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"><tr style="vertical-align: top; text-align: justify">
<td style="width: 48px; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>J.</b></span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Annual
Report to Security Holders</b></span></td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_015"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Market
risks relating to our operations result primarily from changes in exchange rates, interest rates or weak economic conditions in the markets
in which we sell our products and services. We have been and we are actively monitoring these potential exposures. To manage the volatility
relating to these exposures, we may enter into various forward contracts or other hedging instruments. Our objective is to reduce, where
it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates
and interest rates.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Interest
Rate and Currency Exchange Rate Fluctuations; Impact of Inflation</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
light of the nature of our activities, we invest our cash and cash equivalents primarily in short-term and long-term deposits. As of
December 31, 2022, substantially all of the cash that we held was invested in dollar, Euro, Indian Rupee, and British Pound accounts
bearing interest based on SOFR, and NIS accounts bearing interest based on the Israeli prime rate. Given the current interest rates in
the financial markets, assuming a 10% interest rate decrease, the net decrease in our earnings from our financial assets would not be
material, holding other variables constant.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
described above in this annual report (under &#8220;Item 3.D Risk Factors&#8212;Risks Related to Operations in Israel&#8212;Fluctuations
in foreign currency values may affect our business and results of operations&#8221; and &#8220;Item 5. Operating and Financial Review
and Prospects&#8212;Operating Results&#8212; Impact of Inflation and Currency Fluctuations on Results of Operations&#8221;), because
most of our software services revenues are received in NIS, a devaluation of the NIS against the dollar adversely impacts our dollar-recorded
software services revenues and operating profit, by reducing the dollar-recorded revenues for those software services. Accordingly, a
devaluation of the dollar against the NIS positively impacts our dollar-recorded software services revenues and operating profit.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">At
the same time, a significant portion of our revenues from proprietary software products is currently denominated in dollars and other
currencies, particularly Euro and British pound, Indian rupee and to a lesser extent Japanese yen, while a substantial portion of our
expenses relating to the proprietary software products, principally salaries and related personnel expenses, is denominated in NIS. As
a result, the devaluation of the dollar relative to the NIS increases our operating costs (as denominated in dollars), and, therefore,
adversely affects the operational profitability of our proprietary software product reporting segment. An increase in the rate of Israeli
inflation compounds this negative impact by further increasing our NIS (and ultimately dollar-recorded) operating expenses, and, consequently,
reducing our operational profitability in that business line. Also, the devaluation of these other currencies&#8212;particularly Euro,
British pound and to a lesser extent Japanese yen&#8212;relative to the U.S. dollar reduces our dollar recorded revenues from sales of
our proprietary software products and thereby harms our results of operations.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 183; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->176<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
net effect of these risks stemming from currency exchange rate fluctuations on our operating results can be quantified as follows:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
hypothetical 10% devaluation or appreciation of foreign currencies (primarily the NIS, GBP, Euro, Japanese yen, PLN and INR) against
the US dollar, with all other variables held constant on the expected sales, would have resulted in a decrease or increase in 2022 sales
revenues of approximately $172 million or $203 million, respectively.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Depending
upon the circumstances, we will consider entering into currency hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rate of the dollar, Euro, Japanese yen and/or British Pound against the NIS, or the Euro, Japanese yen and/or
British pound against the dollar. There can be no assurance that these activities, or others that we may use from time to time, will
eliminate the negative financial impact of currency fluctuations and inflation. We do not&#8212;nor do we intend to in the future&#8212;engage
in currency speculation.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Inflation
Risk. </i></b>We and some of our subsidiaries are subject to inflation risk. Given that over recent years we have expanded our global
presence and offer our software solutions and services to new markets, particularly in the United States, the U.K. and Europe, inflationary
pressures have been adversely impacting our operations. The increased inflation in Europe and the U.S. have been leading to an increase
in certain of our operating costs and expenses, such as employee compensation and office operating expenses. In addition, the purchasing
power of our customers have been declining due to their rising other expenses, and customer demand for our software solutions and services
may be adversely impacted as a result, which could in turn negatively affect our results of operations, financial condition and prospects.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Market
Risk. </i></b>We currently do not invest in, or otherwise hold, for trading or other purposes, any financial instruments subject to market
risk.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Interest
Rate Risk</i></b>. We </span>and three of our subsidiaries (Sapiens, Matrix and Magic Software) account for the majority of the Group&#8217;s
bank credits, loans and debentures, which are subject to interest rate risk. Sapiens and Formula pay interest on their debentures based
on a fixed interest rate which is denominated in NIS (and in the case of Sapiens is also linked to a fixed US dollar interest rate).
Because both Formula and Sapiens do not have any outstanding debt obligations other than with respect to their debentures, they have
not been materially impacted by the global rise in interest rates that began in 2022. Therefore, no quantitative tabular disclosures
are required. Additionally, as Matrix is impacted by interest rate risk with respect to its bank credits and loan, in an effort to hedge
the risk, Matrix conducted two series B bond issuances at a fixed interest rate of 4.1%. As a result, Matrix has not been materially
impacted by the global rise in interest rates that began in 2022. An increase of 1% &#160;in interest rates would have increased Matrix
financial expenses by approximately $0.7 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Fluctuations
in Market Price of Securities We Hold</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
hold the securities of three subsidiaries&#8212; Magic Software, Sapiens and Matrix,&#8212; which are companies whose securities are
listed for trading on the Nasdaq Global Market, Nasdaq Global Select Market and/or the TASE. We consider these holdings as long-term
holdings. We are exposed to the risk of fluctuation of the price of these companies&#8217; securities. All of these publicly traded companies
have experienced significant historical volatility in their stock prices. Fluctuations in the market price of our holdings in these companies
may result in the fluctuation of the value of our assets. We typically do not attempt to reduce or eliminate our market exposure on these
securities.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 184; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->177<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><div><a id="a_016"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>A.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Debt Securities</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>B.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Warrants and Rights</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>C.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Other Securities</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>D.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>American Depositary
    Shares</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Fees
and charges payable by our ADS holders</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Bank of New York Mellon, which we refer to as the Depositary, serves as the depositary for our ADS program. Pursuant to the deposit agreement
by and among our company, the Depositary and owners and holders of our ADSs, which we refer to as the Deposit Agreement, ADS holders
may be required to pay various fees to the Depositary. In particular, the Depositary may charge the following fees to any party depositing
or withdrawing ADSs, or to any party surrendering American Depositary Receipts (which we refer to as ADRs) that represent the ADSs, or
to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange
of stock involving the ADRs or any deposited ADSs underlying the ADRs or a distribution of ADRs pursuant to a distribution of underlying
shares), as applicable:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">taxes and governmental
    charges;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">such registration fees
    as may from time to time be in effect for the registration of transfers of shares generally on our share register and applicable
    to transfers of shares to the name of the Depositary or its nominee or agent in connection with making deposits or withdrawals under
    the Deposit Agreement;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">such cable, telex and facsimile
    transmission expenses as are expressly provided for in the Deposit Agreement;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">such expenses as are incurred
    by the Depositary in the conversion of foreign currency;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">a fee of $5.00 or less
    per 100 ADSs (or portion thereof) for the execution and delivery of ADRs (including in connection with distributions of shares or
    rights by us) and in connection with the surrender of receipts and withdrawal of the underlying shares;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">a fee of $0.02 or less
    per ADS (or portion thereof) for any cash distribution made pursuant to the Deposit Agreement, including in connection with distributions
    of shares or rights;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">a fee for the distribution
    of securities in connection with certain distributions, such fee being in an amount equal to the fee for the execution and delivery
    of ADSs which would have been charged as a result of the deposit of such securities but which securities are instead distributed
    by the Depositary to ADR holders; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">any other charges payable
    by the Depositary or any of its agents in connection with the servicing of ADSs or other deposited securities underlying the ADRs.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Amounts
received from the Depositary</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
do not receive any fees directly or indirectly from the Depositary.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 185; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->178<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_017"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>PART
II </b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_018"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">None.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_019"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">None.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_020"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
15. CONTROLS AND PROCEDURES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Disclosure
Controls and Procedures</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2022. Based on such
evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2022, the Company&#8217;s
disclosure controls and procedures are effective.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Management&#8217;s
Annual Report on Internal Control over Financial Reporting</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, including our Chief Executive Officer and our Chief Financial Officer,
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established
in Internal Control&#8212;Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) as of the end of the period covered by this report.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Based
on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31,
2022. Notwithstanding the foregoing, there can be no assurance that our internal control over financial reporting will detect or uncover
all failures of persons within the Company to comply with our internal procedures, as all internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our management&#8217;s assessment of and conclusion on the effectiveness
of internal control over financial reporting did not include the internal controls of the business of Shamrad Electronic (1997) Ltd.,
Bear Staffing Services Corporation, N.C Marketing and Advertising Ltd., Marcomit Ltd., Appush Ltd. (formerly known as Vidstart Ltd.),
Intrabases SAS and The GoodKind Group LLC, which were acquired during 2022 and included in our consolidated 2022 annual financial statements
and constituted 1.4% of total assets and 1.0% of the net assets as of December 31, 2022, and 1.0% and 1.9% of revenues and net income, respectively,
for the year then ended.&#160;<b>Attestation Report of the Registered Public Accounting Firm</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The attestation report of Kost Forer Gabbay &amp; Kasierer, a member
of EY Global, an independent registered public accounting firm in Israel, on our management&#8217;s assessment of our internal control
over financial reporting as of December 31, 2022 is provided on page F-5, as included under Item 18 of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Changes
in Internal Control over Financial Reporting</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Based
on the evaluation conducted by our Chief Executive Officer and our Chief Financial Officer pursuant to Rules 13a-15(d) and 15d-15(d)
under the Exchange Act, our management has concluded that there was no change in our internal control over financial reporting that occurred
during the year ended December 31, 2022 that materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->179<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_021"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16. RESERVED</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>&#160;</b></span></p><div>

</div><div><a id="a_022"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
board of directors has determined that Mr. Tomer Jacob, who serves on the audit committee of our board of directors, qualifies as our
&#8220;audit committee financial expert,&#8221; as defined under the rules and regulations of the SEC.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_023"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16B. CODE OF ETHICS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have adopted a code of business conduct and ethics, or code of ethics, applicable to Formula&#8217;s Chief Executive Officer and Chief
Financial Officer (who also serves as its principal accounting officer) and any person performing similar functions, as well as to its
directors and other employees. A copy of the code of ethics is available to all of Formula&#8217;s employees, investors and others without
charge, upon request to the following address: Formula Systems (1985) Ltd., 1 Yahadut Canada St., Or Yehuda 6037501, Israel, Attn: Chief
Executive Officer.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
chairman of our audit committee may approve a request by our Chief Executive Officer, Chief Financial Officer (who also serves as our
principal accounting officer) or any person performing similar functions for a waiver from the requirements of our code of ethics pertaining
to (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional
relationship; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we must file with, or submit
to, the SEC and in other public communications made by us; (iii) compliance with applicable governmental laws, rules and regulations;
(iv) the prompt internal reporting of violation of the code of ethics to the chairman of our audit committee; and (v) accountability
for adherence to the code of ethics; provided in each case that the person requesting such waiver provides to our audit committee a full
disclosure of the particular circumstances relating to such request. The chairman of our audit committee will first determine whether
a waiver of the relevant requirements of the code of ethics is required and, if such waiver is required, whether a waiver will be granted.
The person requesting such waiver may be required to agree to certain conditions before a waiver or a continuing waiver is granted.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Any
amendments to the code of ethics and all waivers from compliance with the code of ethics granted to our Chief Executive Officer, Chief
Financial Officer (who also serves as our principal accounting officer) or any person performing similar functions with respect to its
requirements described in the above paragraph will be publicly disclosed by us via a report on Form 6-K in accordance with the regulations
of the SEC. No such amendment was adopted, nor waiver provided, by us during the fiscal year ended December 31, 2022.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><div><a id="a_024"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Principal
Accountant Fees and Services</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Formula
and its subsidiaries and affiliate company paid the following fees for professional services rendered by Kost Forer Gabbay &amp; Kasierer,
Certified Public Accountant, a member firm of Ernst &amp; Young Global, independent registered public accounting firm (which we refer
to as Kost Forer), to the Company for the years ended December 31, 2021 and December 31, 2022, respectively:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Year Ended<br/> December&#160;31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2022</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold">&#160;</td>
    <td colspan="6" style="font-weight: bold; text-align: center">(US dollars in thousands)</td><td style="font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="font-weight: bold">Services Rendered</td><td>&#160;</td>
    <td colspan="6" style="text-align: center">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%; text-indent: -9pt; padding-left: 9pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Audit <sup>(1)</sup></span></td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">1,887</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">2,789</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Tax and other <sup>(2)</sup></span></td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">552</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">441</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Total</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">2,439</td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">3,230</td><td style="padding-bottom: 4pt; text-align: left">&#160;</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(1)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The audit fees for the
    years ended December 31, 2021 and 2022 were for professional services rendered for: the audits of our annual consolidated financial
    statements; agreed-upon procedures related to the review of our consolidated quarterly information; statutory audits of Formula and
    its subsidiaries and affiliated companies; issuance of comfort letters and consents; and assistance with review of documents filed
    with the SEC. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(2)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Tax fees for the years
    ended December 31, 2021 and 2022 were for services related to tax compliance, including the preparation of tax returns and claims
    for refund, and tax advice. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 187; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->180<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Formula
paid the following fees for professional services rendered by Kost Forer to the Company (on a stand-alone basis, excluding services provided
to the subsidiaries and affiliates of the Company) for the years ended December 31, 2021 and December 31, 2022, respectively:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Year Ended<br/> December&#160;31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2022</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold">&#160;</td>
    <td colspan="6" style="font-weight: bold; text-align: center">(US dollars in thousands)</td><td style="font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="font-weight: bold">Services Rendered</td><td>&#160;</td>
    <td colspan="6" style="text-align: center">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%; text-indent: -9pt; padding-left: 9pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Audit <sup>(1)</sup></span></td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">96</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">205</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Tax and other <sup>(2)</sup></span></td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">41</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">16</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Total</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">137</td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left"><p style="margin: 0pt 0; font: 10pt Times New Roman, Times, Serif">$</p></td><td style="border-bottom: Black 4pt double; text-align: right">221</td><td style="padding-bottom: 4pt; text-align: left">&#160;</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(1)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The audit fees for the
    years ended December 31, 2021 and 2022 were for professional services rendered for: the audits of our annual consolidated financial
    statements; agreed-upon procedures related to the review of our consolidated quarterly information; statutory audits of Formula and
    its subsidiaries and affiliated companies; issuance of comfort letters and consents; and assistance with review of documents filed
    with the SEC. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(2)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Tax fees for the years
    ended December 31, 2021 and 2022 were for services related to tax compliance, including the preparation of tax returns and claims
    for refund, and tax advice. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b><i>Policy
on Pre-Approval of Audit and Non-Audit Services of Independent Auditors</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
audit committee is responsible for the oversight of our (and our subsidiaries&#8217;) independent auditor&#8217;s work. Our audit committee
has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public
accountants, Kost Forer Gabbay &amp; Kasierer, a member of Ernst &amp; Young Global. Pre-approval of an audit or non-audit service may
be given as a general pre-approval, as part of the audit committee&#8217;s approval of the scope of the engagement of our independent
auditor, or on an individual basis. Any proposed services that exceed general pre-approved levels also require specific pre-approval
by our audit committee. The policy prohibits retention of the independent public accountants to perform the prohibited non-audit functions
defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and also requires the audit committee to consider whether
proposed services are compatible with the independence of the public accountants.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><div><a id="a_025"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_026"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">None.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_027"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16F. CHANGE IN REGISTRANT&#8217;S CERTIFYING ACCOUNTANT</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">None.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></p><div>

</div><!-- Field: Page; Sequence: 188; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->181<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_028"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16G. CORPORATE GOVERNANCE</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Nasdaq Global Select Market requires companies with securities listed thereon to comply with its corporate governance standards. As a
foreign private issuer, we are not required to comply with all of the rules that apply to listed domestic U.S. companies. Pursuant to
Nasdaq listing rule 5615(a)(3), we have notified Nasdaq that with respect to the corporate governance practices described below, we instead
follow Israeli law and practice and accordingly do not follow the Nasdaq listing rules. Except for the differences described below, we
do not believe there are any significant differences between our corporate governance practices and those that apply to a U.S. domestic
issuer under the Nasdaq corporate governance rules.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Majority
    Board Independence</span>: Under Israeli law, there is no requirement that the majority of the members of the board of directors be
    independent as under Nasdaq listing rule 5605(b)(1), so long as a company appoints at least two external directors pursuant to the
    Companies Law and fulfills the composition requirements for the audit and compensation committees of the board. We comply with Israeli
    law in lieu of that Nasdaq requirement.</span></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Independent Director
    Oversight of Nominations</span>: Under Israeli law, there is no requirement to have an independent nominating committee or the independent
    directors of a company select (or recommend for selection) director nominees, as is required under Nasdaq listing rule 5605(e) for
    a U.S. domestic issuer. Our board of directors handles this process, as is permitted by our articles and the Companies Law. We also
    need not adopt a formal board resolution or charter addressing the director nominations process and such related matters as may be
    required under the U.S. federal securities laws, as Nasdaq requires for a U.S. issuer.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Shareholder Approval</span>:
    Pursuant to Israeli law, we seek shareholder approval for all corporate actions requiring such approval under the requirements of
    the Companies Law, which are different from, or in addition to, the requirements for seeking shareholder approval under Nasdaq listing
    rule 5635. See &#8220;Item 10. Additional Information&#8212; Memorandum and Articles of Association&#8212; Approval of Certain Transactions
    Under the Companies Law&#8221; in this annual report for a description of the transactions requiring shareholder approval under the
    Companies Law.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Quorums for Shareholders
    Meetings</span>. The quorum for a shareholders meeting, as stipulated in our articles, complies with the provisions of Israeli law,
    and requires the presence, in person or by proxy of holders of 25% of our outstanding ordinary shares, in lieu of the requirement
    specified in Nasdaq listing rule 5620(c) under which the quorum for any shareholders meeting shall not be less than 33 and 1/3;%
    of the outstanding voting shares of a listed company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 48px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Required Timing for
    Annual Shareholders Meeting</span>s. Under the Companies Law, we are required to hold an annual shareholders meeting each calendar year
    and within 15 months of the last annual shareholders meeting, which differs from the corresponding requirement under Nasdaq listing
    rule 5620(a), which mandates that a listed company hold its annual shareholders meeting within one year of the company&#8217;s fiscal
    year-end.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_029"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16H. MINE SAFETY DISCLOSURES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_030"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 33pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Not
applicable.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 189; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->182<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_031"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>PART
III</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_032"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
17. FINANCIAL STATEMENTS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have elected to provide financial statements and related information pursuant to Item 18.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_033"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
18. FINANCIAL STATEMENTS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Our
consolidated financial statements and the report of our independent registered public accounting firm in connection therewith are filed
as part of this annual report, as noted on the pages below:</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 89%; text-align: justify"><a href="#fin_001"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Reports of Independent Registered Public Accounting Firm (PCAOB ID 1281)</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 10%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-2 &#8211;
    F-6</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><a href="#fin_002"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Financial Position</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-7 &#8211; F-8</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><a href="#fin_003"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Profit or Loss</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-9</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><a href="#fin_004"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Comprehensive Income</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-10</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><a href="#fin_005"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Changes in Equity</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-11 &#8211; F-14</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><a href="#fin_006"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Consolidated Statements of Cash Flows</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-15 &#8211; F-18</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><a href="#fin_007"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Notes to Consolidated Financial Statements</span></a></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">F-19 &#8211; F-122</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_034"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>ITEM
19. EXHIBITS</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>EXHIBIT
INDEX</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif">
    <td style="border-bottom: black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; vertical-align: bottom; width: 9%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Exhibit
    No.</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; width: 1%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; width: 90%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.1</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Memorandum
    of Association <sup>(1)</sup></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>1.2</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1045986/000114420412002720/v245666_ex99-1.htm">Amended
    and Restated Articles of Association, as adopted by Formula Systems (1985) Ltd. on January 8, 2012 <sup>(2)</sup></a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.1</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Depositary
    Agreement by and among Formula Systems (1985) Ltd., Bank of New York Mellon and the holders of the American Depositary Shares of
    Formula Systems (1985) Ltd. <sup>(1)</sup></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2.2</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex2-2_formulasys.htm">Description
    of Ordinary Shares of Formula Systems (1985) Ltd.*</a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>4.1</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1045986/000114420412002720/v245666_ex99-2.htm">Form
    of Letter of Indemnification for officers and directors, adopted by Formula Systems (1985) Ltd. on January 8, 2012 <sup>(4)</sup></a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>4.2</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1045986/000117891309000941/exhibit_4-3.htm">English
    translation of Formula Systems (1985) Ltd. Employees and Office Holders Share Option Plan (2008)<sup>(5)</sup></a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>4.3</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1045986/000114420414026077/v375292_ex4-3.htm">Formula
    Systems (1985) Ltd. 2011 Share Incentive Plan, as amended<sup>(6)</sup></a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>4.4</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1045986/000121390022078501/ea169849ex99-2_formulasys.htm">Formula
    Systems (1985) Ltd. Compensation Policy for Office Holders<sup>(7)</sup></a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>8.1</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex8-1_formulasys.htm">List of Subsidiaries*</a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>12.1</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex12-1_formulasys.htm">Certification
    of the Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act*</a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>12.2</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex12-2_formulasys.htm">Certification
    of the Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act*</a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>13.1</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex13-1_formulasys.htm">Certification
    of the Chief Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-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*</a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>13.2</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex13-2_formulasys.htm">Certification
    of the Chief Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-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*</a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>15.1</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex15-1_formulasys.htm">Consent
    of Kost, Forer, Gabbay &amp; Kasierer, A Member of Ernst &amp; Young Global*</a></span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>15.2</b></span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><a href="f20f2022ex15-2_formulasys.htm">Consent
    of KDA Audit Corporation*</a></span></td></tr>

<tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">101.INS</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">Inline
    XBRL Instance Document</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">101.SCH</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">Inline
    XBRL Taxonomy Extension Schema Document.</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">101.CAL</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">Inline
    XBRL Taxonomy Extension Calculation Linkbase Document.</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">101.DEF</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">Inline
    XBRL Taxonomy Extension Definition Linkbase Document.</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">101.LAB</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">Inline
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  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
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    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal">Cover
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 25%"><div style="font-size: 1pt; border-top: Black 1.5pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
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    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">*</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed herewith.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Incorporated by reference
    to the Registration Statement on Form F-1 (File No. 333-8858).</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
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    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Incorporated by reference
    to Exhibit 99.1 to the report on Form 6-K filed by the registrant with the Securities and Exchange Commission on January 18, 2012.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Incorporated by reference
    to Exhibit 2.2 to the annual report on Form 20-F for the year ended December 31, 2019, filed by the registrant with the Securities
    and Exchange Commission on June 29, 2020.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
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    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Incorporated by reference
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    on January 18, 2012.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(5)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Incorporated by reference
    to Exhibit 4.3 to the annual report on Form 20-F for the 2008 fiscal year filed by the registrant with the Securities and Exchange
    Commission on April 27, 2009.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(6)</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Incorporated by reference
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    Commission on April 30, 2014.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 0px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 24px"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(7)</span></td>
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    to Appendix A to the registrant&#8217;s proxy statement for its special general meeting of shareholders held on January 12, 2023,
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    Commission on December 8, 2022.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 190; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->183<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><div><a id="a_035"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>SIGNATURES</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">FORMULA
SYSTEMS (1985) LTD.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif; width: 4%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">By: </span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 36%; border-bottom: black 1.5pt solid"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">/s/
    Guy Bernstein</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; width: 20%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="border-bottom: black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; width: 40%; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">May
    15, 2023</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Guy Bernstein</span></td>
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    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Date</span></td></tr>
  <tr style="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chief Executive Officer</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 191; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->184<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;&#160;</p><div>

</div><div><a id="newf_001"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>FORMULA SYSTEMS (1985) LTD.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>AS OF DECEMBER 31, 2022</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>U.S. DOLLARS IN THOUSANDS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>INDEX</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt; width: 90%; text-align: left">&#160;</td> <td style="border-bottom: Black 1.5pt solid; text-align: center; width: 10%"><b>Page</b></td></tr> <tr style="vertical-align: bottom"> <td style="text-align: left">&#160;</td> <td style="text-align: center">&#160;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"><a href="#fin_001"><b>Reports of Independent Registered Public Accounting Firm (PCAOB ID <ix:nonNumeric contextRef="c0" name="dei:AuditorFirmId">1281</ix:nonNumeric>)</b></a></td> <td style="text-align: center"><b>F-2- F-6</b></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">&#160;</td> <td style="text-align: center">&#160;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"><a href="#fin_002"><b>Consolidated Statements of Financial Position</b></a></td> <td style="text-align: center"><b>F-7 - F-8</b></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">&#160;</td> <td style="text-align: center">&#160;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"><a href="#fin_003"><b>Consolidated Statements of Profit or Loss</b></a></td> <td style="text-align: center"><b>F-9 </b></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">&#160;</td> <td style="text-align: center">&#160;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"><a href="#fin_004"><b>Consolidated Statements of Comprehensive Income</b></a></td> <td style="text-align: center"><b>F-10</b></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">&#160;</td> <td style="text-align: center">&#160;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"><a href="#fin_005"><b>Consolidated Statements of Changes in Equity</b></a></td> <td style="text-align: center"><b>F-11 - F-14</b></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">&#160;</td> <td style="text-align: center">&#160;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"><a href="#fin_006"><b>Consolidated Statements of Cash Flows</b></a></td> <td style="text-align: center"><b>F-15 - F-18</b></td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">&#160;</td> <td style="text-align: center">&#160;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"><a href="#fin_007"><b>Notes to Consolidated Financial Statements</b></a></td> <td style="text-align: center"><b>F-19 - F-122</b></td></tr> </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>- - - - - - - - - - - - - - - - - - -</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 192; Options: NewSection; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->1<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 28%; text-align: left"><img alt="" src="fin_001.jpg"/></td>
    <td style="width: 31%">
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt"><b>Kost Forer Gabbay &amp;
Kasierer</b></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">144 Menachem Begin St.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">Tel-Aviv 6492102, Israel&#160;</p></td>
    <td style="width: 1%; text-align: justify">&#160;</td>
    <td style="width: 40%">
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">&#160;Tel: +972-3-6232525</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">Fax: +972-3-5622555</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">ey.com</p></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><div><a id="fin_001"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>Report of Independent Registered Public Accounting
Firm</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center">To the Shareholders and the Board of Directors
of Formula Systems (1985) Ltd.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>Opinion on the Financial
Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We have audited the accompanying
consolidated statements of financial position of Formula Systems (1985) Ltd. (the Company) as of December 31, 2022 and 2021, the related
consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for each of the three years in the period
ended December 31, 2022, and the related notes (collectively referred to as the &#8220;consolidated financial statements&#8221;). In our
opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We did not audit the financial
statements of Magic Software Japan K.K., a wholly-owned subsidiary of Magic Software Enterprises Ltd., which reflect total assets of constituting
0.2% and 0.2% at December 31, 2022 and 2021, respectively, and total revenues constituting 0.4% in 2022, 0.5% in 2021 and 0.7% in 2020
of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Magic Software Japan K.K., is based solely on the report of the other auditors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company&#8217;s internal control
over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 15, 2023 expressed an unqualified
opinion thereon, based on our audit and the report of other auditors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>Basis for Opinion</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">These financial statements
are the responsibility of the Company&#8217;s management. Our responsibility is to express an opinion on the Company&#8217;s financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We conducted our audits
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><b><img alt="" src="fin_001.jpg"/>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>Critical Audit Matter</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The critical audit matter
communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 15%; text-align: justify">&#160;</td>
    <td style="width: 1%; text-align: justify">&#160;</td>
    <td style="width: 84%; text-align: justify"><span style="font-size: 10pt"><b><i>Effective control</i></b></span></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="padding-left: 9pt; text-indent: -9pt; text-align: justify"><span style="font-size: 10pt"><i>Description of the Matter</i></span></td>
    <td style="text-align: justify">&#160;</td>
    <td>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">As described in Notes 2(3) to the consolidated
    financial statements, the Company consolidates various investees despite the lack of absolute majority of voting power at the general
    meetings of the investees. In a situation where the Company holds less than a majority of voting power in a given entity, but that power
    is sufficient to enable the Company to unilaterally direct the relevant activities of such entity, then the control is exercised, and
    the Company consolidates the entities based on effective control. As disclosed by management, the assessment of whether the Company has
    effective control over an investee involves management&#8217;s judgment and analysis and considers factors such as the responsibility
    of the various organs, the composition of the board of directors, the shareholders structure and their level of activity, the attendance
    of the shareholders at the general meetings and the voting patterns.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">Auditing the Company&#8217;s assessment of effective
    control was complex and highly judgmental due to the significant judgment of management in determining whether the Company is enable to
    unilaterally direct the relevant activities of the entity and therefor controls the entity. This in turn led to a high degree of auditor
    judgment, subjectivity and effort in performing procedures relating to management&#8217;s application of consolidation accounting, and
    significant auditor judgment in evaluating the audit evidence obtained relating to the responsibility of the various organs, the composition
    of the board of directors, the shareholders structure and their level of activity, the attendance of the shareholders at the general meetings
    and the voting patterns.</p></td></tr>
  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td style="text-indent: -0.125in; padding-left: 0.125in; white-space: nowrap; text-align: justify"><span style="font-size: 10pt"><i>How We Addressed the Matter &#160;&#160;<br/>
in Our Audit</i></span></td>
    <td style="text-align: justify">&#160;</td>
    <td>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We obtained an understanding, evaluated the design
    and tested the effectiveness of controls over effective control, including controls addressing the completeness of the Company&#8217;s
    investees evaluated for consolidation, as well as controls over the judgments and factors used to reach consolidation conclusions regarding
    these investees.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">Our audit procedures to evaluate the significant
    judgments made by management to assess effective control included, among others, testing the completeness of the investees subject to
    the analysis, evaluating the responsibility of the various organs, the composition of the board of directors, the shareholders structure
    and their level of activity, the attendance of the shareholders at the general meetings and the voting patterns, evaluating management&#8217;s
    assessment of the Company&#8217;s ability to unilaterally direct the relevant activities of each entity, and the existence of effective
    control over each investee.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We also evaluated the appropriateness of the related
    disclosures included in Note 2(3) to the consolidated financial statements in relation to Effective control.</p></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><img alt="" src="fin_001.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">/s/ KOST FORER GABBAY &amp;
KASIERER</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">A Member of Ernst &amp; Young
Global</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We have served as the Company&#8217;s
auditor since 2010.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="text-align: left; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 10pt">Tel-Aviv, Israel</span></p><div>

</div><p style="text-align: left; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 10pt">May 15, 2023</span></p><div>



</div><p style="margin-top: 0; margin-bottom: 0">&#160;</p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 28%; text-align: justify"><img alt="" src="fin_001.jpg"/></td>
    <td style="width: 31%">
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">&#160;<b>Kost Forer Gabbay &amp; Kasierer</b></p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">144 Menachem Begin St.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">Tel-Aviv 6492102, Israel</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">&#160;</p></td>
    <td style="width: 1%; text-align: justify">&#160;</td>
    <td style="width: 40%">
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">Tel: +972-3-6232525</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">Fax: +972-3-5622555</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt">ey.com</p></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>Report of Independent Registered Public Accounting
Firm </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center">To the Shareholders and the Board of Directors
of Formula Systems (1985) Ltd</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>Opinion on Internal Control over Financial
Reporting</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We have audited Formula
Systems (1985) Ltd.&#8217;s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control&#8212;Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Formula Systems (1985) Ltd. (the Company), based on our audit and the report of other auditors, maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We did not examine the effectiveness
of internal control over financial reporting of Magic Software Japan K.K, a wholly owned subsidiary of Magic Software Enterprises Ltd.,
whose financial statements reflect total assets and revenues constituting 0.2% and 0.4%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2022. The effectiveness of Magic Software Japan K.K.&#8217;s internal control
over financial reporting was audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to
the effectiveness of Magic Software Japan K.K.&#8217;s internal control over financial reporting, is based solely on the report of the
other auditors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">As indicated in the accompanying Management&#8217;s Annual Report on
Internal Control over Financial Reporting, management&#8217;s assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of the business Shamrad Electronic (1997) Ltd., Bear Staffing Services Corporation,
N.C Marketing and Advertising Ltd., Marcomit Ltd., Appush Ltd. (formerly known as Vidstart Ltd.), The Goodkind Group, LLC and Intrabases
SAS, which are included in the 2022 consolidated financial statements of the Company and constituted 1.4% and 1.0% of total and net assets,
respectively, as of December 31, 2022 and 1.0% and 1.9% of revenues and net income, respectively, for the year then ended. Our audit of
internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting
of the business of Shamrad Electronic (1997) Ltd., Bear Staffing Services Corporation, N.C Marketing and Advertising Ltd., Marcomit Ltd.,
Appush Ltd. (formerly known as Vidstart Ltd.), The Goodkind Group, LLC and Intrabases SAS.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of
financial position of the Company as of December 31, 2022 and 2021, the related consolidated statements of profit or loss, comprehensive
income, changes in equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and
our report dated May 15, 2023, expressed an unqualified opinion thereon, based on our audit and the report of the other auditors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>Basis for Opinion</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The Company&#8217;s management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management&#8217;s Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company&#8217;s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">We conducted our audit in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><img alt="" src="fin_001.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit and the report of other auditors provides a reasonable basis for our opinion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>Definition and Limitations
of Internal Control Over Financial Reporting</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">A company&#8217;s internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company&#8217;s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company&#8217;s assets that could have a material effect on the financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-indent: 0.5in; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">/s/ <ix:nonNumeric contextRef="c0" name="dei:AuditorName">KOST FORER GABBAY &amp;
KASIERER</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">A Member of Ernst &amp; Young
Global</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><ix:nonNumeric contextRef="c0" name="dei:AuditorLocation"><span style="font-size: 10pt">Tel-Aviv, Israel</span></ix:nonNumeric></p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 10pt">May 15, 2023</span> </p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 197; Options: NewSection; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->6<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><div><a id="fin_002"></a></div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: center">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: justify">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left; padding-bottom: 4pt"><span style="text-decoration:underline">Total</span> current assets</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="text-align: center; padding-bottom: 4pt">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: justify">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: center">6</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: center">9</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Deferred taxes</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 198; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->7<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands (except share and
per share data)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: center">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: center; padding-bottom: 4pt">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: center">20</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-2">&#160;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-3">&#160;</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in">EQUITY</td><td>&#160;</td>
    <td style="text-align: center">21</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.375in">Formula Systems (1985) Ltd. Shareholders&#8217; equity:</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.375in">Share capital:</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: center">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IssuedCapital" scale="3" unitRef="usd">4,340</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.5in">Additional paid-in capital</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdditionalPaidinCapital" scale="3" unitRef="usd">145,369</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdditionalPaidinCapital" scale="3" unitRef="usd">153,048</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.375in">Retained earnings</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:RetainedEarnings" scale="3" unitRef="usd">419,448</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.375in">Accumulated other comprehensive income</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AccumulatedOtherComprehensiveIncome" scale="3" sign="-" unitRef="usd">17,030</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AccumulatedOtherComprehensiveIncome" scale="3" unitRef="usd">25,516</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -0.25in; padding-left: 0.375in">Treasury shares (<ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="forty:NumberOfTreasurySharesOutstanding" scale="0" unitRef="shares"><ix:nonFraction contextRef="c3" decimals="0" format="ixt:num-dot-decimal" name="forty:NumberOfTreasurySharesOutstanding" scale="0" unitRef="shares">568,620</ix:nonFraction></ix:nonFraction> shares as of December 31, 2021 and 2022)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="text-align: center; padding-bottom: 1.5pt">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:TreasuryShares" scale="3" unitRef="usd">259</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:TreasuryShares" scale="3" unitRef="usd">259</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.375in">Total equity attributable to Formula Systems shareholders</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:EquityAttributableToOwnersOfParent" scale="3" unitRef="usd">540,960</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -0.25in; padding-left: 0.375in"><span style="text-decoration:underline">Total</span> equity</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="text-align: center; padding-bottom: 1.5pt">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:Equity" scale="3" unitRef="usd">1,176,922</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.25in; padding-left: 0.25in">&#160;</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 199; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->8<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><div><a id="fin_003"></a></div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">CONSOLIDATED
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 200; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->9<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><div><a id="fin_004"></a></div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">The accompanying notes are an integral part of the consolidated financial
statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 201; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->10<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><div><a id="fin_005"></a></div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands (except share and
per share data)</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: center"><b>&#160;</b></td><td style="text-align: center"><b>&#160;</b></td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-27">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Dividend to non-controlling interests in subsidiaries</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-39">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Transactions with non-controlling interests due to
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Acquisition of non-controlling interests</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Settlement of put options over non-controlling interests</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c13" decimals="-3" format="ixt:num-dot-decimal" name="forty:SettlementOfPutOptionsOverNoncontrollingInterests" scale="3" sign="-" unitRef="usd">438</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Non-controlling interests arising from initially consolidated companies</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-56">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-57">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-58">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-59">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left; padding-bottom: 1.5pt">Deconsolidation of a Matrix IT&#8217;s subsidiary</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-60">-</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-62">-</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c13" decimals="-3" format="ixt:num-dot-decimal" name="forty:DeconsolidationOfAMatrixITsSubsidiary" scale="3" sign="-" unitRef="usd">811</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">The accompanying notes are an integral part of the consolidated financial
statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 202; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->11<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands (except share and
per share data)</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left; padding-bottom: 1.5pt">Share of other comprehensive income (loss) of companies accounted for at equity</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left; padding-bottom: 1.5pt">Total other comprehensive income (loss)</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-84">-</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; font-weight: bold; text-align: left">Total comprehensive income (loss)</td><td style="font-weight: bold">&#160;</td>
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    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><div style="-sec-ix-hidden: hidden-fact-85">-</div></td><td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><div style="-sec-ix-hidden: hidden-fact-86">-</div></td><td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold">&#160;</td>
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    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><div style="-sec-ix-hidden: hidden-fact-87">-</div></td><td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><ix:nonFraction contextRef="c36" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ComprehensiveIncome" scale="3" unitRef="usd">88,752</ix:nonFraction></td><td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Cost of share-based payment (Note 18)</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-88">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-89">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-90">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-91">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c36" decimals="-3" format="ixt:num-dot-decimal" name="forty:CostOfSharebasedPayment" scale="3" unitRef="usd">7,405</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-92">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-93">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-94">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-95">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-96">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 203; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->12<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands (except share and
per share data)</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-148">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Dividend to Formula&#8217;s shareholders</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-150">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-151">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-152">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-153">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-154">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Dividend to non-controlling interests in subsidiaries</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-155">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-156">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-157">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-158">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-159">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Transactions with non-controlling interests due to holding changes, including exercise of
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-160">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-161">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-162">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-163">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Acquisition of non-controlling interests</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Dilution in Formula&#8217;s share in Sapiens due to issuance of Sapiens&#8217; ordinary shares</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">-</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c49" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IssueOfEquity" scale="3" unitRef="usd">74,275</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Settlement of put options over non-controlling interests</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The accompanying notes are an integral part of the consolidated financial
statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 204; Value: 6 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands (except share and
per share data)</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b>Accumulated other comprehensive income (loss):</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The accompanying notes are an integral part of the consolidated financial
statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 205; Value: 6 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><div><a id="fin_006"></a></div><p style="border-bottom: Black 1.5pt solid; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>CONSOLIDATED
STATEMENTS OF CASH FLOWS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: center">&#160;</td><td style="text-align: center">&#160;</td>
    <td colspan="10" style="border-bottom: Black 1.5pt solid; text-align: center"><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>Year
ended December 31</b>,</p></td><td style="text-align: center">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: center">&#160;</td><td style="text-align: center; font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: justify">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: justify">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: justify">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom">
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    <td colspan="2" style="text-align: right">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; width: 64%; text-align: left">Net income</td><td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForEquityInLossesGainsOfCompaniesAccountedForAtEquity" scale="3" unitRef="usd">1,808</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Depreciation and amortization</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Changes in value of debentures, net</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForIncreaseDecreaseInValueOfDebentures" scale="3" unitRef="usd">517</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Increase (decrease) in employee benefit liabilities</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdjustmentsForIncreaseDecreaseInEmployeeBenefitLiabilities" scale="3" sign="-" unitRef="usd">220</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Gain from disposition of a subsidiary of Matrix IT</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentForGainFromDispositionOfASubsidiaryOfMatrixIT" scale="3" sign="-" unitRef="usd">44,260</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-176">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-177">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Loss (gain) from sale of property, plants and equipment</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForGainLossFromSaleAndIncreaseInValueOfMarketableSecuritiesClassifiedAsTrading" scale="3" sign="-" unitRef="usd">37</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Loss from early termination of lease</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForLossFromEarlyTerminationOfLease" scale="3" unitRef="usd">80</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-178">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-179">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Stock-based compensation expenses</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdjustmentsForSharebasedPayments" scale="3" unitRef="usd">14,953</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Changes in value of short-term and long-term loans from banks and others and deposits, net</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForIncreaseDecreaseInValueOfShorttermAndLongTermLoansFromBanksAndOthersAndDepositsNet" scale="3" sign="-" unitRef="usd">4,688</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Changes in deferred taxes, net</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForChangesInDeferredTaxesNet" scale="3" sign="-" unitRef="usd">18,142</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForChangesInDeferredTaxesNet" scale="3" sign="-" unitRef="usd">6,348</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Cash paid in respect of acquisitions of activities</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForCashPaidInRespectOfAcquisitionsOfActivities" scale="3" sign="-" unitRef="usd">4,060</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForCashPaidInRespectOfAcquisitionsOfActivities" scale="3" sign="-" unitRef="usd">556</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-180">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentsForIncreaseDecreaseInLiabilityInRespectOfBusinessCombinations" scale="3" sign="-" unitRef="usd">643</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left">Impairment of right-of-use asset</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-183">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:AdjustmentForAmortizationOfPremiumAndAccruedInterestOnDebtInstrumentsAtFairValueThroughOtherCo" scale="3" sign="-" unitRef="usd">70</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.25in; text-align: left; padding-bottom: 1.5pt">Increase (decrease) in deferred revenues</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The accompanying notes are an integral part of the consolidated financial
statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 206; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->15<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b>&#160;</b></p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">CONSOLIDATED
STATEMENTS OF CASH FLOWS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in; padding-bottom: 1.5pt; text-align: center"><b>&#160;</b></td><td style="padding-bottom: 1.5pt; text-align: center"><b>&#160;</b></td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in"><span style="text-decoration:underline">Cash flows from investing activities:</span></td><td>&#160;</td>
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="padding-left: 0.125in; text-indent: -0.125in">&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Purchase of intangible assets</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Purchase of other investment</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:PurchaseOfOtherInvestment" scale="3" unitRef="usd">15,073</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:PurchaseOfOtherInvestment" scale="3" unitRef="usd">500</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-189">-</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Purchase of property and equipment</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PurchaseOfPropertyPlantAndEquipmentClassifiedAsInvestingActivities" scale="3" unitRef="usd">22,063</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PurchaseOfPropertyPlantAndEquipmentClassifiedAsInvestingActivities" scale="3" unitRef="usd">17,352</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PurchaseOfPropertyPlantAndEquipmentClassifiedAsInvestingActivities" scale="3" unitRef="usd">16,651</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Proceeds from maturity and sale net of investment in debt instruments at fair value through other comprehensive income or loss, net</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-190">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromSalesOfInvestmentsAccountedForUsingEquityMethod" scale="3" unitRef="usd">5,429</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Proceeds from sale of property and equipment</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromSalesOfPropertyPlantAndEquipmentClassifiedAsInvestingActivities" scale="3" unitRef="usd">633</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromSalesOfPropertyPlantAndEquipmentClassifiedAsInvestingActivities" scale="3" unitRef="usd">2,283</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromSalesOfPropertyPlantAndEquipmentClassifiedAsInvestingActivities" scale="3" unitRef="usd">693</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Receipt (grant) of short-term loans</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-191">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:ReceiptgrantOfShorttermLoans" scale="3" unitRef="usd">303</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:ReceiptgrantOfShorttermLoans" scale="3" sign="-" unitRef="usd">283</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Restricted deposit on account of acquisition</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-192">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-193">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:InvestmentInRestrictedDepositOnAccountOfFutureAcquisition" scale="3" sign="-" unitRef="usd">22,890</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Dividend from companies accounted for at equity</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsReceivedClassifiedAsInvestingActivities" scale="3" unitRef="usd">48</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsReceivedClassifiedAsInvestingActivities" scale="3" unitRef="usd">83</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsReceivedClassifiedAsInvestingActivities" scale="3" unitRef="usd">3,000</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Change in short-term and long-term deposits</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashFlowsFromUsedInDecreaseIncreaseInShorttermDepositsAndInvestments" scale="3" unitRef="usd">2,042</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashFlowsFromUsedInDecreaseIncreaseInShorttermDepositsAndInvestments" scale="3" unitRef="usd">4,641</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashFlowsFromUsedInDecreaseIncreaseInShorttermDepositsAndInvestments" scale="3" sign="-" unitRef="usd">22,822</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 1.5pt; padding-left: 0.125in; text-indent: -0.125in; text-align: left">Capitalization of software development and other costs</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:PaymentsForCapitalizationOfSoftwareDevelopmentAndOtherCosts" scale="3" unitRef="usd">14,110</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:PaymentsForCapitalizationOfSoftwareDevelopmentAndOtherCosts" scale="3" unitRef="usd">12,832</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:PaymentsForCapitalizationOfSoftwareDevelopmentAndOtherCosts" scale="3" unitRef="usd">9,305</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 1.5pt; padding-left: 0.125in; text-indent: -0.125in; text-align: left">Net cash used in investing activities</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashFlowsFromUsedInInvestingActivities" scale="3" sign="-" unitRef="usd">74,295</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashFlowsFromUsedInInvestingActivities" scale="3" sign="-" unitRef="usd">110,192</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashFlowsFromUsedInInvestingActivities" scale="3" sign="-" unitRef="usd">177,032</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left"><span style="text-decoration:underline">Cash flows from financing activities:</span></td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Exercise of employees&#8217; stock options in subsidiaries</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-194">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromExerciseOfOptions" scale="3" unitRef="usd">2,079</ix:nonFraction> </td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromExerciseOfOptions" scale="3" unitRef="usd">5,306</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Proceeds from issuance of ordinary shares in subsidiaries</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-195">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-196">-</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:IssuanceOfOrdinarySharesNet" scale="3" unitRef="usd">108,737</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Dividend paid to non-controlling interests</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsPaidToNoncontrollingInterestsClassifiedAsFinancingActivities" scale="3" unitRef="usd">96,530</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsPaidToNoncontrollingInterestsClassifiedAsFinancingActivities" scale="3" unitRef="usd">62,993</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsPaidToNoncontrollingInterestsClassifiedAsFinancingActivities" scale="3" unitRef="usd">40,519</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Dividend to Formula&#8217;s shareholders</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsPaidToEquityHoldersOfParentClassifiedAsFinancingActivities" scale="3" unitRef="usd">21,778</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsPaidToEquityHoldersOfParentClassifiedAsFinancingActivities" scale="3" unitRef="usd">22,081</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendsPaidToEquityHoldersOfParentClassifiedAsFinancingActivities" scale="3" unitRef="usd">14,939</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Short-term bank credit, net</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:ShorttermBankCreditNet" scale="3" unitRef="usd">7,315</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:ShorttermBankCreditNet" scale="3" sign="-" unitRef="usd">36,261</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:ShorttermBankCreditNet" scale="3" unitRef="usd">29,630</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Repayment of long-term loans from banks and others</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 207; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->16<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b>&#160;</b></p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">CONSOLIDATED
STATEMENTS OF CASH FLOWS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The accompanying notes are an integral part of the consolidated financial
statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase"><span style="font-weight: normal">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 208; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->17<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">CONSOLIDATED
STATEMENTS OF CASH FLOWS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>U.S. dollars in thousands</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The accompanying notes are an integral part of the consolidated financial
statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase"></p><div>

</div><!-- Field: Page; Sequence: 209; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->18<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase">&#160;</p><div>



</div><div><a id="fin_007"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="font-size: 1pt; border-top: Black 1.5pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase">NOTE
1:-	 GENERAL</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_2" id="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">a.</td><td style="text-align: justify">General:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_3" id="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_2"><p style="margin: 0pt 0 0pt 0.25in; font: 10pt Times New Roman, Times, Serif; text-align: justify">Formula Systems (1985)
Ltd. (&#8220;Formula&#8221; or the &#8220;Company&#8221;) was incorporated in Israel and began its business operations in 1985. Since
1991, Formula&#8217;s ordinary shares, par value NIS <ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ParValuePerShare" scale="0" unitRef="ilsPershares">1</ix:nonFraction> per share, have been traded on the Tel-Aviv Stock Exchange (&#8220;TASE&#8221;),
and, in 1997, began trading through American Depositary Shares (&#8220;ADSs&#8221;) under the symbol &#8220;FORTY&#8221; on the Nasdaq
Global Market in the United States until January 3, 2011, at which date the listing of Formula&#8217;s ADSs was transferred to the Nasdaq
Global Select Market (&#8220;Nasdaq&#8221;). Each ADS represents one ordinary share of Formula. The Company is considered an Israeli resident.
The controlling shareholder of the Company is Asseco Poland S.A. (&#8220;Asseco&#8221;), a Polish public company, whose shares are traded
on the Warsaw Stock Exchange, that offers comprehensive, proprietary IT solutions for all sectors of the economy.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_4" id="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">b.</td><td style="text-align: justify">Formula is a global information technology group providing software services, proprietary and non-proprietary
software solutions, software product marketing and support, computer infrastructure and integration solutions and training, integration
and digital advertising solutions (the &#8220;Group&#8221;). The Group manages and operates its businesses through eight directly held
subsidiaries; Matrix IT Ltd. (&#8220;Matrix&#8221;), Sapiens International Corporation N.V (&#8220;Sapiens&#8221;), Magic Software Enterprises
Ltd. (&#8220;Magic Software&#8221;), Zap Group Ltd. (&#8220;ZAP Group&#8221;), Insync Staffing Solutions, Inc. (&#8220;Insync&#8221;),
Michpal Micro Computers (1983) Ltd. (&#8220;Michpal&#8221;), Ofek Aerial Photography Ltd. (&#8220;Ofek&#8221;) and Shamrad Electronic
(1997) Ltd (&#8220;Shamrad&#8221;) and one jointly controlled entity: TSG IT Advanced Systems Ltd. (&#8220;TSG&#8221;).</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_5" id="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">c.</td><td style="text-align: justify">The following table presents the ownership of the Company&#8217;s eight directly held subsidiaries and
one jointly controlled entity directly held as of the dates indicated (the list consists only of active companies):</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 25%"><div style="font-size: 1pt; border-top: Black 1.5pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><ix:continuation continuedAt="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_7" id="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_6"><ix:continuation id="forty_DisclosureOfDetailedInformationAboutInvesteesTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(1)</td><td style="text-align: justify"><ix:footnote id="ix_0_footnote" xml:lang="en-US">TSG&#8217;s results of operations are reflected in the Company&#8217;s
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</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 210; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->19<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"></p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase">NOTE
1:-	general (C<span style="text-transform: none">ont</span>.)</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase">&#160;</p><div>

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<td style="width: 0"></td><td style="width: 0.25in">d.</td><td style="text-align: justify">Definitions:	</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_9" id="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_8"><p style="margin: 0pt 0 0pt 0.25in; font: 10pt Times New Roman, Times, Serif; text-align: justify">In these financial
statements:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory-c0_cont_9"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
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    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
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    <td>&#160;</td>
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    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
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    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
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    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">&#160;</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
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    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">&#160;</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
    <td style="padding-right: 1.4pt; text-align: justify; text-indent: 0in">&#160;</td></tr>
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    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">Investees</td>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">&#160;</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
    <td style="padding-right: 1.4pt; text-align: justify; text-indent: 0in">&#160;</td></tr>
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  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">&#160;</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
    <td style="padding-right: 1.4pt; padding-left: 1.4pt; text-align: justify">&#160;</td></tr>
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    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">Related parties</td>
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  </table></ix:continuation><div>
</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase"><br/></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-transform: uppercase">NOTE
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_3" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_2"><ix:nonNumeric contextRef="c0" continuedAt="forty_DescriptionOfAccountingPolicyForBasisOfPresentationOfFinancialStatementsTextBlock-c0_cont_1" escape="true" name="forty:DescriptionOfAccountingPolicyForBasisOfPresentationOfFinancialStatementsTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">1)</td><td style="text-align: justify">Basis of presentation of the financial statements</td>
</tr></table></ix:nonNumeric></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_4" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_3"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForBasisOfPresentationOfFinancialStatementsTextBlock-c0_cont_2" id="forty_DescriptionOfAccountingPolicyForBasisOfPresentationOfFinancialStatementsTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><br/>
These financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_5" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_4"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForBasisOfPresentationOfFinancialStatementsTextBlock-c0_cont_3" id="forty_DescriptionOfAccountingPolicyForBasisOfPresentationOfFinancialStatementsTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The Company&#8217;s
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at fair value through other comprehensive income; liabilities with respect to business combination; and other financial assets and liabilities
(including derivatives) which are presented at fair value through profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 211; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->20<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_6" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_5"><ix:continuation id="forty_DescriptionOfAccountingPolicyForBasisOfPresentationOfFinancialStatementsTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The Company has elected
to present the profit or loss items using the function of expense method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_7" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_6"><ix:nonNumeric contextRef="c0" continuedAt="forty_UseOfEstimatesAndJudgmentsPolicyTextBlock-c0_cont_1" escape="true" name="forty:UseOfEstimatesAndJudgmentsPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">2)</td><td style="text-align: justify">Use of estimates, judgments and assumptions:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_8" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_7"><ix:continuation id="forty_UseOfEstimatesAndJudgmentsPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The preparation of
the consolidated financial statements requires management to make estimates, judgments, and assumptions, that have an effect on the application
of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses in the financial statements. Such
judgments, estimates and assumptions are related, but not limited to, effective control, liabilities with respect to business combination,
goodwill and identifiable intangible assets and their subsequent impairment analysis, determination of fair value of put options of non-controlling
interests, legal contingencies, research and development capitalization, classification of leases, income tax uncertainties, deferred
taxes, share-based compensation, as well as the determination of revenue recognition from contracts accounted for based on the estimate
of percentage of completion. The Company&#8217;s management believes that the estimates, judgments, and assumptions used, are reasonable
based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Changes
in accounting estimates are reported in the period of the change in estimate.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_9" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_8"><ix:nonNumeric contextRef="c0" continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_1" escape="true" name="forty:DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">3)</td><td style="text-align: justify">Consolidated financial statements:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_10" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_9"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_2" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The consolidated financial
statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when
the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to unilaterally
affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has
control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_11" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_10"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_3" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The financial statements
of the Company and of the investees, after being adjusted to comply with IFRS, are prepared for the same reporting period and using consistent
accounting treatment of similar transactions and economic activities. Any discrepancies in the applied accounting policies are eliminated
by making appropriate adjustments. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions
are eliminated in full in the consolidated financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_12" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_11"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_4" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><b><span style="text-decoration:underline">Effective control:</span></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_13" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_12"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_5" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">In a situation where
the Company holds less than a majority of voting power in a given entity, but that power is sufficient to enable the Company to unilaterally
direct the relevant activities of such entity, then control is exercised. When assessing whether voting rights held by the Company are
sufficient to give it power, the Company considers all facts and circumstances, including: the amount of those voting rights relative
to the amount and dispersion of other vote holders; potential voting rights held by the Company and other shareholders or parties; rights
arising from other contractual arrangements; significant personal ties; and any additional facts and circumstances that may indicate that
the Company has, or does not have, the ability to direct the relevant activities when decisions need to be made, inclusive of voting patterns
observed at previous meetings of shareholders.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 212; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->21<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_14" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_13"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_6" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The Company&#8217;s
management has concluded that despite the lack of absolute majority of voting power at the general meetings of shareholders of Matrix
IT, Sapiens and Magic Software, in accordance with IFRS 10, these investees are controlled by the Company. The conclusion regarding the
existence of control during the years ended December 31, 2022, 2021 and 2020 with respect to Matrix, Sapiens and Magic Software, in accordance
with IFRS 10, was made in accordance with the following factors:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_15" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_14"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_7" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Matrix IT</span>:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_16" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_15"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_8" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">As of December 31,
2022, the Company held <ix:nonFraction contextRef="c68" decimals="4" format="ixt:num-dot-decimal" name="ifrs-full:ExpectedDividendAsPercentageShareOptionsGranted" scale="-2" unitRef="pure">48.69</ix:nonFraction>% of the outstanding ordinary shares of Matrix. The conclusion regarding the existence of control in Matrix,
in line with IFRS 10, was made considering the following additional factors:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_17" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_16"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_9" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_8"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">i)</td><td style="text-align: justify">Governing bodies of Matrix:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_18" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_17"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_10" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Decisions of Matrix&#8217;s shareholders
general meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general meeting adopts
resolutions to elect individual directors, appoint Matrix&#8217;s independent auditors for the next year, as well as approve Matrix&#8217;s
financial statements and management&#8217;s report on operations; in accordance with Matrix&#8217;s articles of association, the board
of directors of Matrix is responsible for managing its current business operations and is authorized to take substantially all decisions
which are not specifically reserved to Matrix&#8217;s shareholders by its articles of association, including the decision to pay out dividends;
<ix:nonNumeric contextRef="c68" name="forty:DescriptionOfGoverningBodies">Matrix&#8217;s board of directors is composed of 5 members, 2 of whom are external directors as required by the Israeli Companies Law,
5759-1999, another one of whom is an independent director, while the remaining two directors are associated with Formula, including Formula&#8217;s
chief executive officer who serves as the chairman of Matrix&#8217;s board of directors.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_19" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_18"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_11" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_10"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">ii)</td><td style="text-align: justify">Shareholders structure of Matrix IT:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_20" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_19"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_12" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Matrix&#8217;s shareholders&#8217;
structure may be considered dispersed because, apart from <ix:nonNumeric contextRef="c68" name="ifrs-full:DescriptionOfNatureOfRelationshipWithSubsidiaryWhereParentHasDirectlyOrIndirectlyLessThanHalfOfVotingPower">the Company, only two shareholders (both Israeli institutional investors) held
more than 5% of Matrix&#8217;s voting power during the reporting period (one holding approximately 11% and the second one holding approximately
5%); there is no evidence that any of the shareholders has or had granted to any other shareholder a voting proxy at the general meeting;
over the last seven years (i.e., 2016-2022), Matrix&#8217;s general meetings were attended by shareholders representing between 76% and
82% of its voting power, including the Company&#8217;s voting power. Bearing in mind that the Company presently holds approximately 48.69%
of the total voting power, this means that the level of activity of Matrix&#8217;s other shareholders is relatively moderate or low. The
attendance by Matrix&#8217;s other shareholders would have to be higher than 97.38% in order to deprive the Company of an absolute majority
of votes at the general meeting. In accordance with voting patterns at Matrix&#8217;s shareholders&#8217; meetings in recent years, it
is the Company&#8217;s management&#8217;s belief that achieving such a high attendance seems unlikely.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 213; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->22<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_21" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_20"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_13" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Therefore, it is management&#8217;s
opinion that despite the lack of an absolute majority of shares held by it in Matrix, the Company is still able to influence the appointment
of directors at Matrix and therefore may affect Matrix&#8217;s direction of development as well as its current business operations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_22" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_21"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_14" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Sapiens</span>:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_23" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_22"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_15" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">As of December 31,
2022, the Company held <ix:nonFraction contextRef="c69" decimals="3" format="ixt:num-dot-decimal" name="ifrs-full:ExpectedDividendAsPercentageShareOptionsGranted" scale="-2" unitRef="pure">44.1</ix:nonFraction>% of the outstanding common shares of Sapiens. The conclusion regarding the existence of control in Sapiens,
in line with IFRS 10, was made considering the following factors:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_24" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_23"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_16" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_15"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i)</td><td style="text-align: justify">Governing bodies of Sapiens:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_25" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_24"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_17" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Decisions of Sapiens&#8217; shareholders
general meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general meeting adopts
resolutions to appoint individual directors, choose Sapiens&#8217; independent auditors for the next year, as well as approve the company&#8217;s
financial statements and management&#8217;s report on operations; in accordance with Sapiens&#8217; articles of association, the board
of directors of Sapiens is responsible for managing its current business operations and is authorized to take substantially all decisions
which are not specifically reserved to Sapiens&#8217; shareholders by its articles of association, including the decision to pay out dividends.
Sapiens&#8217; board of directors is composed of 6 members, 3 of whom are independent directors, and one being Formula&#8217;s chief executive
officer who serves as the chairman of Sapiens&#8217; board of directors.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_26" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_25"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_18" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_17"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in"><span style="font-size: 10pt">ii)</span></td><td style="text-align: justify">Shareholders structure of Sapiens:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_27" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_26"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_19" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Sapiens&#8217; shareholders structure
is dispersed because no other shareholder except for <ix:nonNumeric contextRef="c69" name="ifrs-full:DescriptionOfNatureOfRelationshipWithSubsidiaryWhereParentHasDirectlyOrIndirectlyLessThanHalfOfVotingPower">the Company&#8217;s controlling shareholder, held as of December 31, 2022 more than
5% of the voting rights at the general meeting (Harel Insurance Investments &amp; Financial Services Ltd., which increased its percentage
ownership of Sapiens&#8217; common shares from 5.4% to 5.6%, and from 5.6% to 5.7% during the years ended December 31, 2020 and 2021,
respectively, decreased its percentage interest to 4.6% over the course of 2022; and Phoenix Holdings Ltd. which increased its percentage
ownership of Sapiens&#8217; common shares from 5.1% to 5.7% from December 31, 2020 to December 31, 2021 decreased its percentage interest
to 4.3% over the course of 2022); there is no evidence that any shareholder has or had granted to any other shareholder a voting proxy
at the general meeting; and, over the last six years from 2017 to 2022, Sapiens&#8217; general meetings were attended by shareholders
representing in total between 70% and 82% of the total voting power, including the Company&#8217;s voting power. Bearing in mind that
the Company presently holds approximately 44.1% of total voting rights, this means that the level of activity of Sapiens&#8217; other
shareholders is relatively moderate or low. As of December 31, 2022, the attendance by shareholders would have to be higher than 88.2%
in order to deprive the Company of an absolute majority of votes at the general meeting.</ix:nonNumeric> In accordance with voting patterns at Sapiens&#8217;
shareholders&#8217; meetings in recent years, it is the Company&#8217;s management&#8217;s belief that achieving such a high attendance
seems unlikely.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 214; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->23<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_28" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_27"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_20" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Therefore it is management&#8217;s
opinion that despite the lack of an absolute majority of shares in Sapiens, the Company is still able to influence the appointment of
directors at Sapiens and therefore may affect Sapiens&#8217; directions of development as well as its current business operations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_29" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_28"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_21" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Magic Software</span>:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_30" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_29"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_22" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">As of December 31,
2022, the Company held <ix:nonFraction contextRef="c70" decimals="4" format="ixt:num-dot-decimal" name="ifrs-full:ExpectedDividendAsPercentageShareOptionsGranted" scale="-2" unitRef="pure">46.26</ix:nonFraction>% of the outstanding ordinary shares of Magic Software. The conclusion regarding the existence of control
in Magic Software, in line with IFRS 10, was made considering the following factors:</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_31" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_30"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_23" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_22"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">i)</td><td style="text-align: justify">Governing bodies of Magic Software:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_32" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_31"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_24" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Decisions of Magic Software&#8217;s
shareholders general meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general
meeting adopts resolutions to elect individual directors, appoint Magic Software&#8217;s independent auditors for the next year, as well
as to approve Magic Software&#8217;s financial statements and the management&#8217;s report on operations; in accordance with Magic Software&#8217;s
articles of association, the board of directors of Magic Software is responsible for managing Magic Software&#8217;s current business
operations and is authorized to take substantially all decisions which are not specifically reserved to Magic Software&#8217;s shareholders
by its articles of association, including the decision to pay out dividends; and, Magic Software&#8217;s board of directors is composed
of 5 members, 2 of whom are external directors as required by the Israeli Companies Law, 5759-1999, another one of whom is an independent
director and a fourth of whom is Formula&#8217;s chief executive officer, who also serves as Magic Software&#8217;s chief executive officer.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_33" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_32"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_25" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_24"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">ii)</td><td style="text-align: justify">Shareholders structure of Magic Software:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_34" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_33"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_26" id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Magic Software&#8217;s shareholders
structure is dispersed because, apart from <ix:nonNumeric contextRef="c70" name="ifrs-full:DescriptionOfNatureOfRelationshipWithSubsidiaryWhereParentHasDirectlyOrIndirectlyLessThanHalfOfVotingPower">the Company, as of December 31, 2022, there were just two shareholders (Israeli institutional
shareholders) holding more than 5% of Magic Software&#8217;s voting power (representing 9.4% and 10.1%, and 7.0% and 7.0%, of the votes
as of December 31, 2022 and March 31, 2023, respectively); there is no evidence that any of the shareholders have or had granted to any
other shareholder a voting proxy at the general meeting; and, over the last six years from 2017 to 2022, Magic Software&#8217;s general
meetings were attended by shareholders representing between 65%-87% of the total voting rights. Bearing in mind that the Company presently
holds approximately 46.26% of total voting right, this means that the level of activity of Magic Software&#8217;s other shareholders is
relatively moderate or low. As of December 31, 2022, the attendance by shareholders would have to be higher than 92.52% in order to deprive
the Company of an absolute majority of votes at the general meeting.</ix:nonNumeric> In accordance with voting patterns at Magic Software&#8217;s shareholders&#8217;
meetings in recent years, it is the Company&#8217;s management&#8217;s belief that achieving such a high attendance seems unlikely.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_35" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_34"><ix:continuation id="forty_DescriptionOfAccountingPolicyForConsolidatedFinancialStatementsPolicyTextBlock-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Therefore, it is management&#8217;s
opinion that despite the lack of an absolute majority of shares in Magic Software, the Company is still able to influence the appointment
of directors at Magic Software and therefore may affect Magic Software&#8217;s directions of development as well as its current business
operations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 215; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->24<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_36" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_35"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForTransactionsWithNoncontrollingInterestsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForTransactionsWithNoncontrollingInterestsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">4)</td><td style="text-align: justify">Non-controlling interests</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_37" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_36"><ix:continuation id="_DescriptionOfAccountingPolicyForTransactionsWithNoncontrollingInterestsExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Non-controlling interests
in subsidiaries, represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests
are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of
other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests
even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. A change in
the ownership interest 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 interests with a corresponding adjustment of the equity attributable to equity holders of the Company less / plus
the consideration paid or received.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_38" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_37"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">5)</td><td style="text-align: justify">Business combinations and goodwill:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_39" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_38"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Business combinations
are accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred
on the acquisition date with the addition of non-controlling interests in the acquiree. In each business combination, the Company determines
whether to measure the non-controlling interests in the acquiree based on their fair value on the acquisition date or at their proportionate
share in the fair value of the acquiree&#8217;s net identifiable assets.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_40" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_39"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Direct acquisition
costs are carried to the statement of profit or loss as incurred.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_41" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_40"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">In a business combination
achieved in stages, equity interests in the acquiree that had been held by the acquirer prior to obtaining control are measured at the
acquisition date fair value while recognizing a gain or loss resulting from the revaluation of the prior investment on the date of achieving
control.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_42" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_41"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Contingent consideration
is recognized at fair value on the acquisition date and classified as a financial asset or liability in accordance with IFRS 9, &#8220;Financial
Instruments&#8221;. Subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If the contingent
consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_43" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_42"><ix:continuation id="_DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Goodwill is initially
measured at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net
identifiable assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognizes the resulting gain
on the acquisition date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_44" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_43"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">6)</td><td style="text-align: justify">Investment in joint arrangements:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_45" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_44"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Joint arrangements
are arrangements in which the Company has joint control. Joint control is the contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 216; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->25<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_46" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_45"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Joint ventures:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 113.4pt; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_47" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_46"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">In joint ventures
the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted
for by using the equity method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_48" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_47"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">Joint operations:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 113.4pt; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_49" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_48"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">In joint operations
the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement.
The Company recognizes in relation to its interest its share of the assets, liabilities, revenues and expenses of the joint operation.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_50" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_49"><ix:continuation id="_DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The acquisition of interests in a
joint operation which represents a business, as defined in IFRS 3, is accounted for using the acquisition method, including the
measurement of the identifiable assets and liabilities at fair value, the recognition of deferred taxes arising from this
measurement, the accounting treatment of the related transaction costs and the recognition of goodwill or bargain purchase gains.
This applies to the acquisition of the initial interest and additional interests in a joint operation that represents a
business.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 113.4pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_51" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_50"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForInvestmentInAssociates-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForInvestmentInAssociates"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">7)</td><td style="text-align: justify">Investments in associates:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_52" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_51"><ix:continuation id="_DescriptionOfAccountingPolicyForInvestmentInAssociates-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Associates are companies
in which the Group has significant influence over the financial and operating policies without having control. The investment in an associate
is accounted for using the equity method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_53" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_52"><ix:nonNumeric contextRef="c0" continuedAt="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_1" escape="true" name="forty:DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">8)</td><td style="text-align: justify">Investments accounted for using the equity method:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_54" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_53"><ix:continuation continuedAt="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_2" id="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The Group&#8217;s
investments in associates and joint ventures are accounted for using the equity method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_55" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_54"><ix:continuation continuedAt="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_3" id="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Under the equity method,
the investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in the Group&#8217;s
share of net assets, including other comprehensive income of the associate or the joint venture. Gains and losses resulting from transactions
between the Group and the associate or the joint venture are eliminated to the extent of the interest in the associate or in the joint
venture.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_56" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_55"><ix:continuation continuedAt="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_4" id="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Goodwill relating
to the acquisition of an associate or a joint venture is presented as part of the investment in the associate or the joint venture, measured
at cost and not systematically amortized. Goodwill is evaluated for impairment as part of the investment in the associate or in the joint
venture as a whole.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_57" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_56"><ix:continuation continuedAt="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_5" id="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The financial statements
of the Company and of the associate or joint venture are prepared as of the same dates and periods. The accounting policies applied in
the financial statements of the associate or the joint venture are uniform and consistent with the policies applied in the financial statements
of the Group.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 217; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->26<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_58" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_57"><ix:continuation continuedAt="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_6" id="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">Upon the acquisition
of an associate or a joint venture achieved in stages when the former investment in the acquiree was accounted for pursuant to the provisions
of IFRS 9, the Group adopts the principles of IFRS 3 regarding business combinations achieved in stages. Consequently, equity interests
in the acquiree that had been held by the Group prior to achieving significant influence or joint control are measured at fair value on
the acquisition date and are included in the acquisition consideration while recognizing a gain or loss resulting from the fair value
measurement.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_59" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_58"><ix:continuation continuedAt="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_7" id="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">The equity method
is applied until the loss of significant influence in the associate or loss of joint control in the joint venture or classification as
investment held for sale.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_60" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_59"><ix:continuation id="forty_DescriptionOfInvestmentsAccountedForUsingEquityMethodPolicyTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">On the date of loss
of significant influence or joint control, the Group measures any remaining investment in the associate or the joint venture at fair value
and recognizes in profit or loss the difference between the fair value of any remaining investment plus any proceeds from the sale of
the investment in the associate or the joint venture and the carrying amount of the investment on that date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_61" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_60"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">9)</td><td style="text-align: justify">Functional currency, presentation currency and foreign currency:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_62" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_61"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Functional currency and presentation currency:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_63" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_62"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The presentation currency of these
consolidated financial statements of the Group is the U.S. dollar (the &#8220;dollar&#8221;), since the Company believes that financial
statements in U.S. dollars provide more relevant information to its investors and users of the financial statements. The functional currency
applied by Formula, on a stand-alone basis. Since January 1, 2019 is the NIS. The functional currencies applied by Formula&#8217;s subsidiaries
and associates are the currencies of the primary economic environment in which each one of them operates.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_64" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_63"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Assets, including fair value adjustments
upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each reporting date.
Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences are recognized
in other comprehensive income (loss).</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_65" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_64"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Intragroup loans for which settlement
is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in the foreign operation
and, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded in other comprehensive income (loss).</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_66" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_65"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Upon the full or partial disposal of
a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which
had been recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is
reattributed to non-controlling interests.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 218; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->27<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_67" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_66"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">Transactions, assets and liabilities in foreign currency:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_68" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_67"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Transactions denominated in foreign
currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary
assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at the exchange
rate at that date. Exchange rate differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign
currency and measured at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities
denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing
at the date when the fair value was determined.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_69" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_68"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_8"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">iii.</td><td style="text-align: justify">Index-linked monetary items:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_70" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_69"><ix:continuation id="_DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Monetary assets and liabilities linked
to the changes in the Israeli Consumer Price Index (&#8220;Israeli CPI&#8221;) are adjusted at the relevant index at the end of each reporting
period according to the terms of their agreement.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_71" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_70"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForRestrictedCashAndCashEquivalentsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForRestrictedCashAndCashEquivalentsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">10)</td><td style="text-align: justify">Cash and cash equivalents:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_72" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_71"><ix:continuation id="_DescriptionOfAccountingPolicyForRestrictedCashAndCashEquivalentsExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Cash equivalents are
considered highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less
from the date of investment or with a maturity of more than three months, but which are redeemable on demand without penalty and which
form part of the Group&#8217;s cash management. Cash and cash equivalents include amounts held primarily in New-Israeli Shekel, dollars,
Euro, Indian Rupee, British Pound and Japanese Yen.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_73" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_72"><ix:nonNumeric contextRef="c0" continuedAt="forty_DescriptionOfAccountingPolicyForShortTermAndRestrictedDepositsPolicyTextBlock-c0_cont_1" escape="true" name="forty:DescriptionOfAccountingPolicyForShortTermAndRestrictedDepositsPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">11)</td><td style="text-align: justify">Short-term deposits and restricted deposits:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_74" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_73"><ix:continuation id="forty_DescriptionOfAccountingPolicyForShortTermAndRestrictedDepositsPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Short-term deposits
are deposits with an original maturity of more than three months from the date of investment and which do not meet the definition of cash
equivalents. The deposits are presented according to their terms of deposit. Restricted deposits include deposits used to secure certain
subsidiaries&#8217; ongoing projects, as well as security deposits with respect to leases, and are classified under other short-term and
long-term receivables.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_75" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_74"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForMeasuringInventories-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForMeasuringInventories"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">12)</td><td style="text-align: justify">Inventories:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_76" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_75"><ix:continuation id="_DescriptionOfAccountingPolicyForMeasuringInventories-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Inventories are measured
at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the
inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business
less estimated costs of completion and estimated costs necessary to make the sale. Inventories are mainly comprised of purchased merchandise
and products which consist of educational software kits, computers, peripheral equipment and spare parts. Cost is determined on the &#8220;first
in &#8211; first out&#8221; basis. The Group periodically evaluates the condition and aging of its inventories and makes provisions for
slow-moving inventories accordingly. No such impairments have been recognized in any period presented.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 219; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->28<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_77" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_76"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForRecognitionOfRevenue"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">13)</td><td style="text-align: justify">Revenue recognition:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_78" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_77"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_2" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Revenue from contracts
with customers is recognized when the control over the goods or services is transferred to the customer. The transaction price is the
amount of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third
parties (such as taxes).</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_79" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_78"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_3" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">In determining the
amount of revenue from contracts with customers, the Group evaluates whether it is a principal or an agent in the arrangement. The Group
is a principal when the Group controls the promised goods or services before transferring them to the customer. In these circumstances,
the Group recognizes revenue for the gross amount of the consideration. When the Group is an agent, it recognizes revenue for the net
amount of the consideration, after deducting the amount due to the principal.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_80" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_79"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_4" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Sale of software
licensing, maintenance services and post implementation consulting services</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_81" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_80"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_5" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">A software licensing
transaction that does not require significant implementation services is considered a distinct performance obligation, as the customer
can benefit solely from the software on its own or together with other readily available resources.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_82" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_81"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_6" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The Group recognizes
revenue from software licensing transactions at a point in time when the Group provides the customer a right to use the Group&#8217;s
intellectual property as it exists at the point in time at which the license is granted to the customer. The Group recognizes revenue
from software licensing transactions over time when the Group provides the customer a right to access the Group&#8217;s intellectual property
throughout the license term.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_83" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_82"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_7" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The Group may generate
revenue from sale of software licensing which includes significant implementation and customization services. In such contracts the Group
is normally committed to provide the customer with a functional IT system and the customer can only benefit from such functional system,
being the final product that would normally be comprised of proprietary licenses and significant related services. Revenues from these
contracts are based on either fixed price or time and material.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_84" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_83"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_8" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Software licensing
transactions which involve significant implementation, customization, or integration of the Group&#8217;s software license to customer-specific
requirements, are considered as one performance obligation satisfied over-time. The underlying deliverable is owned and controlled by
the customer and does not create an asset with an alternative use to the Group. In addition, the Group has an enforceable right to payment
for performance completed throughout the duration of the contract.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_85" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_84"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_9" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Accordingly, the Group
recognizes revenue from such contracts over time, using the percentage of completion accounting method. The Group recognizes revenue and
gross profit as the work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract.
Provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined, in the
amount of the estimated loss for the entire contract.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 220; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->29<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 2.05pt; margin-bottom: 0pt; text-align: justify"><b>NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_86" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_85"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_10" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">When post implementation
and consulting services do not involve significant customization, the Group accounts for such services as performance obligations satisfied
over time and revenues are recognized as the services are provided.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_87" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_86"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_11" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Revenue from maintenance
is recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Group&#8217;s
performance. When payments from customers are made before or after the service is performed, the Group recognizes the resulting contract
asset or liability.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_88" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_87"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_12" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Sale of hardware
and infrastructure</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_89" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_88"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_13" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Revenue from the sale
of hardware and infrastructure is recognized in profit or loss at the point in time when the control of the goods is transferred to the
customer, generally upon delivery of the goods to the customer.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_90" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_89"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_14" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Sale of training
and implementation services</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_91" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_90"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_15" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Revenues from training
and implementation services are recognized when the service is provided. Revenue from training services in respect of public courses whose
operating range is up to 3 months is recognized at the end of the course period. Revenues from training services in respect of long-term
courses will be recognized over the term of the course. Revenues from implementation projects ordered by organizations is recognized according
to actual inputs (actually worked hours).</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_92" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_91"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_16" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Revenue of contracts
according to actual inputs</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_93" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_92"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_17" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Revenue from framework
agreements for the performance of work according to actual inputs is recognized according to the hours invested.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_94" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_93"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_18" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Revenue of fixed
price contracts</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_95" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_94"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_19" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Revenue from fixed
price contracts is recognized according to the completion rate method when all the following conditions are met: the revenue is known
or can be estimated reliably, the collection of income is expected, the costs involved in performing the work are known or can be estimated,
there is no material uncertainty about the Group&#8217;s ability to complete the work, and the customer and the completion rate can be
reliably estimated.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_96" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_95"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_20" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The Group applies
a cost-based input method for measuring the progress of performance obligations that are satisfied over time. In applying this cost-based
input method, the Group estimates the costs to complete contract performance in order to determine the amount of the revenue to be recognized.
These estimated costs include the direct costs and the indirect costs that are directly attributable to a contract based on a reasonable
allocation method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-right: 0; margin-bottom: 0pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_97" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_96"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_21" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">In certain circumstances,
the Group is unable to measure the outcome of a contract, but the Group expects to recover the costs incurred in fulfilling the contract
as of the reporting date. In such circumstances, the Group recognizes revenue to the extent of 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 from a contract, the loss is recognized
in full regardless of the percentage of completion.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 221; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->30<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="font-size: 1pt; border-top: Black 1.5pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_98" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_97"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_22" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">When appropriate,
the Group also applies a practical expedient permitted under IFRS 15 whereby if the Group has a right to consideration from a customer
in an amount that corresponds directly with the value to the customer of the Group&#8217;s performance completed to date (for example,
a service contract in which an entity bills a fixed amount for each hour of service provided), the Group may recognize revenue in the
amount it is entitled to invoice. Deferred revenues, which represent a contract liability, include unearned amounts received under maintenance
and support (mainly) and amounts received from customers for which revenues have not yet been recognized.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_99" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_98"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_23" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Allocating the
transaction price</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_100" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_99"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_24" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">For contracts that
consist of more than one performance obligation, at contract inception the Group allocates the contract transaction price to each performance
obligation identified in the contract on a relative stand-alone selling price basis. The stand-alone selling price is the price at which
the Group would sell the promised goods or services separately to a customer. The Group determines the stand-alone selling price for the
purposes of allocating the transaction price to each performance obligation by considering several external and internal factors including,
but not limited to, transactions where the specific performance obligation is sold separately, historical actual pricing practices and
geographies in which the Group offers its products and services. If a specific performance obligation, such as the software license, is
sold 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
that 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),
the Group applies the residual approach whereby all other performance obligations within a contract are first allocated a portion of the
transaction price based upon their respective stand-alone selling prices, with any residual amount of transaction price allocated to the
remaining specific performance obligation.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_101" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_100"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_25" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Variable consideration</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_102" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_101"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_26" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group determines
the transaction price separately for each contract with a customer. When exercising this judgment, the Group evaluates the effect of each
variable amount in the contract, taking into consideration discounts, penalties, variations, claims, and non-cash consideration. In determining
the effect of the variable consideration, the Group normally uses the &#8220;most likely amount&#8221; method described in the Standard.
Pursuant to this method, the amount of the consideration is determined as the single most likely amount in the range of possible consideration
amounts in the contract. According to the Standard, variable consideration is included in the transaction price only to the extent that
it is highly probable that a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated with
the variable consideration is subsequently resolved.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_103" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_102"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_27" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Costs of obtaining
a contract</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_104" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_103"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_28" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In order to obtain
certain contracts with customers, the Group incurs incremental costs in obtaining the contract (such as sales commissions which are contingent
on making binding sales). Costs incurred in obtaining the contract with the customer which would not have been incurred if the contract
had not been obtained and which the Group expects to recover are recognized as an asset and amortized on a systematic basis that is consistent
with the provision of the services under the specific contract.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt"></p><div>

</div><!-- Field: Page; Sequence: 222; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->31<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_105" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_104"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_29" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">An impairment loss
in respect of capitalized costs of obtaining a contract is recognized in profit or loss when the carrying amount of the asset exceeds
the remaining amount of consideration that the Group expects to receive for the goods or services to which the asset relates, less the
costs that relate directly to providing those goods or services and that have not been recognized as expenses.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_106" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_105"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_30" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_29"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group has elected
to apply the practical expedient allowed by IFRS 15 according to which incremental costs of obtaining a contract are recognized as an
expense when incurred if the amortization period of the asset is one year or less.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_107" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_106"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_31" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_30"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">A significant benefit
of financing</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_108" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_107"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_32" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_31"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In certain contracts,
the Group provides the customer with financing for a period exceeding one year. In such circumstances, the Group recognizes revenue based
on the amount that reflects the price that would have been paid by the customer in cash on the date of receipt of the goods or services,
and the balance is recognized in finance income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_109" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_108"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_33" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">When long-term advances
are received for services which the Group is to provide in the future, the Group accrues interest on the advances and recognizes finance
expense over the expected period of the contract, provided that the contract contains a significant financing component. As the advances
are recognized in revenue, the Group also recognizes the accrued interest as part of revenue from services.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.25in 0pt 0; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_110" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_109"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_34" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_33"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group has elected
to apply the practical expedient allowed by IFRS 15 according to which the Group does not separate the financing component in transactions
for which the period of financing is one year or less and recognizes revenue in the amount of the consideration stated in the contract
even if the customer pays for the goods or services before or subsequent to their receipt.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_111" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_110"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_35" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_34"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Revenues that include
warranty services</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_112" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_111"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_36" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_35"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In certain cases,
the Group also provides a warranty for goods and services sold (i.e., extended warranties when the Group contractually undertakes to repair
any errors in the delivered software within a strictly specified time limit and/or when the scope of which is broader than just an assurance
to the customer that the product/service complies with agreed-upon specifications). The Group has ascertained that such warranties granted
by the Group meet the definition of service. The conclusion regarding the extended nature of a warranty is made whenever the Group contractually
undertakes to repair any errors in the delivered software within a strictly specified time limit and/or when such warranty is more extensive
than the minimum required by law. Under IFRS 15, the fact of granting an extended warranty indicates that the Group provides an additional
service. As such, the Group recognizes an extended warranty as a separate performance obligation and allocates a portion of the transaction
price to such service. In all cases where an extended warranty is accompanied by a maintenance service, which is even a broader category
than the extended warranty itself, revenues are recognized over time because the customer consumes the benefits of such service as it
is performed by the provider. If this is the case, the Group continues to allocate a portion of the transaction price to such maintenance
service. Likewise, in cases where a warranty service is provided after the project completion and is not accompanied by any maintenance
service, then a portion of the transaction price and analogically recognition of a portion of contract revenues will have to be deferred
until the warranty service is actually fulfilled.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 223; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->32<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_113" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_112"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_37" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_36"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Disaggregation
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_114" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_113"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_38" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_37"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Service revenue includes
contracts primarily for the provision of supplies and services other than design, development, customization, implementation, software
maintenance and support and software updates associated with delivery of products or proprietary software. It may be a stand-alone service
contract or a service performance obligation which is distinct from a contract or performance obligation for design, development, customization,
support and upgrade or delivery of product. The Group&#8217;s service contracts include contracts in which the customer simultaneously
receives and consumes the benefits provided as the performance obligations are satisfied. The Group&#8217;s service contracts primarily
include operation-type contracts, outsourcing, consulting, remote development services, digital advertising management, training and similar
activities.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_115" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_114"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_39" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_38"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Revenue by products
and services was as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_116" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_115"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfProductsAndServicesExplanatory"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_40" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_39"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Services</span></td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td>&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_117" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_116"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_41" id="_DescriptionOfAccountingPolicyForRecognitionOfRevenue-c0_cont_40"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Revenue by timing
of revenue recognition was as follows:</p></ix:continuation></ix:continuation><div>

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    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:TotalRevenueOfProductsandServices" scale="3" unitRef="usd">1,933,918</ix:nonFraction></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_119" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_118"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForGovernmentGrants-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForGovernmentGrants"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">14)</td><td style="text-align: justify">Government grants:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_120" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_119"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForGovernmentGrants-c0_cont_2" id="_DescriptionOfAccountingPolicyForGovernmentGrants-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Government grants
are recognized when there is reasonable assurance that the grants will be received, and the Group will comply with the attached conditions.
Government grants received from the Office of the Israel Innovation Authority (&#8220;IIA&#8221;), are recognized upon receipt as a liability
if future economic benefits are expected from the research project that will result in royalty-bearing sales.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_121" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_120"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForGovernmentGrants-c0_cont_3" id="_DescriptionOfAccountingPolicyForGovernmentGrants-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">A liability for the
loan is first measured at fair value using a discount rate that reflects a market participant rate of interest. The difference between
the amount of the grant received and the fair value of the liability is accounted for as a government grant and recognized as a reduction
of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest
method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected from the research activity,
the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation
is treated as a contingent liability in accordance with IAS 37.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 224; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->33<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_122" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_121"><ix:continuation id="_DescriptionOfAccountingPolicyForGovernmentGrants-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">At each reporting
date, the Group evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid
(since the Group will not be required to pay royalties) based on the best estimate of future sales and using the original effective interest
method, and if so, the appropriate amount of the liability is derecognized against a corresponding reduction in research and development
expenses. Amounts paid as royalties are recognized as settlement of the liability.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_123" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_122"><ix:nonNumeric contextRef="c0" continuedAt="forty_DescriptionOfAccountingPolicyForDebenturesPolicyTextBlock-c0_cont_1" escape="true" name="forty:DescriptionOfAccountingPolicyForDebenturesPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">15)</td><td style="text-align: justify">Debentures:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_124" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_123"><ix:continuation id="forty_DescriptionOfAccountingPolicyForDebenturesPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group accounts
for outstanding principal amount of debentures as a long-term liability, in accordance with IFRS 9, with current maturities classified
as a short-term liability. The Group identifies and separates equity components contained in convertible debentures by first determining
the liability component, in accordance with IAS 32, based on the fair value of an equivalent non-convertible liability. The conversion
component valued is being determined to be the residual amount. Debt issuance costs are capitalized and reported as deferred financing
costs, which are amortized over the life of the debentures using the effective interest rate method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_125" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_124"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">16)</td><td style="text-align: justify">Income tax:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_126" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_125"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Current or deferred
taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income
or equity.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_127" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_126"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">Current taxes:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_128" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_127"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The current tax
liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as
adjustments required in connection with the tax liability in respect of previous years.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_129" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_128"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">Deferred taxes:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 49.95pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_130" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_129"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Deferred taxes
are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed
for tax purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability
is settled, based on tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are
reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Deductible
carryforward losses and temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting
date and a respective deferred tax asset is recognized to the extent that their utilization is probable.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 49.95pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_131" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_130"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Taxes that would
apply in the event of the disposal of investments in investees have not been considered in computing deferred taxes, as long as the disposal
of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution
of earnings by investees as dividends have not been considered in computing deferred taxes, since the distribution of dividends does not
involve an additional tax liability or since it is the Group&#8217;s policy not to initiate distribution of dividends from a subsidiary
that would trigger an additional tax liability.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 46.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 46.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 225; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->34<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 46.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 46.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 46.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_132" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_131"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Taxes on income that
relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted for pursuant to IAS 12.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 46.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_133" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_132"><ix:continuation id="_DescriptionOfAccountingPolicyForTaxesOtherThanIncomeTaxExplanatory-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Deferred taxes are
offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate
to the same taxpayer and the same taxation authority.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 46.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_134" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_133"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForLeasesExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">17)</td><td style="text-align: justify">Leases:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_135" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_134"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group accounts
for 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
for consideration.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_136" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_135"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i)</td><td style="text-align: justify"><span style="text-decoration:underline">The Group as lessee</span>:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_137" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_136"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">For leases in which
the Group is the lessee, the Group recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding
leases whose term is up to twelve months and leases for which the underlying asset is of low value. For these excluded leases, the Group
has elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring
the lease liability, the Group has elected to apply the practical expedient in the Standard and does not separate the lease components
from the non-lease components (such as management and maintenance services, etc.) included in a single contract.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 49.65pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_138" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_137"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Leases which entitle
employees to a company car as part of their employment terms are accounted for as employee benefits in accordance with the provisions
of IAS 19 and not as subleases.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_139" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_138"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">On the commencement
date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be
readily determined, or otherwise using the Group&#8217;s incremental borrowing rate. After the commencement date, the Group measures the
lease liability using the effective interest rate method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_140" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_139"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">On the commencement
date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the
commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the
shorter of its useful life and the lease term.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 30pt; text-align: justify; text-indent: 42pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_141" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_140"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Following are the
amortization periods of the right-of-use assets by class of underlying asset:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_142" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_141"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfQuantitativeInformationAboutRightofuseAssetsExplanatory"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_8"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">Years</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">Mainly</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 76%; text-align: left; text-indent: -7.1pt; padding-left: 7.15pt">Land and Buildings</td><td style="width: 1%">&#160;</td>
    <td style="width: 11%; text-align: center; padding-left: 2.8pt"><ix:nonNumeric contextRef="c71" format="ixt-sec:duryear" name="ifrs-full:UsefulLifeMeasuredAsPeriodOfTimePropertyPlantAndEquipment">2</ix:nonNumeric>-<ix:nonNumeric contextRef="c72" format="ixt-sec:duryear" name="ifrs-full:UsefulLifeMeasuredAsPeriodOfTimePropertyPlantAndEquipment">23</ix:nonNumeric></td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: center">&#160;</td><td style="width: 9%; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt-sec:duryear" name="ifrs-full:UsefulLifeMeasuredAsPeriodOfTimePropertyPlantAndEquipment">3</ix:nonNumeric></td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -7.1pt; padding-left: 7.15pt">Motor vehicles</td><td>&#160;</td>
    <td style="text-align: center; padding-left: 2.8pt"><ix:nonNumeric contextRef="c71" format="ixt-sec:duryear" name="forty:UsefulLifeofTheAssetsAtAnnualRatesMotorVehicles">2</ix:nonNumeric>-<ix:nonNumeric contextRef="c72" format="ixt-sec:duryear" name="forty:UsefulLifeofTheAssetsAtAnnualRatesMotorVehicles">3</ix:nonNumeric></td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center"><ix:nonNumeric contextRef="c0" format="ixt-sec:duryear" name="forty:UsefulLifeofTheAssetsAtAnnualRatesMotorVehicles">3</ix:nonNumeric></td><td style="text-align: left">&#160;</td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_143" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_142"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_10" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Group tests
for impairment of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.35pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.35pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 226; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->35<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.35pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.35pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.35pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_144" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_143"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_11" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_10"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">ii)</td><td style="text-align: justify"><span style="text-decoration:underline">Variable lease payments that depend on an index:</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 35.45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_145" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_144"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_12" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">On the commencement
date, the Group uses the index rate prevailing on the commencement date to calculate the future lease payments.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_146" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_145"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_13" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">For leases in which
the Group is the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a
change in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the right-of-use
asset, only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease
payments takes effect).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_147" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_146"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_14" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_13"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">iii)</td><td style="text-align: justify"><span style="text-decoration:underline">Variable lease payments</span>:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_148" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_147"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_15" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Variable lease payments
that do not depend on an index or interest rate but are based on performance or usage are recognized as an expense as incurred when the
Group is the lessee.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_149" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_148"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_16" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_15"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">iv)</td><td style="text-align: justify"><span style="text-decoration:underline">Lease extension and termination options</span>:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_150" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_149"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_17" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">A non-cancelable lease
term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be
exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be
exercised.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 135.75pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_151" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_150"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_18" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">In the event of any
change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Group
remeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations.
The total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions
are recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_152" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_151"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_19" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_18"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">v)</td><td style="text-align: justify">Lease modifications:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_153" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_152"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_20" id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">If a lease modification
does not reduce the scope of the lease and does not result in a separate lease, the Group remeasures the lease liability based on the
modified lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment
to the right-of-use asset.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 135.75pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_154" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_153"><ix:continuation id="_DescriptionOfAccountingPolicyForLeasesExplanatory-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">If a lease modification
reduces the scope of the lease, the Group recognizes a gain or loss arising from the partial or full reduction of the carrying amount
of the right-of-use asset and the lease liability. The Group subsequently remeasures the carrying amount of the lease liability according
to the revised lease terms, at the revised discount rate as of the modification date and records the change in the lease liability as
an adjustment to the right-of-use asset.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt"></p><div>

</div><!-- Field: Page; Sequence: 227; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->36<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p><div>


</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_155" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_154"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">18)</td><td style="text-align: justify">Property, plant and equipment, net:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.2pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>



</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_156" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_155"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0.5in; text-align: justify">Property, plant and equipment
are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any
related investment grants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are
used in connection with plant and equipment. The cost of an item of property, plant and equipment comprises the initial estimate of
the costs of dismantling and removing the item and restoring the site on which the item is located.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_157" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_156"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Depreciation is calculated
on a straight-line basis over the useful life of the assets at annual rates as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_158" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_157"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureOfUsefulLifeOfAssetsAtAnnualRatesTableTextBlock"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_3"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: center"><b>%</b></td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: center"><ix:nonNumeric contextRef="c77" name="forty:UsefulLifeOfTheAssetsAtAnnualRatesDescription">13 &#8211; 15 (mainly 15)</ix:nonNumeric></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_159" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_158"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Leasehold improvements
are amortized using the straight-line method over the term of the lease (including option terms that are deemed to be reasonably assured)
or the estimated useful life of the improvements, whichever is shorter.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_160" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_159"><ix:continuation id="_DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The useful life, the
depreciation 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
accounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset
is classified as held for sale and the date that the asset is derecognized. For impairment testing of property, plant and equipment, see
Note 2(20) below.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_161" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_160"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">19)</td><td style="text-align: justify">Intangible assets:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.2pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_162" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_161"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Separately acquired
intangible assets are measured on initial recognition at cost, including directly attributable costs. Intangible assets acquired in a
business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets,
excluding capitalized development costs, are recognized in profit or loss when incurred.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_163" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_162"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Intangible assets
with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset
may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_164" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_163"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Research and development
expenditures</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_165" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_164"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Research expenditures
incurred in the process of software development are recognized in profit or loss when incurred. An intangible asset arising from a software
development project or from the development phase of an internal project is recognized if the Group can demonstrate the technical feasibility
of completing the intangible asset so that it will be available for use or sale; the Group&#8217;s intention to complete the intangible
asset and use or sell it; the ability to use or sell the intangible asset; how the intangible
asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible
asset; and the ability to measure reliably the respective expenditure asset during its development. The Group establishes technological
feasibility upon completion of a detailed program design or a working model.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 228; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->37<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_166" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_165"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Capitalized software
costs are measured at cost less any accumulated amortization and any accumulated impairment losses on a product-by-product basis. Amortization
of capitalized software costs begin when development is complete, and the product is available for use or for sale. The Group considers
a product to be available for use when the Group completes its internal validation of the product that is necessary to establish that
the product meets its design specifications including functions, features, and technical performance requirements. Internal validation
includes the completion of coding, documentation and testing that ensure bugs are reduced to a minimum. The internal validation of the
product takes place a few weeks before the product is made available to the market. In certain instances, the Group enters into a short
pre-release stage, during which the product is made available to a selected number of customers as a beta program for their own review
and familiarization. Subsequently, the release is made generally available to customers. Once a product is considered available for use,
the capitalization of costs ceases and amortization of such costs to &#8220;cost of sales&#8221; begins.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_167" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_166"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Capitalized software
costs are amortized on a product-by-product basis by the straight-line method over the estimated useful life of the software product (between
<ix:nonNumeric contextRef="c71" format="ixt-sec:duryear" name="forty:SoftwareProduct">5</ix:nonNumeric>-<ix:nonNumeric contextRef="c72" format="ixt-sec:duryear" name="forty:SoftwareProduct">7</ix:nonNumeric> years).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_168" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_167"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Research and development
costs incurred in the process of developing product enhancements are generally charged to expenses as incurred.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_169" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_168"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group assesses
the recoverability of its capitalized software costs on a regular basis by assessing the net realizable value of these intangible assets
based on the estimated future gross revenues from each product reduced by the estimated future costs of completing and disposing of it,
including the estimated costs of performing maintenance and customer support over its remaining economical useful life using internally
generated projections of future revenues generated by the products, cost of completion of products and cost of delivery to customers over
its remaining economical useful life.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_170" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_169"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_10" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">During the years ended
December 31, 2022, 2021 and 2020, no such unrecoverable amounts were identified.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_171" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_170"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_11" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Other intangible
assets</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_172" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_171"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_12" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Intangible assets
excluding capitalized development costs are comprised mainly of customer-related intangible assets, backlogs, distribution rights, brand
names, acquired technology and patent, and are amortized over their useful lives using a method of amortization that reflects the pattern
in which the economic benefits of the intangible assets are consumed or otherwise used up. The useful life of intangible assets is as
follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_173" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_172"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureofUsefulLifeofIntangibleAssetsRatesTableTextblock"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_13" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_12"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="text-align: center; border-bottom: Black 1.5pt solid"><b>Years</b></td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify; padding-left: 2.85pt">Customer relationship, backlog and <span style="font-size: 10pt">distribution rights</span></td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="width: 88%; text-align: justify; padding-left: 2.85pt">Brand names</td><td style="width: 1%">&#160;</td>
    <td style="width: 11%; text-align: center; padding-left: 2.85pt"><ix:nonNumeric contextRef="c80" format="ixt-sec:duryear" name="forty:UsefulLifeOfOtherIintangibleAssets">5</ix:nonNumeric></td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify; padding-left: 2.85pt">Acquired technology</td><td>&#160;</td>
    <td style="text-align: center; padding-left: 2.85pt"><ix:nonNumeric contextRef="c81" format="ixt-sec:duryear" name="forty:UsefulLifeOfOtherIintangibleAssets">2</ix:nonNumeric> &#8211; <ix:nonNumeric contextRef="c82" format="ixt-sec:duryear" name="forty:UsefulLifeOfOtherIintangibleAssets">8</ix:nonNumeric></td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify; padding-left: 2.85pt">Patents</td><td>&#160;</td>
    <td style="text-align: center; padding-left: 2.85pt"><ix:nonNumeric contextRef="c83" format="ixt-sec:duryear" name="forty:UsefulLifeOfOtherIintangibleAssets">10</ix:nonNumeric></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 229; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->38<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_174" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_173"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_14" id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Gains or losses arising
from the derecognition of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount
of the asset, and are recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_175" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_174"><ix:continuation id="_DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The useful life of
these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and
circumstances do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted
for prospectively as a change in accounting estimate, and on that date the asset is tested for impairment. Commencing from that date,
the asset is amortized systematically over its useful life.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_176" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_175"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">20)</td><td style="text-align: justify">Impairment of non-financial assets:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_177" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_176"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group evaluates
the need to record an impairment of non-financial assets (property, plant and equipment, capitalized software costs and other intangible
assets, goodwill, investments in joint venture) whenever events or changes in circumstances indicate that the carrying amount is not recoverable.
If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The
recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash
flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that
does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are
recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_178" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_177"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">An impairment loss
of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset&#8217;s recoverable
amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower
of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for
the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit
or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_179" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_178"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">The following criteria are applied in assessing impairment
of these specific assets:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_180" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_179"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Goodwill in respect of subsidiaries:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_181" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_180"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">For the purpose
of impairment testing, goodwill acquired in a business combination is allocated, at the acquisition date, to each of our cash-generating
units that are expected to benefit from the synergies of the combination. The Group reviews goodwill for impairment once a year, on December
31, or more frequently if events or changes in circumstances indicate that there is an impairment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 230; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->39<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 64.35pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_182" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_181"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Goodwill is tested
for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill
has been allocated.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 64.35pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_183" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_182"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">An impairment loss
is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated
is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first
to goodwill. Impairment losses recognized for goodwill cannot be reversed in subsequent periods.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_184" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_183"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_8"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">Investment in associate or joint venture using the equity
method:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_185" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_184"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_10" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">After application
of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the investment
in associates or joint ventures. The Group determines at each reporting date whether there is objective evidence that the carrying amount
of the investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire
investment, including the goodwill attributed to the associate or the joint venture.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 64.35pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_186" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_185"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_11" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_10"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">iii.</td><td style="text-align: justify">Intangible assets with an indefinite useful life / capitalized
development costs that have not yet been systematically amortized:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 64.35pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_187" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_186"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_12" id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The impairment test
is performed annually, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 64.35pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_188" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_187"><ix:continuation id="_DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">During the years ended
December 31, 2022, 2021 and 2020, no impairment indicators were identified.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_189" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_188"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">21)</td><td style="text-align: justify">Financial instruments:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_190" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_189"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">A.</td><td style="text-align: justify">Financial assets:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_191" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_190"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Financial assets
are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial
assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in
profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_192" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_191"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Group classifies
and measures the debt instruments in its financial statements on the basis of the following criteria:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_193" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_192"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">the Group&#8217;s business model for the management of financial
assets; and</td>
</tr><tr style="vertical-align: top; text-align: justify">
<td>&#160;</td><td style="text-align: left">&#160;</td><td style="text-align: justify">&#160;</td></tr>
     </table></ix:continuation></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_194" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_193"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">the contractual cash flow characteristics of the financial asset.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_195" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_194"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify"><span style="text-decoration:underline">The Group measures debt instruments at amortized cost
when</span>:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify; text-indent: 7in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_196" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_195"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Group&#8217;s business model is to
hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give rise
on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial
recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate
method, less any provision for impairment. On the date of initial recognition, the Group may irrevocably designate a debt instrument as
measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency,
such as when a related financial liability is also measured at fair value through profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 231; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->40<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><b>NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_197" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_196"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_8"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify"><span style="text-decoration:underline">The Group measures debt instruments at fair value through
other comprehensive income when</span>:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_198" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_197"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_10" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Group&#8217;s business model is to
hold the financial assets in order to both collect their contractual cash flows and to sell the financial assets, and the contractual
terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding. Subsequent to the initial recognition, the instruments in this category are measured at fair value. Gains or losses
from fair value adjustments, excluding interest and exchange rate differences, are recognized in other comprehensive income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_199" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_198"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_11" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_10"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">iii.</td><td style="text-align: justify"><span style="text-decoration:underline">The Group measures debt instruments at fair value through
profit or loss when</span>:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_200" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_199"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_12" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">A financial asset which is a debt instrument
does not meet the criteria for measurement at amortized cost or at fair value through other comprehensive income. After initial recognition,
the financial asset is measured at fair value and gains or losses from fair value adjustments are recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_201" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_200"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_13" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_12"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">iv.</td><td style="text-align: justify"><span style="text-decoration:underline">Equity instruments and other financial assets held for
trading</span>:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_202" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_201"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_14" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Investments in equity instruments do
not meet the above criteria and accordingly are measured at fair value through profit or loss. Other financial assets held for trading
such as derivatives, including embedded derivatives separated from the host contract, are measured at fair value through profit or loss
unless they are designated as effective hedging instruments. In respect of certain equity instruments that are not held for trading, on
the date of initial recognition, the Company made an irrevocable election to present subsequent changes in fair value in other comprehensive
income, which changes would have otherwise been recorded in profit or loss. These changes will not be reclassified to profit or loss in
the future, even when the investment is disposed of. Dividends from investments in equity instruments are recognized in profit or loss
when the right to receive the dividends is established.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 232; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->41<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><b>NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 81pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_203" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_202"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_15" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_14"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">B.</td><td style="text-align: justify">Impairment of financial assets:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_204" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_203"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_16" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Group evaluates
at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit
or loss. The Company distinguishes between two types of loss allowances: </p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_205" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_204"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_17" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_16"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Debt instruments whose credit risk has not increased significantly
since initial recognition, or whose credit risk is low &#8211; the loss allowance recognized in respect of this debt instrument is measured
at an amount equal to the expected credit losses within 12 months from the reporting date; or</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 76.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_206" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_205"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_18" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_17"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">Debt instruments whose credit risk has increased significantly
since initial recognition, and whose credit risk is not low &#8211; the loss allowance recognized is measured at an amount equal to the
expected credit losses over the instrument&#8217;s remaining term.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_207" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_206"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_19" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Group has short-term
financial assets such as trade receivables in respect of which the Group applies a simplified approach in IFRS 9 and measures the loss
allowance in an amount equal to the lifetime expected credit losses.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_208" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_207"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_20" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">An impairment loss
on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from
the carrying amount of the financial asset, whereas the impairment loss on debt instruments measured at fair value through other comprehensive
income is recognized in profit or loss with a corresponding loss allowance that is recorded in other comprehensive income and not as a
reduction of the carrying amount of the financial asset in the statement of financial position.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_209" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_208"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_21" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Group applies
the low credit risk simplification in IFRS 9, according to which the Group assumes the debt instrument&#8217;s credit risk has not increased
significantly since initial recognition if on the reporting date it is determined that the instrument has a low credit risk, for example
when the instrument has an external rating of &#8220;investment grade&#8221;.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_210" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_209"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_22" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_21"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">C.</td><td style="text-align: justify">Derecognition of financial assets:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_211" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_210"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_23" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Group derecognizes
a financial asset when and only when:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_212" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_211"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_24" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_23"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">The contractual rights to the cash flows from the financial
asset expire; or</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 76.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_213" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_212"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_25" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_24"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">The Group has transferred substantially all the risks and
rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control of the asset; or</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_214" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_213"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_26" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_25"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">iii.</td><td style="text-align: justify">The Group has retained its contractual rights to receive
cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to
a third party.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 233; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->42<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><b>NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_215" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_214"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_27" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_26"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">D.</td><td style="text-align: justify">Financial liabilities:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_216" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_215"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_28" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_27"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Financial liabilities measured at amortized cost:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_217" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_216"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_29" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">Financial liabilities
are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, the Group measures all financial liabilities at amortized cost using the effective interest rate method, except
for:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_218" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_217"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_30" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_29"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">Financial liabilities at fair value through profit or loss,
such as derivatives;</td>
</tr><tr style="vertical-align: top; text-align: justify">
<td>&#160;</td><td style="text-align: left">&#160;</td><td style="text-align: justify">&#160;</td></tr>
     </table></ix:continuation></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_219" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_218"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_31" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_30"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">Financial liabilities that arise when a transfer of a financial
asset does not qualify for derecognition or when the continuing involvement approach applies;</td>
</tr><tr style="vertical-align: top; text-align: justify">
<td>&#160;</td><td style="text-align: left">&#160;</td><td style="text-align: justify">&#160;</td></tr>
     </table></ix:continuation></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_220" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_219"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_32" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_31"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">Financial guarantee contracts; and</td>
</tr><tr style="vertical-align: top; text-align: justify">
<td>&#160;</td><td style="text-align: left">&#160;</td><td style="text-align: justify">&#160;</td></tr>
     </table></ix:continuation></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_221" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_220"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_33" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_32"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">Contingent consideration recognized by an acquirer in a business
combination as to which IFRS 3 applies.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: 28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_222" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_221"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_34" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_33"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">Financial liabilities measured at fair value through profit
or loss:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_223" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_222"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_35" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_34"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">At initial recognition,
the Group measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit
or loss. After initial recognition, changes in fair value are recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_224" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_223"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_36" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_35"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">E.</td><td style="text-align: justify">Derecognition of financial liabilities:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.55pt; text-align: justify; text-indent: 85.05pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_225" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_224"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_37" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_36"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0.75in; text-align: justify">A financial liability is
derecognized when it is extinguished, that is, when the obligation is discharged or cancelled or expires. A financial liability is
extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services or is legally
released from the liability.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_226" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_225"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_38" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_37"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0.75in; text-align: justify">When there is a modification to the
terms of an existing financial liability, the Group evaluates whether the modification is substantial.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_227" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_226"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_39" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_38"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0.75in; text-align: justify">If the terms of an existing financial
liability are substantially modified, such modification is accounted for as an extinguishment of the original liability and the recognition
of a new liability. The difference between the carrying amounts of the above liabilities is recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_228" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_227"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_40" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_39"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0.75in; text-align: justify">If the modification is not substantial,
the Group recalculates the carrying amount of the liability by discounting the revised cash flows at the original effective interest rate
and any resulting difference is recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_229" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_228"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_41" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_40"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">F.</td><td style="text-align: justify">Offsetting financial instruments:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_230" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_229"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_42" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_41"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">Financial assets and financial liabilities
are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the
recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The right of set-off must be legally enforceable not only during the ordinary course of business of the
parties to the contract but also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to
be currently available, it must not be contingent on a future event, there may not be periods during which the right is not available,
or there may not be any events that will cause the right to expire.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 234; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->43<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><b>NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_231" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_230"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_43" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_42"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">G.</td><td style="text-align: justify">Compound financial instruments:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_232" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_231"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_44" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_43"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">i)</td><td style="text-align: justify">Convertible debentures which contain both an equity component
and a liability component are separated into two components. This separation is performed by first determining the liability component
based on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined to be the residual
amount. Directly attributable transaction costs are apportioned between the equity component and the liability component based on the
allocation of proceeds to the equity and liability components.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 94.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_233" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_232"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_45" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_44"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">ii)</td><td style="text-align: justify">Convertible debentures that are denominated in foreign currency
contain two components: the conversion component and the debt component. The liability conversion component is initially recognized as
a financial derivative at fair value. The balance is attributed to the debt component. Directly attributable transaction costs are allocated
between the liability conversion component and the liability debt component based on the allocation of the proceeds to each component.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_234" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_233"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_46" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_45"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">H.</td><td style="text-align: justify">Put option granted to non-controlling interests:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.2pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_235" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_234"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_47" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_46"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">When the Group grants to non-controlling
interests a put option to sell part or all of their interests in a subsidiary, during a certain period, even if such purchase obligation
is conditional on the counterparty&#8217;s exercise of its contractual right to cause such redemption, if the put option agreement does
not transfer to the Group any benefits incidental to 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 reporting period the non-controlling interests (to which a portion of net profit attributable
to non-controlling interests is allocated) are classified as a financial liability, as if such put-able equity instrument was redeemed
on that date. The difference between the non-controlling interests carrying amount at the end of the reporting period and the present
value of the liability is recognized directly in equity of the Group, under &#8220;Additional paid-in capital&#8221;.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_236" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_235"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_48" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_47"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Group remeasures the financial
liability at the end of each reporting period based on the estimated present value of the consideration to be transferred upon the exercise
of the put option.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_237" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_236"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_49" id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_48"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">If the option is exercised in subsequent
periods, the consideration paid upon exercise is treated as settlement of the liability. If the put option expires, the liability is settled
and a portion of the investment in the subsidiary disposed of, without loss of control therein.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_238" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_237"><ix:continuation id="_DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory-c0_cont_49"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">If the Group has present ownership
of the non-controlling interests, these non-controlling interests are accounted for as if they are held by the Group, and changes in the
amount of the liability are carried to profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 235; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->44<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_239" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_238"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForHedgingExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">22)</td><td style="text-align: justify">Hedge accounting:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_240" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_239"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify">Derivative financial
instruments designated as hedges<span style="font-family: Times New Roman, Times, Serif">:</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_241" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_240"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">From time to time,
the Group enters into contracts for derivative financial instruments such as forward currency contracts and interest rate swaps to hedge
risks associated with foreign exchange rate and interest rate fluctuations. Any gains or losses arising from changes in the fair values
of derivatives that do not qualify for hedge accounting are recorded immediately in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_242" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_241"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Hedges qualify for
hedge accounting, among others, when at inception of the hedging relationship there is a formal designation and documentation of the hedging
relationship and of the Group&#8217;s risk management objective and strategy for undertaking the hedge. Hedges are assessed on an ongoing basis
to determine whether they are highly effective during the reporting period for which the hedge is designated. Hedges are accounted for
as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_243" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_242"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i)</td><td style="text-align: justify">Fair value hedges:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_244" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_243"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The change in the
fair value of the derivative (the hedging item) and the hedged item is recognized in profit or loss. For fair value hedges relating to
hedged items carried at amortized cost, the adjustment to the carrying amount is amortized to profit or loss over the remaining term to
maturity. Any adjustment of the hedged financial instrument for which the effective interest rate method is used, is recognized in profit
or loss. If the hedged item is derecognized, the unamortized changes to fair value are recognized immediately in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_245" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_244"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">ii)</td><td style="text-align: justify">Cash flow hedges:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_246" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_245"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The effective portion
of the change in the fair value of the hedging instrument is recognized in other comprehensive income (loss) while any ineffective portion
is recognized immediately in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_247" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_246"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Amounts recognized
as other comprehensive income (loss) are reclassified to profit or loss when the hedged transaction affects profit or loss, such as when
interest income or expense is recognized or when a forecasted transaction occurs. Where the hedged item is a non-financial asset or liability,
their cost also includes the gain (loss) from the hedging instrument.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_248" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_247"><ix:continuation id="_DescriptionOfAccountingPolicyForHedgingExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Company discontinues
hedge accounting prospectively only when the hedge relationship, in whole or in part, ceases to meet the qualifying criteria (after taking
into account any rebalancing of hedge relationship, if applicable), including instances when the hedging instrument expires or is sold,
terminated or exercised (or if the hedge designation is reversed). When the Company discontinues hedge accounting, amounts accumulated
in the cash flow hedge reserve remain in the cash flow hedge reserve until the future cash flows occur or are reclassified to profit or
loss if the hedged future cash flows are no longer expected to occur.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_249" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_248"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">23)</td><td style="text-align: justify">Fair value measurement:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_250" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_249"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset&#8217;s or the
liability&#8217;s principal market, or in the absence of a principal market, in the most advantageous market.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 236; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->45<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_251" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_250"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The fair value of
an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming
that market participants act in their economic best interest. Fair value measurement of a non-financial asset takes into account a market
participant&#8217;s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market
participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the
use of unobservable inputs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_252" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_251"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">All assets and liabilities
measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest
level input that is significant to the entire fair value measurement:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_253" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_252"><ix:continuation id="_DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 0.5in">&#160;</td>
    <td style="width: 0.5in; padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">Level 1</td>
    <td style="width: 0.25in; padding-right: 5.4pt; text-align: center; text-indent: 0in">-</td>
    <td style="padding-right: 1.4pt; text-align: justify; text-indent: 0in">quoted prices (unadjusted) in active markets for identical assets or liabilities.</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">&#160;</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
    <td style="padding-right: 1.4pt; text-align: justify; text-indent: 0in">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">Level 2</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">-</td>
    <td style="padding-right: 1.4pt; text-align: justify; text-indent: 0in">inputs other than quoted prices included within Level 1 that are observable directly or indirectly.</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">&#160;</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">&#160;</td>
    <td style="padding-right: 1.4pt; text-align: justify; text-indent: 0in">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td style="padding-left: 8.5pt; text-align: left; text-indent: -8.5pt">Level 3</td>
    <td style="padding-right: 5.4pt; text-align: center; text-indent: 0in">-</td>
    <td style="padding-right: 1.4pt; text-align: justify; text-indent: 0in">inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data).</td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_254" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_253"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForTreasurySharesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForTreasurySharesExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">24)</td><td style="text-align: justify">Treasury shares:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_255" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_254"><ix:continuation id="_DescriptionOfAccountingPolicyForTreasurySharesExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Company shares held
by the Company and/or by investees are recognized at cost of purchase and presented as a deduction from equity. Any gain or loss arising
from a purchase, sale, issue or cancellation of treasury shares is recognized directly in equity.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_256" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_255"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForProvisionsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">25)</td><td style="text-align: justify">Provisions:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_257" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_256"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">A provision in accordance
with IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made
of the amount of the obligation. If the effect is material, provisions are measured according to the estimated future cash flows discounted
using a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks specific
to the liability. When the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement
is recognized as a separate asset but only when the reimbursement is virtually certain. The expense is recognized in the statement of
profit or loss net of any reimbursement. </p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_258" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_257"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Following are the
types of provisions included in the financial statements:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_259" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_258"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Legal claims:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_260" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_259"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">A provision for claims is recognized
when 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
of resources embodying economic benefits will be
required by the Group to settle the obligation and a reliable estimate can be made of the amount of the obligation.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 237; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->46<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_261" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_260"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 40.5pt"></td><td style="width: 16.2pt">ii.</td><td style="text-align: justify">Contingent liability recognized in a business combination:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_262" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_261"><ix:continuation id="_DescriptionOfAccountingPolicyForProvisionsExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">A contingent liability in a business
combination is measured at fair value upon initial recognition. In subsequent periods, it is measured at the higher of the amount initially
recognized less, when appropriate, cumulative amortization, and the amount that would be recognized at the end of the reporting period
in accordance with IAS 37.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_263" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_262"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">26)</td><td style="text-align: justify">Derivative financial instruments and hedging:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_264" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_263"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">From time to time,
the Group enters into contracts for derivative financial instruments such as forward currency contracts and options contracts to hedge
risks associated with foreign exchange rates resulting from international activities and interest rate fluctuations. The derivative instruments
primarily hedge or offset exposures to Euro, New Israeli Shekel (&#8220;NIS&#8221;), British Pound and Japanese Yen and exchange rate
fluctuations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_265" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_264"><ix:continuation id="_DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group&#8217;s
options and forward contracts do not qualify for hedging accounting. Any gains or losses arising from changes in the fair values of the
derivatives are recorded immediately in profit or loss as financial income or expense.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_266" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_265"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">27)</td><td style="text-align: justify">Employee benefit liabilities:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 74.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_267" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_266"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group maintains
several employee benefit plans:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_268" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_267"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Short-term employee benefits:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_269" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_268"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Short-term employee
benefits are benefits that are expected to be settled wholly before twelve (12) months after the end of the annual reporting period in
which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social
security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing
plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by
an employee and a reliable estimate of the amount can be made. The short-term employee benefit liability in the statement of financial
position is measured on an undiscounted basis.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_270" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_269"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">Post-employment benefits:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_271" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_270"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The plans are normally
financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_272" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_271"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Formula&#8217;s and
its Israeli subsidiaries and associates accounted for at equity (as defined with respect to their Israeli employee contribution plans
pursuant to section 14 of Israel&#8217;s Severance Pay Law, 1963 (the &#8220;Severance Pay Law&#8221;)) pay fixed contributions to those
plans and will have no legal or constructive obligation to pay further contributions if the fund into which those contributions are paid
does not hold sufficient amounts to pay all employee benefits relating to employee service
in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognized
as an expense when contributed concurrently with performance of the employee&#8217;s services.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 238; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->47<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_273" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_272"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Formula and its Israeli
subsidiaries and companies accounted for at equity also operate a defined benefit plan in respect of severance or retirement pay to their
Israeli employees pursuant to the Severance Pay Law. According to the Severance Pay Law, employees are entitled to severance pay upon
dismissal or retirement. The liability for termination of employment is measured using the projected unit credit method. The actuarial
assumptions include rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented
based on discounted expected future cash flows using a discount rate determined by reference to market yields at the reporting date on
high quality corporate bonds that are linked to Israel&#8217;s Consumer Price Index with a term that is consistent with the estimated
term of the severance pay obligation.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_274" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_273"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">In respect of its
severance pay obligation to certain of its employees, the Group makes current deposits in pension funds and insurance companies (the &#8220;plan
assets&#8221;). Plan assets comprise assets held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are
not available to the Group&#8217;s own creditors and cannot be returned directly to the Group.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_275" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_274"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_10" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The liability for
employee benefits shown in the statement of financial position reflects the present value of the defined benefit obligation, less the
fair value of the plan assets. Remeasurements of the net liability are recognized in other comprehensive income in the period in which
they occur.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_276" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_275"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_11" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Severance expenses
for the years 2022, 2021 and 2020 were $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:SeveranceExpenses" scale="3" unitRef="usd">51,897</ix:nonFraction>, $<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:SeveranceExpenses" scale="3" unitRef="usd">48,331</ix:nonFraction> and $<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:SeveranceExpenses" scale="3" unitRef="usd">35,897</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_277" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_276"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_12" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_11"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">iii.</td><td style="text-align: justify">Other long-term employee benefits:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_278" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_277"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_13" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Certain employees
of the Group are entitled to benefits in respect of adaptation grants. These benefits are accounted for as other long-term benefits since
the Group estimates that these benefits will be utilized and the Group&#8217;s respective obligation will be settled during the employment
period and more than twelve months after the end of the annual reporting period in which the employees rendered the related service.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_279" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_278"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_14" id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The Group&#8217;s
net obligation for other long-term employee benefits, which is computed based on actuarial assumptions, is for the future benefit due
to employees for services rendered in the current period and in prior periods and considering expected salary increases. The amount of
these benefits is discounted to its present value. The discount rate is determined by reference at the reporting date to market yields
on high quality corporate bonds that are linked to the Consumer Price Index and whose term is consistent with the term of the Group&#8217;s
obligation.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_280" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_279"><ix:continuation id="_DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Remeasurement of
the net obligation is recognized in the statement of comprehensive income in the incurred period.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 239; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->48<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_281" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_280"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">28)</td><td style="text-align: justify">Share-based payment transactions:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_282" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_281"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group&#8217;s
employees and certain service providers are entitled to remuneration in the form of equity-settled share-based payment transactions. The
cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The
fair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured
at the fair value of the goods or services received as consideration for equity instruments granted.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_283" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_282"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The cost of equity-settled
transactions is recognized in profit or loss together with a corresponding increase in equity during the period which the performance
and/or service conditions are to be satisfied ending on the date on which the relevant employees become entitled to the award (the &#8220;vesting
period&#8221;). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting
date reflects the extent to which the vesting period has expired and the Group&#8217;s best estimate of the number of equity instruments
that will ultimately vest.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5in 0pt 0; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_284" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_283"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">No expense is recognized
for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are
satisfied<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5in 0pt 0; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_285" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_284"><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">If the Group modifies
the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total
fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification
date<span style="font-family: Times New Roman, Times, Serif">. </span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_286" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_285"><ix:continuation id="_DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">If a grant of an equity
instrument is canceled, it is accounted for as if it had vested on the cancelation date and any expense not yet recognized for the grant
is recognized immediately. However, if a new grant replaces the canceled grant and is identified as a replacement grant on the grant date,
the canceled and new grants are accounted for as a modification of the original grant, as described above.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_287" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_286"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForEarningsPerShareExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForEarningsPerShareExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 9pt"></td><td style="width: 27pt">29)</td><td style="text-align: justify">Earnings per share:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_288" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_287"><ix:continuation id="_DescriptionOfAccountingPolicyForEarningsPerShareExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Earnings per
share are calculated by dividing the net income attributable to equity holders of the Company by the weighted number of ordinary
shares outstanding during the period. Potential ordinary shares are included in the computation of diluted earnings per share if
their conversion decreases earnings per share from continuing operations. Potential ordinary shares that are converted during the
period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. The
Company&#8217;s share of earnings of subsidiaries is included based on its share of earnings per share of the subsidiaries
multiplied by the number of shares held by the Company.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 240; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->49<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_289" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_288"><ix:nonNumeric contextRef="c0" continuedAt="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_1" escape="true" name="forty:DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">30)</td><td style="text-align: justify">Concentration of credit risk:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_290" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_289"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_2" id="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Financial instruments
that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term deposits,
restricted cash, trade receivables and foreign currency derivative contracts.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_291" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_290"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_3" id="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The majority of the
Group&#8217;s cash and cash equivalents, deposits, marketable securities and other financial instruments are invested with major banks
in Israel, the United States and across Europe. Management believes that these financial instruments are held in financial institutions
with high credit standing, and accordingly, minimal credit risk exists with respect to these investments. Cash and cash equivalents and
short-term deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these
banks deposits may be redeemed upon demand and therefore bear minimal risk.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_292" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_291"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_4" id="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group&#8217;s
trade receivables are generally derived from sales to large organizations located mainly in Israel, North America, Europe and Asia Pacific.
The Group performs ongoing credit evaluations of its customers using a reliable outside source to determine payment terms and credit limits
which are approved based on the size of the customer and to date has not experienced any material losses. In certain circumstances, Formula
and its subsidiaries and companies accounted for at equity may require letters of credit, other collateral or additional guarantees. From
time to time, the Group&#8217;s subsidiaries sell certain of their accounts receivable to financial institutions, within the normal course
of business.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_293" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_292"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_5" id="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group maintains
an allowance for credit losses based upon management&#8217;s experience and estimate of collectability of each outstanding invoice. The
allowance for credit losses is determined with respect to specific debts or which collection is doubtful. The risk of collection associated
with accounts receivable is mitigated by the diversity and number of customers.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_294" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_293"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_6" id="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Bad debt expense,
net for the years ended December 31, 2022, 2021 and 2020 was $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:ExpenseRecognisedDuringPeriodForBadAndDoubtfulDebts" scale="3" unitRef="usd">3,022</ix:nonFraction>, $<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:ExpenseRecognisedDuringPeriodForBadAndDoubtfulDebts" scale="3" unitRef="usd">1,333</ix:nonFraction> and $<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:ExpenseRecognisedDuringPeriodForBadAndDoubtfulDebts" scale="3" unitRef="usd">3,188</ix:nonFraction> respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_295" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_294"><ix:continuation id="forty_DescriptionOfAccountingPolicyConcentrationOfCreditRiskPolicyTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">From time to time,
the Group enters into foreign exchange forward and option contracts intended to protect against the changes in value of forecasted non-dollar
currency cash flows. These derivative instruments are designed to offset a portion of the Group&#8217;s non-dollar currency exposure (see
Note 2 (26) above).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_296" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_295"><ix:nonNumeric contextRef="c0" continuedAt="forty_DisclosureOfLiquidityRiskPolicyTextBlock-c0_cont_1" escape="true" name="forty:DisclosureOfLiquidityRiskPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">31)</td><td style="text-align: justify">Liquidity risk:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_297" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_296"><ix:continuation continuedAt="forty_DisclosureOfLiquidityRiskPolicyTextBlock-c0_cont_2" id="forty_DisclosureOfLiquidityRiskPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Liquidity risk arises
from managing the Group&#8217;s working capital as well as from financial expenses and principal payments of the Group&#8217;s debt instruments.
Liquidity risk consists of the risk that the Group will have difficulty in fulfilling obligations relating to financial liabilities. The
Group&#8217;s policy is to ascertain constant cash adequacy needed for settling its liabilities when due. For this purpose, the Group
aims to hold cash balances (or adequate credit lines) that will meet anticipated demands.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 241; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->50<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_298" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_297"><ix:continuation id="forty_DisclosureOfLiquidityRiskPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Formula and its subsidiaries
and companies accounted for at equity examine cash flow forecasts on a monthly basis as well as information regarding cash balances. As
of the reporting date, these forecasts indicate that the Group can expect sufficient liquid sources for covering its entire liabilities
under reasonable assumptions.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_299" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_298"><ix:nonNumeric contextRef="c0" continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_1" escape="true" name="forty:DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">32)</td><td style="text-align: justify">Changes in accounting policies &#8211; initial adoption of
new financial reporting and accounting standards:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_300" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_299"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_2" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">1.</td><td style="text-align: justify">Amendment to IAS 16, &#8220;Property, Plant and Equipment&#8221;:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_301" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_300"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_3" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">In May 2020, the IASB issued an amendment
to IAS 16, &#8220;Property, Plant and Equipment&#8221; (the &#8220;Amendment&#8221;). The Amendment prohibits a company from deducting from
the cost of property, plant and equipment (&#8220;PP&amp;E&#8221;) consideration received from the sales of items produced while the company
is preparing the asset for its intended use. Instead, the company should recognize such consideration and related costs in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_302" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_301"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_4" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Amendment is effective for annual
reporting periods beginning on or after January 1, 2022. The Amendment is applied retrospectively, but only to items of PP&amp;E made
available for use on or after the beginning of the earliest period presented in the financial statements in which the company first applies
the Amendment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_303" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_302"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_5" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The cumulative effect of initially
applying the Amendment is recognized as an adjustment to the opening balance of retained earnings (or other component of equity, as applicable)
at the beginning of the earliest period presented.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_304" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_303"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_6" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The application of the Amendment did
not have a material impact on the Company&#8217;s financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_305" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_304"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_7" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">2.</td><td style="text-align: justify">Amendment to IAS 37, &#8220;Provisions, Contingent Liabilities
and Contingent Assets&#8221;:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_306" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_305"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_8" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">In May 2020, the IASB issued an amendment
to IAS 37, regarding which costs a company should include when assessing whether a contract is onerous (&#8220;the Amendment&#8221;).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_307" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_306"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_9" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">According to the Amendment, costs of
fulfilling a contract include both the incremental costs (for example, raw materials and direct labor) and an allocation of other costs
that relate directly to fulfilling a contract (for example, depreciation of an item of property, plant and equipment used in fulfilling
the contract).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_308" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_307"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_10" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Amendment is effective for annual
periods beginning on or after January 1, 2022 and applies to contracts for which all obligations in respect thereof have not yet been
fulfilled as of January 1, 2022. The application of the Amendment does not require the restatement of comparative data for property, plant
and equipment. Instead, the opening balance of retained earnings on the initial application date is adjusted for the cumulative effect
of the Amendment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 242; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->51<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_309" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_308"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_11" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The application of the Amendment did
not have a material impact on the Company&#8217;s financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_310" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_309"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_12" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_11"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">3.</td><td style="text-align: justify">Amendments to IFRS 3, &#8220;Business Combinations&#8221;:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_311" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_310"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_13" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">In May 2020, the IASB issued Amendments
to IFRS 3, &#8220;Business Combinations &#8211; Reference to the Conceptual Framework&#8221;, which are intended to replace a reference
to the Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework for Financial
Reporting, which was issued in March 2018, without significantly changing its requirements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_312" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_311"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_14" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The IASB added an exception to the
recognition principle of IFRS 3 to avoid the issue of potential &#8216;day 2&#8217; gains or losses arising for liabilities and contingent
liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred
separately.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_313" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_312"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_15" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The exception requires entities to
apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine at the acquisition date whether
as a result of a past event, a present obligation exists or whether the event that creates an obligation to pay the levy occurred by the
acquisition date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_314" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_313"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_16" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Amendments also clarify that contingent
assets do not qualify for recognition at the acquisition date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_315" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_314"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_17" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Amendments are applied prospectively
for annual reporting periods beginning on or after January 1, 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_316" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_315"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_18" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The application of the Amendments did
not have a material impact on the Company&#8217;s financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_317" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_316"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_19" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_18"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">4.</td><td style="text-align: justify">Annual improvements to IFRSs 2018-2020:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_318" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_317"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_20" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">In May 2020, the IASB adopted certain
amendments in the context of the Annual Improvements to IFRSs 2018-2020 Cycle. The main amendment is to IFRS 9, &#8220;Financial Instruments&#8221;
(the &#8220;Amendment&#8221;). The Amendment clarifies which fees a company should include in the &#8220;10% test&#8221; described in paragraph
B3.3.6 of IFRS 9 when assessing whether the terms of a debt instrument that has been modified or exchanged are substantially different
from the terms of the original debt instrument.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_319" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_318"><ix:continuation continuedAt="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_21" id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">According to the Amendment, fees paid
net of any fees received that are included in the cash flows are only those fees paid or received between the borrower and the lender,
including fees paid or received by either the borrower or lender on the other&#8217;s behalf.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5in 0pt 0; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_320" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_319"><ix:continuation id="forty_DescriptionOfAccountingPolicyForInitialAdoptionOfNewFinancialReportingAndAccountingStandardsExplanatory-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Amendment is effective for annual
periods beginning on or after January 1, 2022. The Amendment is applied to financial liabilities that are modified or exchanged on or
after the beginning of the annual reporting period in which the entity first applies the Amendment, that is from January 1, 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 243; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->52<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_321" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_320"><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">33)</td><td style="text-align: justify">Disclosure of new standards in the period prior to their
adoption:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_322" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_321"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_2" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify">Amendment to IAS 1, &#8220;Presentation of Financial Statements&#8221;:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_323" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_322"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_3" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">In January 2020, the IASB issued an amendment
to IAS 1, &#8220;Presentation of Financial Statements&#8221; regarding the criteria for determining the classification of liabilities as
current or non-current (the &#8220;Original Amendment&#8221;). In October 2022, the IASB issued a subsequent amendment (the &#8220;Subsequent
Amendment&#8221;).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_324" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_323"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_4" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">According to the Subsequent Amendment:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_325" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_324"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_5" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 1in"></td><td style="width: 0.25in; text-align: left">&#9679;</td><td style="text-align: justify">Only covenants with which an entity must comply on or before
the reporting date will affect a liability&#8217;s classification as current or non-current.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_326" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_325"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_6" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top">
<td style="width: 1in"></td><td style="width: 0.25in">&#9679;</td><td style="text-align: justify">An entity should provide disclosure when a liability arising from a loan agreement is classified as non-current
and the entity&#8217;s right to defer settlement is contingent on compliance with future covenants within twelve months from the reporting date.
This disclosure is required to include information about the covenants and the related liabilities. The disclosures must include information
about the nature of the future covenants and when compliance is applicable, as well as the carrying amount of the related liabilities.
The purpose of this information is to allow users to understand the nature of the future covenants and to assess the risk that a liability
classified as non-current could become repayable within twelve months. Furthermore, if facts and circumstances indicate that an entity
may have difficulty in complying with such covenants, those facts and circumstances should be disclosed.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_327" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_326"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_7" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">According to the Original Amendment,
the conversion option of a liability affects the classification of the entire liability as current or non-current unless the conversion
component is an equity instrument.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_328" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_327"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_8" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Original Amendment and Subsequent
Amendment are both effective for annual periods beginning on or after January 1, 2024 and must be applied retrospectively. Early application
is permitted.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_329" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_328"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_9" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">The Company estimates that the Amendments
are not expected to have a material impact on its financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_330" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_329"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_10" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_9"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify">Amendment to IAS 8, &#8220;Accounting Policies, Changes to
Accounting Estimates and Errors&#8221;:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_331" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_330"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_11" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">In February 2021, the IASB adopted an
amendment to IAS 8, &#8220;Accounting Policies, Changes to Accounting Estimates and Errors&#8221; (the &#8220;Amendment&#8221;), which introduces
a new definition of &#8220;accounting estimates&#8221;.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_332" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_331"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_12" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Accounting estimates are defined as &#8220;monetary
amounts in financial statements that are subject to measurement uncertainty&#8221;. The Amendment clarifies the distinction between changes
in accounting estimates and changes in accounting policies and the correction of errors.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 244; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->53<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_333" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_332"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_13" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Amendment is to be applied prospectively
for annual reporting periods beginning on or after January 1, 2023 and is applicable to changes in accounting policies and changes in
accounting estimates that occur on or after the start of that period. Early application is permitted.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_334" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_333"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_14" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Company estimates that the Amendment
is not expected to have a material impact on its financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_335" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_334"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_15" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_14"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">iii.</td><td style="text-align: justify">Amendment to IAS 12, &#8220;Income Taxes&#8221;:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_336" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_335"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_16" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">In May 2021, the IASB issued an amendment
to IAS 12, &#8220;Income Taxes&#8221; (&#8220;IAS 12&#8221;), which narrows the scope of the initial recognition exception under IAS 12.15
and IAS 12.24 (the &#8220;Amendment&#8221;).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_337" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_336"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_17" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">According to the recognition guidelines
of deferred tax assets and liabilities, IAS 12 excludes recognition of deferred tax assets and liabilities in respect of certain temporary
differences arising from the initial recognition of certain transactions. This exception is referred to as the &#8220;initial recognition
exception&#8221;. The Amendment narrows the scope of the initial recognition exception and clarifies that it does not apply to the recognition
of deferred tax assets and liabilities arising from transactions that are not a business combination and that give rise to equal taxable
and deductible temporary differences, even if they meet the other criteria of the initial recognition exception.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_338" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_337"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_18" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Amendment applies for annual reporting
periods beginning on or after January 1, 2023, with earlier application permitted. In relation to leases and decommissioning obligations,
the Amendment is to be applied commencing from the earliest reporting period presented in the financial statements in which the Amendment
is initially applied. The cumulative effect of the initial application of the Amendment should be recognized as an adjustment to the opening
balance of retained earnings (or another component of equity, as appropriate) at that date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_339" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_338"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_19" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Company estimates that the initial
application of the Amendment is not expected to have a material impact on its financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_340" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_339"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_20" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_19"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">iv.</td><td style="text-align: justify">Amendment to IAS 1 - Disclosure of Accounting Policies:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_341" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_340"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_21" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">In February 2021, the IASB issued an
amendment to IAS 1, &#8220;Presentation of Financial Statements&#8221; (the &#8220;Amendment&#8221;), which replaces the requirement to
disclose &#8217;significant&#8217; accounting policies with a requirement to disclose &#8216;material&#8217; accounting policies. One of the main reasons for
the Amendment is the absence of a definition of the term &#8217;significant&#8217; in IFRS whereas the term &#8216;material&#8217; is defined in several standards
and particularly in IAS&#160;1.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_342" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_341"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_22" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Amendment is applicable for annual
periods beginning on or after January 1, 2023. Early application is permitted.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_343" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_342"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_23" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Company estimates that the Amendment
is not expected to have a material impact on its financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 245; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->54<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"><b>NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_344" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_343"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_24" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_23"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.75in"></td><td style="width: 0.25in; text-align: left">v.</td><td style="text-align: justify">Amendment to IFRS 16, &#8220;Leases&#8221;:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_345" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_344"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_25" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">In September 2022, the IASB issued
an amendment to IFRS 16, &#8220;Leases&#8221; (the &#8220;Amendment&#8221;), which provides guidance on how a seller-lessee should measure
the lease liability arising in a sale and leaseback transaction with variable lease payments that do not depend on an index or rate. The
seller-lessee has to choose between two accounting policies for measuring the lease liability on the inception date of the lease. The
accounting policy chosen must be applied consistently.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_346" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_345"><ix:continuation continuedAt="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_26" id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Amendment is applicable for annual
periods beginning on or after January 1, 2024. Early application is permitted. The Amendment is to be applied retrospectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.7pt; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_347" id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_346"><ix:continuation id="_DescriptionOfExpectedImpactOfInitialApplicationOfNewStandardsOrInterpretations-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">The Company estimates that the Amendment
is not expected to have a material impact on its financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation id="_DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory-c0_cont_347"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DescriptionOfAccountingPolicyForFinancialStatementsReclassifiedExplanatory"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">34)</td><td style="text-align: justify">Certain amounts in the prior years&#8217; financial statements
have been reclassified to conform to the current year&#8217;s presentation.</td>
</tr></table></ix:nonNumeric></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><!-- Field: Page; Sequence: 246; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->55<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfBusinessCombinationsExplanatory"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>&#160;</b></p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_2" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">i.</td><td style="text-align: justify"><span style="text-decoration:underline">Formula</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_3" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">a.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of Shamrad Electronic (1997) Ltd (&#8220;Shamrad&#8221;)</span></td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_4" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On October 2, 2022,
the Company directly acquired all of the share capital of Shamrad. Shamrad is an Israeli private company, engaged in the supply, integration
and installation of computer communication infrastructures, announcement and alarm systems and electronic security systems. Shamrad represents
several companies in the field of security: ATI systems &#8211; sirens, Garrett &#8211; Metal detectors, Kopp &#8211; Ferro Magnetic detectors
for MRI rooms. The total consideration to be paid for the acquisition amounted to approximately NIS&#160;<ix:nonFraction contextRef="c84" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="0" unitRef="ils">9,412</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c84" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">2,657</ix:nonFraction>),
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costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s
consolidated statement of profit or loss. The results of Shamrad&#8217;s operations have been included in the consolidated financial statements
since October 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_5" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to Shamrad&#8217;s assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_6" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_5"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_7" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">b.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of ZAP Group Ltd. (&#8220;ZAP Group&#8221;)</span></td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_8" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On April 6, 2021
(the &#8220;Zap Group acquisition date&#8221;), the Company directly acquired <ix:nonFraction contextRef="c85" decimals="2" format="ixt:num-dot-decimal" name="forty:PercentageOfShareCapital" scale="-2" unitRef="pure">100</ix:nonFraction>% of the share capital of Zap Group, Israel&#8217;s largest
group of consumer websites which manages more than 20 leading consumer websites from diverse content worlds. The websites managed and
offered by Zap provide small and medium-sized businesses in Israel with a broad and rich advertising platform and offer consumers a user-friendly
search experience with a variety of advanced tools, which enable them to make educated purchase decisions in the best and most informed
way. The cash consideration paid at the closing amounted to approximately NIS&#160;<ix:nonFraction contextRef="c86" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="0" unitRef="ils">244,169</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c86" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">74,350</ix:nonFraction>), or approximately NIS
<ix:nonFraction contextRef="c86" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="0" unitRef="ils">216,172</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c86" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">65,825</ix:nonFraction>) net of acquired cash. Moreover, the former shareholders of Zap Group are entitled to contingent consideration
payments of up to NIS <ix:nonFraction contextRef="c86" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContingentConsiderationRecognisedAsOfAcquisitionDate" scale="0" unitRef="ils">60,000</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c86" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContingentConsiderationRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">18,270</ix:nonFraction>) depending on the future results of operations of Zap Group during the first two years
following the acquisition. The fair value of such contingent consideration, as of the acquisition date amounted to NIS <ix:nonFraction contextRef="c86" decimals="0" format="ixt:num-dot-decimal" name="forty:FairValueOfContingentConsideration" scale="0" unitRef="ils">3,577</ix:nonFraction> (or $ <ix:nonFraction contextRef="c86" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairValueOfContingentConsideration" scale="3" unitRef="usd">1,089</ix:nonFraction>).
For the year ended December 31, 2022, the fair value of such contingent consideration amounted to $<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairValueOfContingentConsideration" scale="3" unitRef="usd">0</ix:nonFraction>. Acquisition-related costs were immaterial.
Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s consolidated statement
of profit or loss. The results of Zap Group&#8217;s operations have been included in the consolidated financial statements since April
2021.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -28.35pt"></p><div>

</div><!-- Field: Page; Sequence: 247; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->56<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

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summarizes as of the acquisition date the estimated consideration for the acquisition of Zap Group:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_10" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_9"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureOfProvisionalEstimatedConsideration"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_12" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_11"><ix:nonNumeric contextRef="c144" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_13" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_12"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">ii.</td><td style="text-align: justify"><span style="text-decoration:underline">Sapiens</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_14" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Acquisition of
I.T Cognitive Ltd (&#8220;Cognitive&#8221;):</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_15" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On May 19, 2022,
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_16" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s
consolidated statements of statement of profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_17" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to Cognitive&#8217; s assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_18" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_17"><ix:nonNumeric contextRef="c146" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 25.65pt; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 25.65pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 248; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->57<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 25.65pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 25.65pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_19" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_18"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">iii.</td><td style="text-align: justify"><span style="text-decoration:underline">Magic Software</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_20" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_19"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">a.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of Appush Ltd. (formerly known as Vidstart
Ltd.) (&#8220;Appush&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_21" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On January 27, 2022,
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</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_22" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Acquisition-related
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as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_24" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_23"><ix:nonNumeric contextRef="c148" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_25" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_24"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">b.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of The Goodkind Group, LLC (&#8220;TGG&#8221;):</span></td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_26" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On August 23, 2022
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net of cash acquired). TGG provides permanent and temporary staffing services in various sectors including: Information Technology, Accounting
&amp; Finance, Digital Media, Marketing, Human Resource, Financial Services. With On-Site programs and sourcing models TGG solutions include
functions which differ from standard staffing companies. TGG provides assistance in the areas of compensation design and development,
employee opinion surveys, employment policies and practices, performance management, regulatory and compliance issues and succession planning.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 249; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->58<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_27" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The remainder constitutes
a deferred payment payable in 2023 (approximately $<ix:nonFraction contextRef="c98" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdjustmentsForDeferredTaxExpense" scale="3" unitRef="usd">2,765</ix:nonFraction>) and 2024 (approximately $<ix:nonFraction contextRef="c99" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdjustmentsForDeferredTaxExpense" scale="3" unitRef="usd">870</ix:nonFraction>).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_28" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s
consolidated statement of profit or loss. The acquisition was accounted for according to the purchase method. TGG&#8217;s results of operations
have been included in the consolidated financial statements since TGG Acquisition Date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_29" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values<sup>(1)</sup> allocated to the TGG acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_30" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_29"><ix:nonNumeric contextRef="c150" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td style="width: 1%">&#160;</td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Customer relations</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c151" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CustomerrelatedIntangibleAssetsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">3,901</ix:nonFraction></span></td>
    <td>&#160;</td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Liabilities in respect of business combinations</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c151" decimals="-3" format="ixt:num-dot-decimal" name="forty:LiabilitiesInRespectOfBusinessCombinations" scale="3" unitRef="usd">3,635</ix:nonFraction></span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">)</span></td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Goodwill</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c151" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:GoodwillRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">4,404</ix:nonFraction></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Total assets acquired, net of acquired cash</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c151" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IdentifiableAssetsAcquiredLiabilitiesAssumed" scale="3" unitRef="usd">7,847</ix:nonFraction></span></td>
    <td>&#160;</td></tr>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_31" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_30"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td><td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><sup>(1)</sup></span></td><td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
estimated fair values of the tangible and intangible assets in respect of the acquisition of TGG are provisional and are based on information
that was available as of the acquisition date to estimate the fair value of these amounts. The Group&#8217;s management believes the
information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary
to finalize those fair values. Therefore, provisional measurements of fair value that appear are subject to change. The Group expects
to finalize the tangible and intangible assets valuation and complete the acquisition accounting as soon as practicable but no later
than the measurement period.</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_32" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_31"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">c.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of Intrabases SAS (&#8220;Intrabases&#8221;):</span></td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_33" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On July 1, 2022 (the
&#8220;Intrabases Acquisition Date&#8221;), Magic Software acquired Intrabases SAS, a provider of IT professional services based in Nantes,
France. The consideration for the transaction was comprised solely of cash in an amount of approximately $<ix:nonFraction contextRef="c100" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashOnHand" scale="3" unitRef="usd">3,428</ix:nonFraction>, or approximately $<ix:nonFraction contextRef="c100" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">2,981</ix:nonFraction>
net of acquired cash.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_34" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_33"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s
consolidated statement of profit or loss. The acquisition was accounted for according to the purchase method. Intrabases&#8217; results
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summarizes the estimated fair values allocated to the Intrabases acquired assets and assumed liabilities, with reference to the acquisition
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_36" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_35"><ix:nonNumeric contextRef="c152" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_37" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_36"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">d.</td><td style="text-align: justify">During 2022 Magic Software concluded two separate asset purchase agreements
each meeting the definition of a &#8220;business&#8221; and as such were deemed as &#8220;business combinations&#8221; in accordance with
IFRS 3. These aforementioned acquisitions were immaterial, both individually and in the aggregate. The total consideration paid for these
acquisitions amounted to approximately $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ConsiderationPaidReceived" scale="0" unitRef="usd">1,753</ix:nonFraction>. The estimated fair values allocated to customer relations, net of deferred tax liability
and goodwill amounted to $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:IncreaseDecreaseThroughNetExchangeDifferencesDeferredTaxLiabilityAsset" scale="0" unitRef="usd">1,163</ix:nonFraction> and $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ChangesInGoodwill" scale="0" unitRef="usd">898</ix:nonFraction>, respectively.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 250; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->59<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_38" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_37"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">e.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of EnableIT, LLC (&#8220;EnableIT&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_39" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_38"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On April 1, 2021
(the &#8220;EnableIT Acquisition Date&#8221;), Magic Software completed the acquisition of all of the share capital of EnableIT, a U.S.-based
services company, specializes in IT staffing and recruiting, for a total consideration of $<ix:nonFraction contextRef="c101" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">6,000</ix:nonFraction> (or $<ix:nonFraction contextRef="c101" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">5,900</ix:nonFraction> net of acquired cash) of which
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one in April 1, 2023. Acquisition-related costs were immaterial. Unaudited pro forma condensed results of operations were not presented
since they were not material to the Company&#8217;s consolidated statement of profit or loss. The acquisition was accounted for according
to the purchase method. EnableIT&#8217;s results of operations have been included in the consolidated financial statements since the EnableIT
Acquisition Date</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_40" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_39"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to the EnableIT acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_41" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_40"><ix:nonNumeric contextRef="c154" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_42" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_41"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The excess of purchase
consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill. The goodwill from the acquisition
of EnableIT is primarily attributable to potential synergies with Magic Software, as well as certain intangible assets that do not qualify
for separate recognition. The goodwill is not deductible for income tax purposes.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_43" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_42"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">f.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of Menarva Ltd. (&#8220;Menrava&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_44" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_43"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On April 1, 2021
(the &#8220;Menrava Acquisition Date&#8221;), Magic Software completed the acquisition of all of the share capital of Menarva, an Israeli-based
services company which specializes in software solutions for non-profit organizations and the developer of Nativ, a proprietary comprehensive
core system, based on Magic xpa, for management of rehabilitation centers for a total consideration of $<ix:nonFraction contextRef="c103" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">5,595</ix:nonFraction> (or $<ix:nonFraction contextRef="c103" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">5,505</ix:nonFraction> net of acquired
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results achieved by Menarva during 2021-2022. The fair value of the contingent consideration on the acquisition date amounted to $<ix:nonFraction contextRef="c103" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairValueOfContingentConsideration" scale="3" unitRef="usd">2,595</ix:nonFraction>.
Acquisition related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_45" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_44"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The acquisition was
accounted for according to the purchase method. Menrava&#8217;s results of operations were included in the consolidated financial statements
of the Company commencing of the Menarva Acquisition Date<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

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</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_46" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_45"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to the Menarva acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: justify">Other long-term assets</td><td>&#160;</td>
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    <td style="text-align: justify">Other long-term liabilities</td><td>&#160;</td>
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    <td style="text-align: justify; padding-bottom: 1.5pt">Goodwill</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 251; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->60<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 53.85pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_48" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_47"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The excess of purchase
consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill. The goodwill from the acquisition
of Menarva is primarily attributable to potential synergies with Magic Software, as well as certain intangible assets that do not qualify
for separate recognition. The goodwill is not deductible for income tax purposes.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_49" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_48"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">g.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of 9540 Y.G. Soft IT Ltd. (&#8220;Soft IT&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_50" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_49"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">On January 1, 2021 (the &#8220;SoftIT
Acquistion Date&#8221;), Magic Software, through one of its Israeli subsidiaries, acquired <ix:nonFraction contextRef="c104" decimals="2" format="ixt:num-dot-decimal" name="forty:PercentageOfShareCapital" scale="-2" unitRef="pure">60</ix:nonFraction>% of the shares of Soft IT, an Israel-based
services company which specializes in outsourcing of software development services, for a total consideration of up to $<ix:nonFraction contextRef="c105" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">1,134</ix:nonFraction> (or $<ix:nonFraction contextRef="c105" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">843</ix:nonFraction>
net of acquired cash), of which $<ix:nonFraction contextRef="c105" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashOnHand" scale="3" unitRef="usd">367</ix:nonFraction> was paid upon closing, $<ix:nonFraction contextRef="c106" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashOnHand" scale="3" unitRef="usd">256</ix:nonFraction> was paid in July 2021, $<ix:nonFraction contextRef="c107" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashOnHand" scale="3" unitRef="usd">257</ix:nonFraction> was paid in April 2022 and with the remaining
amount constitutes a contingent payment depending on the future operating results achieved by Soft IT. The fair value of the contingent
consideration as of the acquisition date amounted to $<ix:nonFraction contextRef="c105" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairValueOfContingentConsideration" scale="3" unitRef="usd">510</ix:nonFraction>. In addition, both Magic Software and Soft IT&#8217;s minority shareholder hold
mutual call and put options, respectively, for the remaining <ix:nonFraction contextRef="c108" decimals="2" format="ixt:num-dot-decimal" name="forty:RemainingSharesPercentage" scale="-2" unitRef="pure">40</ix:nonFraction>% interest. Thus, the noncontrolling interests were classified as redeemable
noncontrolling interests. Acquisition related costs were immaterial. Unaudited pro forma condensed results of operations were not presented
since they were not material to the Company&#8217;s consolidated statement of profit or loss. The acquisition was accounted for according
to the purchase method. Soft IT&#8217;s results of operations were included in the consolidated financial statements of the Company commencing
on the SoftIT Acquistion Date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_51" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_50"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to the Soft IT acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date<span style="font-family: Times New Roman, Times, Serif">:</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 53.85pt; text-align: justify; text-indent: 28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_52" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_51"><ix:nonNumeric contextRef="c158" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="width: 88%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Net liabilities excluding cash acquired</span></td>
    <td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: white">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Customer relationships</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Deferred taxes</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">)</span></td></tr>
  <tr style="vertical-align: bottom; background-color: white">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Redeemable non-controlling interests</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c159" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:NoncontrollingInterestInAcquireeRecognisedAtAcquisitionDate" scale="3" unitRef="usd">719</ix:nonFraction></span></td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">)</span></td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Goodwill</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c159" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:GoodwillRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">967</ix:nonFraction></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td></tr>
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    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Total assets acquired, net of acquired cash</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c159" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IdentifiableAssetsAcquiredLiabilitiesAssumed" scale="3" unitRef="usd">732</ix:nonFraction></span></td>
    <td>&#160;</td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 53.85pt; text-align: justify; text-indent: 28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_53" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_52"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The excess of purchase
consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill. The goodwill from the acquisition
of Soft IT is primarily attributable to potential synergies with Magic Software, as well as certain intangible assets that do not qualify
for separate recognition. The goodwill is not deductible for income tax purposes.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 252; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->61<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_54" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_53"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">iv.</td><td style="text-align: justify"><span style="text-decoration:underline">Matrix IT</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 117pt; text-align: justify; text-indent: -13.5pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_55" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_54"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">a.</td><td style="text-align: justify"><span style="text-decoration:underline">Sale of Infinity Labs R. &amp; D. Ltd. (&#8220;Infinity&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_56" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_55"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On April 24, 2022, Matrix IT concluded the sale of <ix:nonFraction contextRef="c109" decimals="3" format="ixt:num-dot-decimal" name="forty:ShareCapitalPercentage" scale="-2" unitRef="pure">45.2</ix:nonFraction>% of the issued
and share capital of Infinity Labs R. &amp; D. Ltd. (&#8220;Infinity&#8221;) for a total consideration of NIS <ix:nonFraction contextRef="c110" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="0" unitRef="ils">154,469</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c109" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">46,165</ix:nonFraction>).
Following the transaction Matrix IT&#8217;s remaining interest in Infinity&#8217;s outstanding share capital amounted to <ix:nonFraction contextRef="c111" decimals="3" format="ixt:num-dot-decimal" name="forty:ShareCapitalPercentage" scale="-2" unitRef="pure">4.9</ix:nonFraction>% of Infinity&#8217;s
outstanding share capital. As a result of the transaction, the Company recognized a capital gain (before tax), in the amount of approximately
NIS 148,102 (approximately $<ix:nonFraction contextRef="c110" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:GrossLeaseLiabilities" scale="0" unitRef="ils">44,260</ix:nonFraction>), including NIS 16,745 (approximately $<ix:nonFraction contextRef="c110" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:GrossLeaseLiabilities" scale="3" unitRef="usd">5,004</ix:nonFraction>) recorded with respect to the revaluation of the Matrix
IT remaining share interest in Infinity. In accordance, as of the second quarter of 2022, Infinity&#8217;s financial results of operations
were not consolidated in the Company&#8217;s financial statements and the remaining share interest of <ix:nonFraction contextRef="c112" decimals="3" format="ixt:num-dot-decimal" name="forty:RemainingSharesPercentage" scale="-2" unitRef="pure">4.9</ix:nonFraction>% in Infinity&#8217;s outstanding
share capital was measured at fair value with subsequent changes in the fair value of the investment recognized in profit or loss.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_57" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_56"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">b.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of RDT Equipment and Systems (1993) Ltd.,
Asio Vision Ltd. and R.S.A. Test Systems Industry Ltd. (Collectively &#8220;RDT&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_58" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_57"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On June 19, 2022,
Matrix IT, through Matrix Integration and Infrastructure Ltd., Matrix IT&#8217;s wholly owned subsidiary, acquired all of the share capital
of RDT for cash consideration of NIS <ix:nonFraction contextRef="c113" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="0" unitRef="ils">44,012</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c113" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">12,720</ix:nonFraction>), or NIS <ix:nonFraction contextRef="c114" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="0" unitRef="ils">41,006</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c115" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">11,851</ix:nonFraction>) net of acquired cash. As part
of the purchase agreement, the sellers may be entitled to additional future consideration contingent upon RDT meeting certain future operating
profit targets. As of the acquisition date, Matrix IT estimates the future value of the contingent consideration at NIS <ix:nonFraction contextRef="c114" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="0" unitRef="ils">14,751</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c116" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">4,263</ix:nonFraction>). RDT provides services in the field of multimedia systems. RDT markets software solutions and systems for a wide range of technologies,
including control and automation solutions, test and measurement equipment, advanced technological solutions for testing data communication,
EMC products, radio frequency (RF) and microwaves components, and serves, among other things, as a representative in Israel for dozens
of international software and hardware vendors. Unaudited pro forma condensed results of operations were not presented since they were
not material to the Company&#8217;s consolidated statement of profit or loss. RDT&#8217;s results of operations were included in the consolidated
financial statements of the Company commencing July 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_59" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_58"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the provisional estimated fair values <sup>(1)</sup> allocated to the RDT acquired assets and assumed liabilities, with reference
to the acquisition as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_60" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_59"><ix:nonNumeric contextRef="c160" continuedAt="forty_DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock-c160_cont_1" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 88%; text-align: justify">&#160;Net assets excluding cash acquired</td><td style="width: 1%">&#160;</td>
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    <td style="text-align: justify">Inventories</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c161" decimals="-3" format="ixt:num-dot-decimal" id="ix_3_fact" name="ifrs-full:InventoryRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">2,513</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: justify">Property, plant and equipment</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c161" decimals="-3" format="ixt:num-dot-decimal" id="ix_4_fact" name="ifrs-full:PropertyPlantAndEquipmentRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">669</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">Intangible assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c161" decimals="-3" format="ixt:num-dot-decimal" id="ix_5_fact" name="ifrs-full:IdentifiableIntangibleAssetsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">3,470</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify">Deferred taxes</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c161" decimals="-3" format="ixt:num-dot-decimal" id="ix_6_fact" name="forty:DeferredTaxAssetsRecognisedAsOfAcquisitionDeferredTaxes" scale="3" sign="-" unitRef="usd">115</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">Credit from banks</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c161" decimals="-3" format="ixt:num-dot-decimal" id="ix_7_fact" name="ifrs-full:CurrentFinancialLiabilities" scale="3" unitRef="usd">1,388</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify">Other long-term liabilities</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c161" decimals="-3" format="ixt:num-dot-decimal" id="ix_8_fact" name="ifrs-full:OtherCurrentLiabilities" scale="3" unitRef="usd">62</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">Liabilities in respect of business combinations</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_61" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_60"><ix:continuation id="forty_DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock-c160_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(1)</td><td style="text-align: justify"><ix:footnote id="ix_1_footnote" xml:lang="en-US">The estimated fair values of the tangible and intangible
assets in respect of the acquisition of RDT are provisional and are based on information that was available as of the acquisition date
to estimate the fair value of these amounts. The Group&#8217;s management believes the information provides a reasonable basis for estimating
the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional
measurements of fair value that appear are subject to change. The Group expects to finalize the tangible and intangible assets valuation
and complete the acquisition accounting as soon as practicable but no later than the measurement period.</ix:footnote></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 253; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->62<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_62" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_61"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">c.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of AVB Technologies Ltd. (&#8220;AVB Technologies&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_63" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_62"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On October 5, 2021,
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As part of the purchase agreement, the sellers may be entitled to additional future consideration contingent upon AVB Technologies meeting
certain future operating profit targets. As of the acquisition date, Matrix IT estimated the future value of the contingent consideration
at NIS <ix:nonFraction contextRef="c120" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContingentConsiderationRecognisedAsOfAcquisitionDate" scale="0" unitRef="usd">2,063</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c121" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContingentConsiderationRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">639</ix:nonFraction>). AVB Technologies provides services in the field of multimedia systems. AVB Technologies&#8217; services
vary from constructing multimedia systems for meeting rooms to video conference rooms, state of the art digital display solutions, video
walls, command and control management rooms, advanced audio solutions and advanced display solutions. Acquisition related costs were immaterial.
Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s consolidated
statement of profit or loss. AVB Technologies&#8217; results of operations were included in the consolidated financial statements of the
Company commencing October 2021.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_64" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_63"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to AVB Technologies&#8217; acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_65" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_64"><ix:nonNumeric contextRef="c162" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c163" decimals="-3" format="ixt:num-dot-decimal" name="forty:RedeemableNoncontrollingInterests" scale="3" unitRef="usd">320</ix:nonFraction></td><td style="text-align: left">)</td></tr>
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    <td style="text-align: justify; padding-bottom: 1.5pt">Goodwill</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 254; Value: 6 --><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_66" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_65"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">d.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of I.T.D. Group Ltd. (&#8220;I.T.D. Group&#8221;)</span></td>
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</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_67" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_66"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On April 29, 2021,
<ix:nonNumeric contextRef="c122" name="ifrs-full:DescriptionOfPrimaryReasonsForBusinessCombination">Matrix IT acquired 75% of the share capital of the I.T.D. Group for cash consideration of NIS 5,750 (approximately $1,771) or NIS 4,141
net of acquired cash (approximately $1,276). As part of the purchase agreement, the sellers may still be entitled to future additional
consideration contingent upon I.T.D. Group achieving certain future operating profit targets. As of the acquisition date, Matrix IT estimates
the future value of the contingent consideration at NIS 223 (approximately $69). Matrix IT also holds a future call option to purchase
the remaining 25% of I.T.D. Group&#8217;s share capital. I.T.D. Group is a leading provider of software development, regulation and cybersecurity
services for the healthcare industry in Israel, assisting companies to: design and develop innovative solutions, services, and desktop,
mobile, and cloud-based apps; ensure rock-solid cybersecurity and privacy in compliance with HIPAA/GDPR standards; and manage FDA/CE submissions.
Acquisition<b>-</b>related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were
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</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_68" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_67"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
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</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_69" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_68"><ix:nonNumeric contextRef="c164" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_70" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_69"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">e.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of SQ Service Quality Ltd. (&#8220;SQ Service
Quality&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_71" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_70"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On April 5, 2021,
Babcom Centers Ltd., a subsidiary of Matrix IT, acquired <ix:nonFraction contextRef="c123" decimals="2" format="ixt:num-dot-decimal" name="forty:PercentageOfShareCapital" scale="-2" unitRef="pure">60</ix:nonFraction>% of the share capital of SQ Service Quality for cash consideration of NIS
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still be entitled to future additional consideration contingent upon SQ Service Quality achieving certain future operating profit targets.
Matrix IT and SQ Service Quality&#8217;s minority shareholder hold mutual call and put options for the remaining <ix:nonFraction contextRef="c124" decimals="2" format="ixt:num-dot-decimal" name="ifrs-full:BorrowingsInterestRate" scale="-2" unitRef="pure">40</ix:nonFraction>% interest in SQ Service
Quality. SQ Service Quality has been active for more than a decade and it accompanies organizations and companies in service quality improvement
processes. Acquisition<b>-</b>related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since
they were not material to the Company&#8217;s consolidated statement of profit or loss. SQ Service Quality&#8217;s results of operations
were included in the consolidated financial statements of the Company commencing April 2021.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_72" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_71"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to the SQ Service Quality acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"></p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_73" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_72"><ix:nonNumeric contextRef="c166" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: justify">Other long-term assets</td><td>&#160;</td>
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    <td style="text-align: justify">Intangible assets</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c167" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:OtherCurrentLiabilities" scale="0" unitRef="usd">3</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c167" decimals="0" format="ixt:num-dot-decimal" name="forty:RedeemableNoncontrollingInterests" scale="0" unitRef="usd">555</ix:nonFraction></td><td style="text-align: left">)</td></tr>
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    <td style="text-align: justify; padding-bottom: 1.5pt">Goodwill</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify; padding-bottom: 4pt">Total assets acquired net of acquired cash</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 255; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->64<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_74" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_73"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">f.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of A.A Engineering Ltd. (&#8220;A.A Engineering&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_75" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_74"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On April 5, 2021,
Dana Engineering Ltd. (a subsidiary of Matrix IT), acquired <ix:nonFraction contextRef="c125" decimals="2" format="ixt:num-dot-decimal" name="forty:PercentageOfShareCapital" scale="-2" unitRef="pure">75</ix:nonFraction>% of the share capital of A.A Engineering for NIS <ix:nonFraction contextRef="c126" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="0" unitRef="ils">10,490</ix:nonFraction> (approximately
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additional consideration contingent upon A.A Engineering achieving certain future operating profit targets. As of the acquisition date,
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supervision work in civil engineering projects serving a wide range of customers, both from institutions and public bodies and from leading
companies in the Israeli economy.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_76" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_75"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Acquisition<b>-</b>related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s
consolidated statement of profit or loss. A.A Engineering&#8217;s results of operations were included in the consolidated financial statements
of the Company commencing April 2021.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_77" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_76"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values allocated to A.A Engineering&#8217;s acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_78" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_77"><ix:nonNumeric contextRef="c168" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: justify">Other long-term assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c169" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:OtherNoncurrentAssets" scale="3" unitRef="usd">104</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">Deferred taxes</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c169" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:OtherCurrentFinancialLiabilities" scale="3" unitRef="usd">260</ix:nonFraction></td><td style="text-align: left">)</td></tr>
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    <td style="text-align: justify">Non-controlling interests</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c169" decimals="-3" format="ixt:num-dot-decimal" name="forty:RedeemableNoncontrollingInterests" scale="3" unitRef="usd">527</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify; padding-bottom: 1.5pt">Goodwill</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c169" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:GoodwillRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">2,214</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right"><ix:nonFraction contextRef="c169" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IdentifiableAssetsAcquiredLiabilitiesAssumed" scale="3" unitRef="usd">2,797</ix:nonFraction></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td></tr>
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 25.65pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 256; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->65<!-- Field: /Sequence --></p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 25.65pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 25.65pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_80" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_79"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">v.</td><td style="text-align: justify"><span style="text-decoration:underline">Michpal</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 76.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_81" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_80"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">a.</td><td style="text-align: justify"><span style="text-decoration:underline">Acquisition of Formally Smart Form System Ltd. (&#8220;Formally&#8221;)</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 76.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_82" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_81"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On February 16, 2022, <ix:nonNumeric contextRef="c127" name="ifrs-full:DescriptionOfPrimaryReasonsForBusinessCombination">Michpal acquired 70% of the share capital of
Formally, for a total consideration of NIS 44,833 (approximately $14,415) or NIS 43,768 (approximately $14,073) net of acquired cash.
Michpal and the seller hold mutual call and put options, respectively, for the remaining 30% share interest in Formally. The options can
be exercised during every year starting from January 1, 2023 in 3 equal portions of 10% each and for a period of 3 years thereafter (i.e.
10% of Formally&#8217;s outstanding share capital as of 1.1.23 and for a period of 3 years thereafter; 10% as of 1.1.24 and for a period
of 3 years thereafter and 10% as of 1.1.24 and for a period of 3 years thereafter).The fair value of the put option measured on the acquisition
date amounted to NIS 6,104 (approximately $1,936). Formally is an Israeli-based company and the creator of Formally Smart Form platform
&#8211; a central server platform for managing knowledge and work processes, and for producing digital forms combined with a legally-binding
eSignature technology allowing customers to create impressive documents in minutes and get them signed in a snap. Formally offers a variety
of proprietary computerized and advanced tools for managing business processes trusted by Israel&#8217;s largest financial, banking, and
insurance enterprises. Its &#8220;no-code&#8221; platform, allows to convert outdated forms into a digital process for any company freeing
IT teams from ongoing maintenance issues and enables employees across the organization to deliver new digital products quickly and efficiently.
Acquisition<b>-</b>related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were
not material to the Company&#8217;s consolidated statement of profit or loss. Formally&#8217;s results of operations were included in
the consolidated financial statements of the Company commencing February 16, 2022.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 76.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_83" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_82"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the estimated fair values of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition
date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_84" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_83"><ix:nonNumeric contextRef="c133" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c132" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DeferredTaxLiabilitiesRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">2,008</ix:nonFraction></td><td style="text-align: left">)</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c132" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:NonderivativeFinancialLiabilitiesUndiscountedCashFlows" scale="3" unitRef="usd">548</ix:nonFraction></td><td style="text-align: left">)</td></tr>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 76.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_85" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_84"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">vi.</td><td style="text-align: justify"><span style="text-decoration:underline">ZAP Group:</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_86" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_85"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">a.</span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt; font-style: normal; font-weight: normal"><span style="text-decoration:underline">Acquisition
    of N.C Marketing and Advertising Ltd. (&#8220;Safra digital marketing&#8221;) and Marcomit Ltd. (&#8220;Marcomit&#8221;)</span></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_87" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_86"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">During December 2022,
Zap Group concluded the acquisition of <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="forty:PercentageOfShareCapital" scale="-2" unitRef="pure">51</ix:nonFraction>% of the outstanding share capital of N.C Marketing and Advertising Ltd. (also known as &#8220;Safra
digital marketing&#8221;) and <ix:nonFraction contextRef="c128" decimals="2" format="ixt:num-dot-decimal" name="forty:PercentageOfShareCapital" scale="-2" unitRef="pure">51</ix:nonFraction>% of the outstanding share capital of Marcomit Ltd. (&#8220;Marcomit&#8221;). Safra digital marketing
is an Israeli company specializing in social media services including Facebook, Instagram and Tik-tok. Marcomit is an Israeli company
specializing in digital branding for large enterprises including advanced branding materials for media and digital advertising.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 257; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->66<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_88" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_87"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">The total
consideration paid for these acquisitions amounted to approximately $<ix:nonFraction contextRef="c129" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">3,532</ix:nonFraction>, or $<ix:nonFraction contextRef="c130" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">2,819</ix:nonFraction> net of acquired cash. As part of the purchase
agreements, the sellers of Safra digital marketing and Marcomit may be entitled to additional future consideration contingent upon
meeting certain future operating profit targets. The fair value of such contingent considerations, as of the acquisition dates,
amounted to $<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContingentConsiderationRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">708</ix:nonFraction>. In addition, Zap and the minority shareholders of Safra digital marketing and Marcomit hold mutual call and put
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$<ix:nonFraction contextRef="c132" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairValueOfContingentConsideration" scale="3" unitRef="usd">4,021</ix:nonFraction>. Acquisition-related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they
were not material to the Company&#8217;s consolidated statement of profit or loss. The results of operations of Safra digital
marketing and Marcomit have been included in the consolidated financial statements since their respective acquisition dates. The
provisional estimated fair values allocated to customer relations, net of deferred tax liability and goodwill, amounted to $<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:TaxLiability" scale="3" unitRef="usd">2,745</ix:nonFraction>
and $<ix:nonFraction contextRef="c133" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdditionalRecognitionGoodwill" scale="3" unitRef="usd">1,891</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_89" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_88"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">b.</span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Acquisition of the remaining rights in Winhelp Ofran partnership</span></span></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_90" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_89"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">In February 2022, Zap Group acquired
<ix:nonFraction contextRef="c134" decimals="3" format="ixt:num-dot-decimal" name="forty:PartnershipPercentage" scale="-2" unitRef="pure">49.9</ix:nonFraction>% of the rights in its controlled partnership, Winhelp Ofran, a provider of digital advertising solutions for domestic travel businesses
in Israel, for consideration of NIS 11,000 (approximately $<ix:nonFraction contextRef="c135" decimals="0" format="ixt:num-dot-decimal" name="forty:BusinessCombinationConsiderationsTransferred1" scale="0" unitRef="usd">3,537</ix:nonFraction>), pursuant to which, Zap Group owns the entire rights in Winhelp Ofran
partnership.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_91" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_90"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">vii.</td><td style="text-align: justify"><span style="text-decoration:underline">Insync Staffing:</span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_92" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_91"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">On December 12, 2022,
Insync Staffing acquired all of the outstanding share capital of Bear Staffing Services Corporation (&#8220;Bear Staffing&#8221;), a corporation
duly organized under the laws of the State of Florida, for a total consideration of $<ix:nonFraction contextRef="c136" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">7,737</ix:nonFraction> (excluding $<ix:nonFraction contextRef="c136" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashAndCashEquivalentsRecognisedAsOfAcquisitionDate" scale="3" unitRef="usd">8,646</ix:nonFraction> of acquired cash) with $<ix:nonFraction contextRef="c136" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashOnHand" scale="3" unitRef="usd">5,276</ix:nonFraction>
paid in cash at closing, $<ix:nonFraction contextRef="c137" decimals="-3" format="ixt:num-dot-decimal" name="forty:ClosingAcquiredCash" scale="3" unitRef="usd">589</ix:nonFraction> paid in March 2023 and deferred payments of $<ix:nonFraction contextRef="c138" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CashOnHand" scale="3" unitRef="usd">957</ix:nonFraction> and $<ix:nonFraction contextRef="c139" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AdjustmentsForDeferredTaxExpense" scale="3" unitRef="usd">915</ix:nonFraction>, respectively due on the first and second anniversaries
of the closing date. Bear Staffing Corporation is a staffing agency providing talent for industries such as manufacturing<span style="font-family: Times New Roman, Times, Serif">,</span>
distribution, and call centers. Since its inception, Bear Staffing Corporation has provided more than <ix:nonFraction contextRef="c140" decimals="0" format="ixt:num-dot-decimal" name="forty:ProvideCorporationShares" scale="0" unitRef="shares">50,000</ix:nonFraction> employees to over <ix:nonFraction contextRef="c141" decimals="0" format="ixt:num-dot-decimal" name="forty:ProvideCorporationShares" scale="0" unitRef="shares">2,000</ix:nonFraction> employers
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and their recruiting model, Bear Staffing has been able to find, attract, place, and retain talent for their clients nationwide. As a
staffing agency that specializes in high-volume industries and skill sets, Bear Staffing&#8217;s objective is to provide targeted and
efficient staffing solutions to meet the specific needs of its clients.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_93" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_92"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company&#8217;s
consolidated statement of profit or loss. Bear Staffing&#8217;s results of operations were included in the consolidated financial statements
of the Company commencing December 12, 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 258; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->67<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><b>NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_94" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_93"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
summarizes the provisional estimated fair values <sup>(1)</sup> of the acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_95" id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_94"><ix:nonNumeric contextRef="c170" continuedAt="forty_DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock-c170_cont_1" escape="true" name="forty:DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation id="_DisclosureOfBusinessCombinationsExplanatory-c0_cont_95"><ix:continuation id="forty_DisclosureOfEstimatedFairValuesOfAssetsAcquiredAndLiabilitiesAtDateOfAcquisitionTableTextBlock-c170_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><sup>(1)</sup></td><td style="text-align: justify"><ix:footnote id="ix_2_footnote" xml:lang="en-US">The estimated fair values of the tangible and intangible
assets in respect of the acquisition of Bear Staffing are provisional and are based on information that was available as of the acquisition
date to estimate the fair value of these amounts. The Group&#8217;s management believes the information provides a reasonable basis for
estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore,
provisional measurements of fair value that appear are subject to change. The Group expects to finalize the tangible and intangible assets
valuation and complete the acquisition accounting as soon as practicable but no later than the measurement period.</ix:footnote></td>
</tr></table></ix:continuation></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfCashAndCashEquivalentsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfCashAndCashEquivalentsExplanatory"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -85.05pt"><b>NOTE 4:-
CASH AND CASH EQUIVALENTS</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -85.05pt"><b>&#160;</b></p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation id="_DisclosureOfCashAndCashEquivalentsExplanatory-c0_cont_1"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfRestrictedCashAndCashEquivalentsExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: right">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c172" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:Cash" scale="3" unitRef="usd">190,457</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c173" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:Cash" scale="3" unitRef="usd">155,045</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c174" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:Cash" scale="3" unitRef="usd">282,050</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  </table></ix:nonNumeric></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -85.05pt"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="forty_DisclosureOfOtherAccountsReceivableAndPrepaidExpensesTextBlock-c0_cont_1" escape="true" name="forty:DisclosureOfOtherAccountsReceivableAndPrepaidExpensesTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -85.05pt"><b>NOTE 5:-
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfOtherAccountsReceivableAndPrepaidExpensesTextBlock-c0_cont_2" id="forty_DisclosureOfOtherAccountsReceivableAndPrepaidExpensesTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The following table summarizes
the composition of the Group&#8217;s prepaid expenses and other accounts receivable:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="forty_DisclosureOfOtherAccountsReceivableAndPrepaidExpensesTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureOfCompositionOtherAccountsReceivableAndPrepaidExpensesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: right">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">Government authorities</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:CurrentGovernmentDepartments" scale="3" unitRef="usd">17,908</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify">Employees</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:CurrentEmployees" scale="3" unitRef="usd">430</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:CurrentRelatedParties" scale="3" unitRef="usd">281</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  </table></ix:nonNumeric></ix:continuation><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>


</div><!-- Field: Page; Sequence: 259; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->68<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfTradeAndOtherReceivablesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfTradeAndOtherReceivablesExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 6:- long-term
investments and receivables</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation id="_DisclosureOfTradeAndOtherReceivablesExplanatory-c0_cont_1"><ix:nonNumeric contextRef="c4" escape="true" name="ifrs-full:DisclosureOfOperatingSegmentsExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-align: right">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfFairValueMeasurementExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 7:- Fair
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_2" id="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">In determining fair value, the
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_3" id="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The Group&#8217;s financial
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_4" id="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_3"><ix:nonNumeric contextRef="c0" continuedAt="forty_DisclosureOfFairValueOfGroupsOfFinancialInstrumentsTableTextBlock-c0_cont_1" escape="true" name="forty:DisclosureOfFairValueOfGroupsOfFinancialInstrumentsTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_5" id="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_4"><ix:continuation continuedAt="forty_DisclosureOfFairValueOfGroupsOfFinancialInstrumentsTableTextBlock-c0_cont_2" id="forty_DisclosureOfFairValueOfGroupsOfFinancialInstrumentsTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>


</div><!-- Field: Page; Sequence: 260; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->69<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 7:- Fair
value measurement (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
    <td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
    <td colspan="14" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">December 31, 2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation id="_DisclosureOfFairValueMeasurementExplanatory-c0_cont_6"><ix:continuation id="forty_DisclosureOfFairValueOfGroupsOfFinancialInstrumentsTableTextBlock-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(1)</td><td style="text-align: justify"><ix:footnote id="ix_3_footnote" xml:lang="en-US">The fair value of dividend preference derivative in TSG was
estimated using the Monte-Carlo simulation technique.</ix:footnote></td>
</tr></table></ix:continuation></ix:continuation><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 8:-  Investments
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</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_2" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The following table summarizes
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</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_3" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="forty:SummaryOfFormulasInvestmentsTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_4" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Investment in TSG</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_5" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The Company holds
directly a <ix:nonFraction contextRef="c184" decimals="2" format="ixt:num-dot-decimal" name="ifrs-full:ProportionOfOwnershipInterestInAssociate" scale="-2" unitRef="pure">50</ix:nonFraction>% share interest in the issued and outstanding share capital of TSG, a joint venture engaged in the fields of command-and-control
systems, intelligence, homeland security and cyber security. The Company&#8217;s investment in TSG is reflected in the consolidated financial
statements using the equity method of accounting. At the acquisition date the Company attributed an amount of $<ix:nonFraction contextRef="c185" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ContractualCommitmentsForAcquisitionOfIntangibleAssets" scale="3" unitRef="usd">2,140</ix:nonFraction> to a separate component
of dividend preference derivative. The dividend preference derivative is measured at fair value through profit or loss and is presented
in the consolidated statements of financial position under long-term investments and receivables.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 261; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->70<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 8:-  Investments
in companies accounted for at equity (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_6" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">a.</td><td style="text-align: justify">The following table summarizes the balances related to the Company&#8217;s investment in TSG in the consolidated
statements of financial position:</td></tr></table><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_7" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_6"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfInvestmentInTsgEquityMethodInvestmentsTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td colspan="6" style="border-bottom: black 1.5pt solid; padding-right: 2.85pt; padding-left: 2.85pt; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>December 31,</b></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom">
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Investment in companies accounted for at equity method</span></span></td>
    <td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="width: 76%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Shares</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
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    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="forty:SharesInvestmentInJointVenture" scale="3" unitRef="usd">18,391</ix:nonFraction></span></td>
    <td style="width: 1%">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><span style="text-decoration:underline">Long-term investments and receivables </span></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Dividend preference derivative at fair value through profit or loss</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$&#160;</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="forty:DividendPreferenceDerivativeInTsg" scale="3" unitRef="usd">2,023</ix:nonFraction></span></td>
    <td>&#160;</td></tr>
  </table><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_8" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_7"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
    <td style="width: 0.25in">&#160;</td>
<td style="width: 0.25in; text-align: left">b.</td><td style="text-indent: 0in; padding-left: 0in; text-align: justify">The following table summarizes the changes in the fair value
of TSG&#8217;s dividend preference derivative:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_9" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_8"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfFairValueOfTsgsDividendPreferenceDerivativeTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>December 31,</b></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2022</b></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2021</b></span></td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="width: 76%; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Opening balance</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
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    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
    <td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c30" decimals="-3" format="ixt:num-dot-decimal" name="forty:InvestmentsAccountedForUsingEquityMethod" scale="3" unitRef="usd">1,707</ix:nonFraction></span></td>
    <td style="width: 1%">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Currency exchange rate in other comprehensive income</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:CurrencyExchangeRateInOtherComprehensiveIncome" scale="3" sign="-" unitRef="usd">244</ix:nonFraction></span></td>
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    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Closing balance</span></td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="forty:InvestmentsAccountedForUsingEquityMethod" scale="3" unitRef="usd">2,023</ix:nonFraction></span></td>
    <td>&#160;</td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_10" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_9"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">c.</td><td style="text-align: justify">The following table summarizes the changes in the carrying amount of the Company&#8217;s investment in
TSG:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_11" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_10"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfActivityOfInvestmentInTSGTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt"></p><div>

</div><!-- Field: Page; Sequence: 262; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->71<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"><span style="text-transform: uppercase"><b>Note
8:- Investments in companies accounted for at equity </b></span><b>(Cont.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_12" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_11"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">d.</td><td style="text-align: justify">Summarized financial data of joint venture:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_13" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_12"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">(i)</td><td style="text-align: justify">Summarized statements of financial position of TSG as of
December 31, 2021 and 2022:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_14" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_13"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfCompositionOfInvestmentInJointVentureTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: justify">&#160;</td>
    <td>&#160;</td>
    <td colspan="6" style="text-align: right">&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom">
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td style="width: 1%">&#160;</td>
    <td style="width: 1%">&#160;</td>
    <td style="width: 9%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c185" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CurrentAssets" scale="3" unitRef="usd">67,254</ix:nonFraction></span></td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td style="padding-left: 9pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Current liabilities</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td style="padding-left: 9pt; text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Non-current liabilities</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c185" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:OtherNoncurrentLiabilities" scale="3" unitRef="usd">69,534</ix:nonFraction></span></td>
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    <td>&#160;</td>
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    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c186" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:OtherNoncurrentLiabilities" scale="3" unitRef="usd">6,299</ix:nonFraction></span></td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Net assets</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Accumulated cost of share-based payment</span></td>
    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c185" decimals="-3" format="ixt:num-dot-decimal" name="forty:AccumulatedCostOfSharebasedPayment" scale="3" sign="-" unitRef="usd">1,705</ix:nonFraction></span></td>
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    <td>&#160;</td>
    <td style="border-bottom: black 1.5pt solid">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c186" decimals="-3" format="ixt:num-dot-decimal" name="forty:AccumulatedCostOfSharebasedPayment" scale="3" sign="-" unitRef="usd">1,282</ix:nonFraction></span></td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Total equity attributed to shareholders</span></td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Share of equity in TSG</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_15" id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_14"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left">(ii)</td><td style="text-align: justify">Summarized operating results of TSG for the years ended December
31, 2022, 2021 and 2020:</td>
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</div><div>



</div><ix:continuation id="_DescriptionOfAccountingPolicyForInvestmentsOtherThanInvestmentsAccountedForUsingEquityMethodExplanatory-c0_cont_15"><ix:nonNumeric contextRef="c0" escape="true" name="forty:SummaryOfStatementsOfIncomeOfInvestmentInTSGTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 49.5pt; text-align: justify; text-indent: -24.75pt">&#160;</p><div>


</div><!-- Field: Page; Sequence: 263; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->72<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><b>&#160;</b></p><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfPropertyPlantAndEquipmentExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfPropertyPlantAndEquipmentExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTE 9:- PROPERTY,
PLANTS AND EQUIPMENT, NET</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfPropertyPlantAndEquipmentExplanatory-c0_cont_2" id="_DisclosureOfPropertyPlantAndEquipmentExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">a.</td><td style="text-align: justify">Property, plants and equipment, net, are comprised of the
following as of the below dates:</td>
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</div><div>

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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 264; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->73<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in"><span style="font-weight: normal">&#160;</span></p><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in"><span style="font-weight: normal">&#160;</span></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTE 9:- PROPERTY,
PLANTS AND EQUIPMENT, NET (Cont.)</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfPropertyPlantAndEquipmentExplanatory-c0_cont_4" id="_DisclosureOfPropertyPlantAndEquipmentExplanatory-c0_cont_3"><ix:continuation id="_DisclosureOfDetailedInformationAboutPropertyPlantAndEquipmentExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify; text-indent: -8.5pt; padding-left: 8.5pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify; text-indent: -8.5pt; padding-left: 8.5pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation id="_DisclosureOfPropertyPlantAndEquipmentExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">b.</td><td style="text-align: justify">Depreciation expenses totaled $<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationExpense" scale="3" unitRef="usd">18,527</ix:nonFraction>, $<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationExpense" scale="3" unitRef="usd">20,468</ix:nonFraction> and $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationExpense" scale="3" unitRef="usd">16,513</ix:nonFraction>
for the years ended December 31, 2022, 2021 and 2020, respectively.</td>
</tr></table></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 265; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->74<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfIntangibleAssetsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfIntangibleAssetsExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NotE 10:- Intangible
Assets, Net</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIntangibleAssetsExplanatory-c0_cont_2" id="_DisclosureOfIntangibleAssetsExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">a.</td><td style="text-align: justify">Intangible assets, net, are comprised of the following as
of the below dates:</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: -20.25pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIntangibleAssetsExplanatory-c0_cont_3" id="_DisclosureOfIntangibleAssetsExplanatory-c0_cont_2"><ix:nonNumeric contextRef="c0" continuedAt="forty_ScheduleOfIntangibleAssetsNetTableTextBlock-c0_cont_1" escape="true" name="forty:ScheduleOfIntangibleAssetsNetTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 266; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->75<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NotE 10:- Intangible
Assets, Net <span style="text-transform: none">(Cont.)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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    <td>&#160;</td>
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</div><div>

</div><ix:continuation id="_DisclosureOfIntangibleAssetsExplanatory-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">b.</td><td style="text-align: justify">Amortization expenses totaled $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AmortisationExpense" scale="3" unitRef="usd">49,501</ix:nonFraction>, $<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AmortisationExpense" scale="3" unitRef="usd">58,611</ix:nonFraction>, and $<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:AmortisationExpense" scale="3" unitRef="usd">44,586</ix:nonFraction> for the years ended December&#160;31, 2022,
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: -20.25pt">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfGoodwillExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfGoodwillExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfGoodwillExplanatory-c0_cont_2" id="_DisclosureOfGoodwillExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes the changes in
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfGoodwillExplanatory-c0_cont_3" id="_DisclosureOfGoodwillExplanatory-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfCarryingAmountOfGoodwillTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation id="_DisclosureOfGoodwillExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0in">The Group performed
annual impairment tests as of December 31, 2022, 2021 and 2020 and did not identify any impairment losses (see Note 2(20)).</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.05in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DescriptionOfAccountingPolicyForFinancialLiabilitiesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DescriptionOfAccountingPolicyForFinancialLiabilitiesExplanatory"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="text-transform: uppercase"><b>Note 12:-
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</div><div>

</div><ix:continuation id="_DescriptionOfAccountingPolicyForFinancialLiabilitiesExplanatory-c0_cont_1"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ShortTermLiabilitiesToBanksAndOthersTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table></ix:nonNumeric></ix:continuation><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 267; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->76<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="forty_OtherAccountsPayableTextBlock-c0_cont_1" escape="true" name="forty:OtherAccountsPayableTextBlock"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 13:- other accounts
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</div><div>

</div><ix:continuation continuedAt="forty_OtherAccountsPayableTextBlock-c0_cont_2" id="forty_OtherAccountsPayableTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in"><span style="font-weight: normal; text-transform: none">Other
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</div><div>

</div><ix:continuation id="forty_OtherAccountsPayableTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfFairValueMeasurementOfAssetsExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
    <td style="text-align: right">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  </table></ix:nonNumeric></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfOtherLiabilitiesExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 14:- Long term
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_2" id="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_3" id="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfLongTermLiabilitiesToBanksAndOthersTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

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    <td style="width: 0.25in">&#160;</td>
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</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_5" id="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_4"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfLongTermLiabilitiesToBanksAndOthersMaturityDatesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation id="_DisclosureOfOtherLiabilitiesExplanatory-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0in; margin-bottom: 0in; width: 100%">
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    <td style="text-align: justify; font-size: 10pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Details of liens, guarantees and credit facilities are described in Note 20.</span></td></tr>
  </table></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 268; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->77<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt">&#160;</span></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_1" escape="true" name="forty:DisclosureOfDebenturesTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><b>NOTE 15:<span style="font-family: Times New Roman, Times, Serif">- DEBENTURES</span></b></p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt">&#160;</span></p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_2" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The Group&#8217;s liabilities
under debentures are attributable to debentures issued by Formula, Sapiens and Matrix. The debentures are all listed for trading on the
Tel-Aviv Stock Exchange.</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt">&#160;</span></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_3" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">a.</td><td style="text-align: justify">Debentures are comprised of the following as of the below dates:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 14.2pt; text-align: justify; text-indent: 0in"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt">&#160;</span></p></ix:continuation><div>

</div><div>

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    <td style="text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 9.5pt">&#160;</span></td><td style="text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 9.5pt">&#160;</span></td><td style="text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 9.5pt">&#160;</span></td><td><span style="font-family: Times New Roman, Times, Serif; font-size: 9.5pt">&#160;</span></td>
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</div><!-- Field: Page; Sequence: 269; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->78<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 14.2pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 14.2pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 15:<span style="font-family: Times New Roman, Times, Serif"><b>- DEBENTURES</b></span>
(<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 14.2pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_6" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">During the years
ended December 31, 2022 and 2021, the Group recorded $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:InterestExpenses" scale="3" unitRef="usd">7,533</ix:nonFraction> and $<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:InterestExpenses" scale="3" unitRef="usd">7,056</ix:nonFraction>, respectively, of interest expenses, and $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:DiscountAndIssuanceCostsAmortization" scale="3" unitRef="usd">158</ix:nonFraction> and ($<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:DiscountAndIssuanceCostsAmortization" scale="3" sign="-" unitRef="usd">109</ix:nonFraction>), respectively,
of amortization of debt premium, discount and issuance costs, net in respect of the Group&#8217;s debentures.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 14.2pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_7" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">b.</td><td style="text-align: justify">Scheduled aggregate principal annual payments of the debentures:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_8" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_7"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureOfDetailedInformationAboutAnnualPaymentsOfDebenturesExplanatoryTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td>&#160;</td>
    <td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>Repayment<br/>
amount</b></span></td>
    <td>&#160;</td></tr>
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    <td style="width: 1%">&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td></tr>
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    <td>&#160;</td>
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<td style="width: 0.25in"></td><td style="width: 0.25in">c.</td><td style="text-align: justify"><span style="text-decoration:underline">Formula&#8217;s debentures</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 28.35pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_10" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_9"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">i)</td><td style="text-align: justify"><span style="text-decoration:underline">Formula Systems Series A Secured Debentures</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

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years 2017 through 2024. The principal amount outstanding under the Formula Systems Series A Secured Debentures bears interest at a fixed
rate of <ix:nonFraction contextRef="c257" decimals="3" format="ixt:num-dot-decimal" name="ifrs-full:BorrowingsInterestRate" scale="-2" unitRef="pure">2.8</ix:nonFraction>% per annum (subject to adjustments based on the credit rating of the debentures), payable on July 2<sup>nd</sup> and January
2<sup>nd</sup> of each of the years 2016 through 2024. Issuance costs, including early commitment commission of approximately NIS <ix:nonFraction contextRef="c258" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="ils">1,246</ix:nonFraction>
(approximately $<ix:nonFraction contextRef="c258" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="usd">320</ix:nonFraction>), were allocated to the Formula Systems Series A Secured Debentures and are amortized as financial expenses over the
term of the Series A Secured Debentures due in 2024.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_12" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">On January 31, 2018,
Formula issued additional Formula Systems Series A Secured Debentures in an aggregate principal amount of NIS&#160;<ix:nonFraction contextRef="c259" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="ils">150,000</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c259" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="usd">44,053</ix:nonFraction>) through a private placement to qualified investors in Israel. The gross proceeds received by Formula from the issuance of Formula
Systems Series A Secured Debentures in January 2018 were NIS&#160;<ix:nonFraction contextRef="c260" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="ils">155,205</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c260" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="usd">45,581</ix:nonFraction>), out of which NIS <ix:nonFraction contextRef="c260" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="ils">336</ix:nonFraction> was attributed
to interest payable (approximately $<ix:nonFraction contextRef="c260" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="usd">99</ix:nonFraction>). Debt premium of NIS <ix:nonFraction contextRef="c259" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtPremium" scale="3" unitRef="ils">4,869</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c259" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtPremium" scale="3" unitRef="usd">1,430</ix:nonFraction>) net of issuance costs of NIS <ix:nonFraction contextRef="c260" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="ils">782</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c260" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="usd">225</ix:nonFraction>) was allocated to the Formula Systems Series A Secured Debentures and is amortized as financial income over the remaining term of
the Formula Systems Series A Secured Debentures due in 2024.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_13" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">The Formula Systems
Series A Secured Debentures issued in September 2015, together with the Formula Systems Series A Secured Debentures sold in the private
placement, form one single series with identical terms and conditions.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_14" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">The Series A Secured
Debentures are denominated in New Israeli Shekels not linked to any currency or index, and are non-convertible. The Formula Systems Series
A Secured Debentures are secured with collateral consisting of shares of Matrix IT, Magic Software and Sapiens (see Note 20a).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 270; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->79<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 15:<span style="font-family: Times New Roman, Times, Serif"><b>- DEBENTURES</b></span>
(<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_15" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">The Formula Systems
Series A Secured Debentures are listed for trading on the Tel-Aviv Stock Exchange. As of December 31, 2022 and 2021, the fair value of
Formula&#8217;s Series A Secured Debentures, based on the quoted market price on the Tel-Aviv Stock Exchange, was approximately $<ix:nonFraction contextRef="c261" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IssueOfConvertibleInstruments" scale="3" unitRef="usd">19,202</ix:nonFraction>
and $<ix:nonFraction contextRef="c262" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IssueOfConvertibleInstruments" scale="3" unitRef="usd">34,057</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_16" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_15"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">ii)</td><td style="text-align: justify"><span style="text-decoration:underline">Formula Systems Series C Secured Debentures</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_17" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">On March 31, 2019,
Formula issued Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS <ix:nonFraction contextRef="c263" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromIssueOfBondsNotesAndDebentures" scale="3" unitRef="ils">300,000</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c263" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ProceedsFromIssueOfBondsNotesAndDebentures" scale="3" unitRef="usd">82,600</ix:nonFraction>), at
a purchase price equal to <ix:nonFraction contextRef="c263" decimals="2" format="ixt:num-dot-decimal" name="forty:SaleOfStockPercentageOfOwnershipBeforeTransactions" scale="-2" unitRef="pure">100</ix:nonFraction>% of their par value. The principal due under the Series C Secured Debentures is payable in five annual installments
of NIS 33,000 on December 1 of each of the years 2020 through 2024 and two annual installments of NIS 67,500 on December 1 of each of
the years 2025 and 2026. The outstanding principal amount under the Formula Systems Series C Secured Debentures bears interest at a fixed
rate of <ix:nonFraction contextRef="c264" decimals="4" format="ixt:num-dot-decimal" name="ifrs-full:BorrowingsInterestRate" scale="-2" unitRef="pure">2.29</ix:nonFraction>% per annum (subject to adjustments based on the credit rating of the debentures), payable on December 1<sup>st</sup> and
June 1<sup>st</sup> of each of the years 2019 through 2026. Issuance costs, including an early commitment commission of approximately
NIS <ix:nonFraction contextRef="c263" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:OtherFeeAndCommissionExpense" scale="3" unitRef="ils">3,355</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c263" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:OtherFeeAndCommissionExpense" scale="3" unitRef="usd">924</ix:nonFraction>) were allocated to Formula Systems Series C Secured Debentures and are amortized as financial expenses over
the term of Formula Systems Series C Secured Debentures due in 2026.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_18" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">On April 12, 2021,
Formula issued additional Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS&#160;<ix:nonFraction contextRef="c265" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="ils">160,000</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c265" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="usd">48,617</ix:nonFraction>) through a private placement to qualified investors in Israel. The gross proceeds received by Formula for the issuance of Formula
Systems Series C Secured Debentures in April 2021 were NIS&#160;<ix:nonFraction contextRef="c266" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="ils">165,920</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c266" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="usd">50,524</ix:nonFraction>), out of which NIS <ix:nonFraction contextRef="c266" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="ils">1,329</ix:nonFraction> was attributed
to interest payable (approximately $<ix:nonFraction contextRef="c266" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="usd">405</ix:nonFraction>). Debt premium of NIS <ix:nonFraction contextRef="c265" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtPremium" scale="3" unitRef="ils">4,591</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c265" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtPremium" scale="3" unitRef="usd">1,398</ix:nonFraction>) net of issuance costs of NIS <ix:nonFraction contextRef="c265" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CurrentDebtInstrumentsIssued" scale="3" unitRef="ils">752</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c265" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CurrentDebtInstrumentsIssued" scale="3" unitRef="usd">229</ix:nonFraction>) was allocated to the Formula Systems Series C Secured Debentures and is amortized as financial income over the remaining term of
the Formula Systems Series A Secured Debentures due in 2026.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_19" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">On August 30, 2022,
Formula issued additional Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS&#160;<ix:nonFraction contextRef="c267" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="ils">200,000</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c267" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="usd">60,514</ix:nonFraction>) through a private placement to qualified investors in Israel. The gross proceeds received by Formula for the issuance of Formula
Systems Series C Secured Debentures in August 2022 were NIS&#160;<ix:nonFraction contextRef="c268" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="ils">195,000</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c268" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="usd">59,002</ix:nonFraction>), out of which NIS <ix:nonFraction contextRef="c268" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="ils">1,126</ix:nonFraction> was attributed
to interest payable (approximately $<ix:nonFraction contextRef="c268" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="usd">341</ix:nonFraction>). Debt deficit of NIS <ix:nonFraction contextRef="c267" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtDeficit" scale="3" unitRef="ils">7,076</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c267" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtDeficit" scale="3" unitRef="usd">2,141</ix:nonFraction>) including issuance costs of NIS <ix:nonFraction contextRef="c267" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CurrentDebtInstrumentsIssued" scale="3" unitRef="ils">950</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c267" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:CurrentDebtInstrumentsIssued" scale="3" unitRef="usd">287</ix:nonFraction>) were allocated to the Formula Systems Series C Secured Debentures and are amortized as financial expenses over the remaining term
of the Formula Systems Series C Secured Debentures due in 2026.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_20" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">The Formula Systems
Series C Secured Debentures issued in March 2019, together with the Formula Systems Series C Secured Debentures sold in April 2021 and
in August 2022 in private placements, form one single series with identical terms and conditions.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_21" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.75in; text-align: justify; text-indent: 0in">The Formula Systems
Series C Secured Debentures are denominated in New Israeli Shekels and are not linked to any currency or index and are non-convertible.
The Formula Systems Series C Secured Debentures
are secured with collateral consisting of shares of Matrix IT, Magic Software and Sapiens (see Note 20a).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 271; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->80<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 15:<span style="font-family: Times New Roman, Times, Serif"><b>- DEBENTURES</b></span>
(<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_22" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">The Series C Secured
Debentures are listed for trading on the Tel-Aviv Stock Exchange. As of December 31, 2022 and 2021, the fair value of Formula&#8217;s
Series C Secured Debentures, based on the quoted market price on the Tel-Aviv Stock Exchange, was approximately $<ix:nonFraction contextRef="c269" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IssueOfConvertibleInstruments" scale="3" unitRef="usd">133,046</ix:nonFraction> and $<ix:nonFraction contextRef="c270" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IssueOfConvertibleInstruments" scale="3" unitRef="usd">125,672</ix:nonFraction>,
respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_23" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">The offerings of
Formula&#8217;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,
as amended (the &#8220;Securities Act&#8221;)), in an overseas directed offering (as defined in Rule 903(b)(i)(ii) under the Securities
Act), and were exempt from registration under the Securities Act pursuant to the exemption provided by Regulation S thereunder.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_24" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">The sale of Formula
debentures was not registered under the Securities Act, and Formula debentures may not be offered or sold in the United States and/or
to U.S. persons without registration under the Securities Act or an applicable exemption from the registration requirements of the Securities
Act.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_25" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">In accordance with
the indenture for the Formula Systems Series A Secured Debentures and the Formula Systems Series C Secured Debentures, Formula has undertaken
to maintain a number of conditions and limitations on the manner in which it operates its business, including limitations on its ability
to undergo a change of control, distribute dividends, incur a floating charge on its assets, or undergo an asset sale or other change
that results in a fundamental change in its operations, and to meet certain financial covenants (see Notes 20a and 20c(1)(i)).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_26" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_25"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">d.</td><td style="text-align: justify"><span style="text-decoration:underline">Sapiens&#8217; Series B Debentures</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 56.7pt 0pt 28.35pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_27" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">On September 16,
2017, Sapiens issued its unsecured Series B Debentures in an aggregate principal amount of NIS <ix:nonFraction contextRef="c271" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="ils">280,000</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c271" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="usd">79,186</ix:nonFraction>), linked
to the US dollar and payable in eight equal annual payments of $<ix:nonFraction contextRef="c271" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtAnnualPayment" scale="3" unitRef="usd">9,898</ix:nonFraction> on January 1<sup>st</sup> of each of the years 2019 through 2026.
The outstanding principal amount of Sapiens&#8217; Series B Debentures bears a fixed interest rate of <ix:nonFraction contextRef="c271" decimals="4" format="ixt:num-dot-decimal" name="ifrs-full:BorrowingsInterestRate" scale="-2" unitRef="pure">3.37</ix:nonFraction>% per annum (which may be adjusted
based on changes to the credit rating of the debentures), payable on January 1<sup>st</sup> and July 1<sup>st</sup> of each of the years
2018 through 2025, with one final interest payment due on January 1, 2026. Debt discount, and issuance costs were approximately $<ix:nonFraction contextRef="c272" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="usd">956</ix:nonFraction>,
allocated to Sapiens&#8217; Series B Debentures discount and are amortized as financial expenses over the term of the Series B Debentures
due in 2026<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_28" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">On June 8, 2020,
Sapiens issued additional Sapiens&#8217; Series B Debentures in an aggregate principal amount of NIS <ix:nonFraction contextRef="c273" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="ils">210,000</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c273" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="usd">60,362</ix:nonFraction>) through
a public offering in Israel. The gross proceeds received from the issuance of Sapiens&#8217; Series B Debentures in June 2020 were NIS
<ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="ils">210,840</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="usd">60,603</ix:nonFraction>), out of which approximately NIS <ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="ils">3,006</ix:nonFraction> was attributed to interest payable (approximately $<ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="usd">864</ix:nonFraction>). Debt discount
of NIS <ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtDiscount" scale="3" unitRef="ils">2,166</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtDiscount" scale="3" unitRef="usd">623</ix:nonFraction>) and issuance costs of NIS <ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="ils">2,326</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c274" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="usd">669</ix:nonFraction>) were allocated to Sapiens&#8217; Series B Debentures
and are amortized as financial expenses over the remaining term of the Sapiens Series B Debentures due in 2026. Sapiens&#8217; Series
B Debentures issued in September 2017 together with the Sapiens&#8217; Series B Debentures issued in June 2020, form one single series
with identical terms and conditions. Sapiens&#8217; Series B Debentures are linked to the US Dollar, unsecured and non-convertible. Sapiens&#8217;
Series B Debentures are listed for trading on the TASE<span style="font-family: Times New Roman, Times, Serif">.</span> As of December
31, 2022 and 2021, the fair value of Sapiens&#8217; Series B Debentures, based on the quoted market
price on the Tel-Aviv Stock Exchange, was approximately $<ix:nonFraction contextRef="c275" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairMarketPriceOnStockExchange" scale="3" unitRef="usd">75,192</ix:nonFraction> and $<ix:nonFraction contextRef="c276" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairMarketPriceOnStockExchange" scale="3" unitRef="usd">100,465</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><!-- Field: Page; Sequence: 272; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->81<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 15:- DEBENTURES
(<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_29" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">The offerings of
Sapiens&#8217; debentures were made only in Israel and not to U.S. persons (as defined in Rule 902(k) under the Securities Act of 1933,
as amended (the &#8220;Securities Act&#8221;)), in an overseas directed offering (as defined in Rule 903(b)(i)(ii) under the Securities
Act) and was exempt from registration under the Securities Act pursuant to the exemption provided by Regulation S thereunder.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_30" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_29"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">The sale of Sapiens
debentures was not registered under the Securities Act, and the Sapiens debentures may not be offered or sold in the United States and/or
to U.S. persons without registration under the Securities Act or an applicable exemption from the registration requirements of the Securities
Act.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_31" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_30"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">In accordance with
the indenture for the Sapiens Series B Debentures, Sapiens has undertaken to comply with a number of conditions and limitations on the
manner in which it operates its business, including limitations on its ability to undergo a change of control, distribute dividends, incur
a floating charge on Sapiens&#8217; assets, or undergo an asset sale or other change that results in a fundamental change in Sapiens&#8217;
operations and to meet certain financial covenants (see Note 20c(3)(iii)).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_32" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_31"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">e.</td><td style="text-align: justify"><span style="text-decoration:underline">Matrix IT Series B Debentures</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_33" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">On September 18,
2022, Matrix IT issued the Matrix IT Series B Debentures in an aggregate principal amount of NIS <ix:nonFraction contextRef="c277" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="ils">295,249</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c277" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="usd">87,872</ix:nonFraction>), at a
purchase price equal to <ix:nonFraction contextRef="c278" decimals="2" format="ixt:num-dot-decimal" name="forty:SaleOfStockPercentageOfOwnershipBeforeTransactions" scale="-2" unitRef="pure">100</ix:nonFraction>% of their par value. <ix:nonNumeric contextRef="c278" name="forty:DebtsInstrumentDescription">The principal due under the Matrix IT Series B Debentures is payable in thirteen (13)
semi-annual installments each equal to approximately 7.14% of the aggregate principal amount (or approximately NIS 21,081) on February
1 and on August 1 of each of the years 2023 through 2029 with the last payment equal to 7.18% of the aggregate principal amount (or approximately
NIS 21,196) paid on February 1, 2030.</ix:nonNumeric> The outstanding principal amount under the Matrix IT Series B Debentures bears interest at a fixed
rate of <ix:nonFraction contextRef="c277" decimals="3" format="ixt:num-dot-decimal" name="ifrs-full:BorrowingsInterestRate" scale="-2" unitRef="pure">4.1</ix:nonFraction>% per annum (subject to adjustments based on the credit rating of the debentures), payable on February 1<sup>st</sup> and August
1<sup>st</sup> of each of the years 2023, through 2030. Issuance costs including an early commitment commission of approximately NIS <ix:nonFraction contextRef="c278" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="ils">2,158</ix:nonFraction>
(approximately $<ix:nonFraction contextRef="c278" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="usd">642</ix:nonFraction>) were allocated to the Matrix IT Series B Debentures and are amortized as financial expenses over the term of the
Matrix IT Series B Debentures due in 2030.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_34" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_33"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">On December 4, 2022,
Matrix IT issued additional Matrix IT Series B Debentures in an aggregate principal amount of NIS&#160;<ix:nonFraction contextRef="c279" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="ils">180,366</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c279" decimals="-3" format="ixt:num-dot-decimal" name="forty:ProceedsFromIssueOfBondsNotesAndDebenture" scale="3" unitRef="usd">53,680</ix:nonFraction>)
through a private placement to qualified investors in Israel. The gross proceeds received by Matrix IT for the issuance of Matrix IT Series
B Debentures in December 2022 were NIS&#160;<ix:nonFraction contextRef="c280" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="ils">178,385</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c280" decimals="-3" format="ixt:num-dot-decimal" name="forty:GrossProceedsFromDebentures" scale="3" unitRef="usd">53,107</ix:nonFraction>), out of which NIS <ix:nonFraction contextRef="c280" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="ils">1,582</ix:nonFraction> was attributed to interest payable
(approximately $<ix:nonFraction contextRef="c280" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:InterestExpenseOnBorrowings" scale="3" unitRef="usd">471</ix:nonFraction>). Debt deficit of NIS <ix:nonFraction contextRef="c279" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtDeficit" scale="3" unitRef="ils">1,981</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c279" decimals="-3" format="ixt:num-dot-decimal" name="forty:DebtDeficit" scale="3" unitRef="usd">590</ix:nonFraction>) including issuance costs of NIS <ix:nonFraction contextRef="c280" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="ils">399</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c280" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:PaymentsForDebtIssueCosts" scale="3" unitRef="usd">119</ix:nonFraction>) were allocated
to the Matrix IT Series B Debentures and are amortized as financial expenses over the remaining term of the Matrix IT Series B Debentures
due in 2030.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfDebenturesTextBlock-c0_cont_35" id="forty_DisclosureOfDebenturesTextBlock-c0_cont_34"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">The Matrix IT Series
B Debentures issued in September 2022, together with the Matrix IT Series B Debentures sold in December 2022 in a private placement, form
one single series with identical terms and conditions.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="forty_DisclosureOfDebenturesTextBlock-c0_cont_35"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0.5in; text-align: justify; text-indent: 0in">As of December 31,
2022, the fair value of Matrix IT&#8217;s Series B Secured Debentures, based on the quoted market price on the Tel-Aviv Stock Exchange,
was approximately $<ix:nonFraction contextRef="c281" decimals="-3" format="ixt:num-dot-decimal" name="forty:FairMarketPriceOnStockExchange" scale="3" unitRef="usd">135,156</ix:nonFraction>.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 273; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->82<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfRelatedPartyExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
16:- RELATED PARTies TRANSACTIONS</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_2" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">a)</td><td style="text-align: justify">Acquisition of Sapiens Software Solutions (Poland) Sp. Z o.o (formerly &#8220;Insseco Sp. Z o.o.&#8221;)
(&#8220;Sapiens Poland&#8221;)</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 28.35pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_3" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On August 18, 2015,
Sapiens completed the acquisition from Asseco, the parent company of Formula, of all issued and outstanding share capital of Sapiens Poland.
Under the share purchase agreement for that acquisition, Asseco committed to assign to Sapiens Poland all customer contracts that relate
to the intellectual property that Sapiens acquired as part of the acquisition. In the event that Asseco cannot obtain the consent of any
customer to the assignment of its contract to Sapiens Poland, Asseco will hold that customer&#8217;s contract in trust for the benefit
of Sapiens Poland.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_4" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">During the years
ended December 31, 2022, 2021 and 2020, Asseco provided back-office services, professional services and fixed assets to Sapiens&#8217;
wholly owned subsidiary, Sapiens Poland, in amounts totaling approximately $<ix:nonFraction contextRef="c296" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ServicesReceivedRelatedPartyTransactions" scale="3" unitRef="usd">181</ix:nonFraction>, $<ix:nonFraction contextRef="c297" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ServicesReceivedRelatedPartyTransactions" scale="3" unitRef="usd">197</ix:nonFraction> and $<ix:nonFraction contextRef="c298" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:ServicesReceivedRelatedPartyTransactions" scale="3" unitRef="usd">521</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_5" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">During the years
ended December 31, 2022, 2021 and 2020, Sapiens Poland performed services as a sub-contractor on behalf of Asseco for clients of Asseco
in total amounts of approximately $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:PerformedServicesSubcontractor" scale="3" unitRef="usd">2,900</ix:nonFraction>, $<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:PerformedServicesSubcontractor" scale="3" unitRef="usd">3,200</ix:nonFraction> and $<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="forty:PerformedServicesSubcontractor" scale="3" unitRef="usd">3,100</ix:nonFraction>, respectively. For historic reasons, Asseco issues invoices to those clients
and then Sapiens in turn invoices Asseco on a back-to-back basis (with no margin to Asseco).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_6" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">As of December 31,
2022 and 2021 the Group had trade payable balances due from its transactions with Asseco, as detailed above, in amounts of $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:DueFromItsTransactionsWithAsseco" scale="3" unitRef="usd">2,927</ix:nonFraction> and
$<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="forty:DueFromItsTransactionsWithAsseco" scale="3" unitRef="usd">3,187</ix:nonFraction>, respectively. As of December 31, 2022 and 2021, the Group had trade receivables balances due from its transactions with Asseco,
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_7" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_8" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Sapiens paid Formula
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_10" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_9"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_11" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following amounts disclosed in the
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_12" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_11"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfInformationAboutKeyManagementPersonnelExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_13" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_12"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">d)</td><td style="text-align: justify">Back-office services</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_14" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">During the years
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfRelatedPartyExplanatory-c0_cont_15" id="_DisclosureOfRelatedPartyExplanatory-c0_cont_14"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">e)</td><td style="text-align: justify">Other Transactions</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.8pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_DisclosureOfRelatedPartyExplanatory-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The
Group&#8217;s subsidiaries and affiliates engage from time to time with each other in non-material transactions, in the ordinary
course of business, where the amounts involved, and the nature of the transactions, are not material for either of the parties. The
Group believes that these transactions are made on an arms&#8217; length basis upon terms and conditions no less favorable to the
Group, its subsidiaries and affiliates, as it could obtain from unaffiliated third parties. If Group engages with its subsidiaries
and affiliates in transactions which are not in the ordinary course of business, the Group receives the approvals required under the
Companies Law. These approvals include audit committee approval, board approval and, in certain circumstances, shareholder
approval.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 274; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->83<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfLeasesExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
17:- LEASES</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_2" id="_DisclosureOfLeasesExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The Group leases substantially
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unless the renewals are deemed to be reasonably certain at lease commencement. Lease payments included in the measurement of the lease
liability comprise the following: the fixed non-cancellable lease payments, payments for optional renewal periods where it is reasonably
certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will
not be terminated early.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_3" id="_DisclosureOfLeasesExplanatory-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">Under IFRS 16, all leases with
durations greater than 12 months, including non-cancellable operating leases, are now recognized on the statement of financial position.
The aggregated present value of lease agreements is recorded as a long-term asset titled operating lease right-of-use assets.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_4" id="_DisclosureOfLeasesExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The corresponding lease liabilities
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_5" id="_DisclosureOfLeasesExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">Maturity analysis of undiscounted
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_6" id="_DisclosureOfLeasesExplanatory-c0_cont_5"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfMaturityAnalysisOfUndiscountedFutureLeasePaymentsReceivableForOperatingLease"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Total undiscounted cash flows</span></td>
    <td>&#160;</td>
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    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="text-align: justify"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Present value of lease liabilities</span></td>
    <td>&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_7" id="_DisclosureOfLeasesExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">a.</td><td style="text-align: left">Information on leases:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_8" id="_DisclosureOfLeasesExplanatory-c0_cont_7"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfAdditionalInformationExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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December 31,</b></td><td style="padding-bottom: 1.5pt"><b>&#160;</b></td></tr>
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    <td style="text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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</div><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt"></p><div>

</div><!-- Field: Page; Sequence: 275; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->84<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
17:- LEASES <span style="text-transform: none">(Cont.)</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_9" id="_DisclosureOfLeasesExplanatory-c0_cont_8"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">b.</td><td style="text-align: left">Disclosures in respect of right-of-use assets:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfLeasesExplanatory-c0_cont_10" id="_DisclosureOfLeasesExplanatory-c0_cont_9"><ix:nonNumeric contextRef="c0" continuedAt="forty_ScheduleOfRightofuseAssetsTableTextBlock-c0_cont_1" escape="true" name="forty:ScheduleOfRightofuseAssetsTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="text-align: justify">&#160;</td><td>&#160;</td><td>&#160;</td>
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    <td style="padding-left: 0.125in; text-indent: -0.125in; width: 64%; text-align: left">Balance as of January&#160;1, 2022</td><td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Modification of leases</td><td>&#160;</td>
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    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left">Acquisition of subsidiaries</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Disposals during the year:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="padding-left: 0.25in; text-indent: -0.125in; text-align: left; padding-bottom: 1.5pt">Termination of leases</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left; padding-bottom: 1.5pt">Balance as of December 31, 2022</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Accumulated depreciation:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-left: 0.125in; text-indent: -0.125in; text-align: left">Balance as of January&#160;1, 2022</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation id="_DisclosureOfLeasesExplanatory-c0_cont_10"><ix:continuation id="forty_ScheduleOfRightofuseAssetsTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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  </table></ix:continuation></ix:continuation><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt"></p><div>

</div><!-- Field: Page; Sequence: 276; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->85<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_1" escape="true" name="forty:DisclosureOfEmployeeOptionPlansExplanatoryTextBlock"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
18:- Employee Option Plans</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_2" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">a)</td><td style="text-align: justify">Formula and its subsidiaries grant, from time to time, options, restricted share units or restricted shares
to their officers and employees to purchase shares in the respective companies. In general, the options expire ten years after grant.
The following table sets forth the breakdown of share-based compensation expense resulting from such grants, as included in the consolidated
statements of profit or loss:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 76.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_3" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfSharebasedPaymentArrangementsExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 64%; text-align: justify; padding-bottom: 1.5pt">General and administrative expenses</td><td style="width: 1%; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-bottom: 4.05pt">&#160;</td><td style="padding-bottom: 4.05pt">&#160;</td>
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  </table><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:nonNumeric></ix:continuation><div>


</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_4" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt">b)</td><td style="text-align: justify"><span style="text-decoration:underline">Formula</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_5" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In March 2011, the
Company&#8217;s board of directors adopted Formula&#8217;s 2011 Share Incentive Plan (the &#8220;2011 Plan&#8221;). Pursuant to the 2011
Plan, the Company may grant from time to time to its employees, office holders and consultants&#8217; options to purchase, share based
awards or restricted shares with respect to, up to an aggregate of <ix:nonFraction contextRef="c314" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">545,000</ix:nonFraction> ordinary shares of the Company. The 2011 Plan is administered
by the Company&#8217;s board of directors. The 2011 Plan provides that options, restricted shares or other stock-based awards may be granted,
from time to time, to such grantees to be determined by the Company&#8217;s board of directors, at such exercise prices and with such
vesting or other terms as shall be determined by the board at its sole and absolute discretion. In March 2012, the Company&#8217;s board
of directors increased the amount of ordinary shares reserved for issuance under the 2011 Share Incentive Plan by <ix:nonFraction contextRef="c315" decimals="0" format="ixt:num-dot-decimal" name="forty:SharesIncentivePlan" scale="0" unitRef="shares">1,200,000</ix:nonFraction> shares. Upon
the lapse of <ix:nonNumeric contextRef="c316" format="ixt-sec:durwordsen" name="forty:OptionsExpirePeriods">ten years</ix:nonNumeric> following the adoption of the 2011 Plan, no further grants could be made under the plan. Consequently, in August
2021, the Company adopted its 2021 Share Incentive Plan (the &#8220;2021 Plan&#8221;). Pursuant to the 2021 Plan, we may grant from time
to time to the Company&#8217;s employees, office holders and consultants&#8217; options to purchase, share-based awards or restricted
shares with respect to, up to an aggregate of <ix:nonFraction contextRef="c317" decimals="0" format="ixt:num-dot-decimal" name="forty:AggregateRestrictedShares" scale="0" unitRef="shares">350,000</ix:nonFraction> Ordinary shares (including <ix:nonFraction contextRef="c317" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">48,378</ix:nonFraction> Ordinary shares that were reserved for issuance
under the 2011 Plan and not subject to outstanding grants and transferred to the 2021 Plan). The 2021 Plan is administered by the Company&#8217;s
board of directors. The 2021 Plan provides that options, restricted shares, or other stock-based awards may be granted, from time to time,
to such grantees to be determined by the Company&#8217;s board of directors, at such exercise prices and with such vesting or other terms
as shall be determined by the Company&#8217;s board of directors at its sole and absolute discretion.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_6" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Of the awards available
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Company&#8217;s Chief Executive Officer, each to be exercisable for NIS <ix:nonFraction contextRef="c314" decimals="2" format="ixt:num-dot-decimal" name="forty:FairValueOfGrantSharePricePerShare" scale="0" unitRef="ilsPershares">0.01</ix:nonFraction> per share. The Company also approved the grant of <ix:nonFraction contextRef="c319" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares"><ix:nonFraction contextRef="c320" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">10,000</ix:nonFraction></ix:nonFraction>
restricted shares to its Chief Financial Officer on each of November 13, 2014 and August 17, 2017 and the grant of <ix:nonFraction contextRef="c321" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">10,000</ix:nonFraction> restricted shares
to its Chief Operational Officer on November 19, 2017, in each case under the 2011 Plan.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_7" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In August 2017,
Formula&#8217;s board of directors, following the approval by Formula&#8217;s compensation committee, awarded its chief financial
officer <ix:nonFraction contextRef="c322" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">10,000</ix:nonFraction> restricted shares under the 2011 Plan (the &#8220;new restricted shares&#8221;). <ix:nonNumeric contextRef="c323" name="ifrs-full:DescriptionOfVestingRequirementsForSharebasedPaymentArrangement">These restricted shares vest on a
quarterly basis over a three-year period, commencing on August 17, 2017 and concluding on August 17, 2020, provided that during such
time the chief financial officer will continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the
directly held affiliates, except that if he fails to meet the service condition due to the request of the board of directors of
either Formula or any of its directly held affiliates (other than a termination of his provision of services which is based on
actions or omissions by him that will constitute &#8220;cause&#8221; under his grant agreement with Formula), then, the chief
financial officer will be deemed to have complied with clauses (i) or (ii) above.</ix:nonNumeric> Notwithstanding the foregoing, if a change of
control of the Company occurs, then all unvested new restricted shares will immediately become vested. Total fair value of the grant
was calculated based on the Formula share price on the grant date and equaled $<ix:nonFraction contextRef="c322" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:WeightedAverageFairValueAtMeasurementDateShareOptionsGranted" scale="3" unitRef="usd">371</ix:nonFraction> ($<ix:nonFraction contextRef="c322" decimals="1" format="ixt:num-dot-decimal" name="forty:FairValueOfGrantSharePricePerShare" scale="0" unitRef="usdPershares">37.1</ix:nonFraction> per share).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 277; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->86<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0in; text-align: left; text-indent: 0in"><b>NOTE 18:- EMPLOYEE
OPTION PLANS (<span style="text-transform: none">Cont.</span>)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_8" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In March 2022, Formula&#8217;s
board of directors, following the approval by Formula&#8217;s compensation committee, awarded its chief financial officer <ix:nonFraction contextRef="c324" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">21,000</ix:nonFraction> restricted
shares under the 2021 Plan (the &#8220;new restricted shares&#8221;). These restricted shares vest on a quarterly basis over a six-year
period, commencing on March 15, 2022 and concluding on December 31, 2027, provided that during such time the chief financial officer will
continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the directly held affiliates, except that if he fails
to meet the service condition due to the request of the board of directors of either Formula or any of its directly held affiliates (other
than a termination of his provision of services which is based on actions or omissions by him that will constitute &#8220;cause&#8221;
under his grant agreement with Formula), then, the chief financial officer will be deemed to have complied with clauses (i) or (ii) above.
Notwithstanding the foregoing, if a change of control of the Company occurs, then all unvested new restricted shares will immediately
become vested. Total fair value of the grant was calculated based on the Formula share price on the grant date and equaled $<ix:nonFraction contextRef="c324" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:WeightedAverageFairValueAtMeasurementDateShareOptionsGranted" scale="0" unitRef="usd">232</ix:nonFraction> ($<ix:nonFraction contextRef="c324" decimals="1" format="ixt:num-dot-decimal" name="forty:FairValueOfGrantSharePricePerShare" scale="0" unitRef="usdPershares">96.7</ix:nonFraction>
per share).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_9" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The total compensation
expense that the Company recorded in its statement of profit or loss for the years ended December 31, 2022 and 2021 in respect of its
chief financial officer was $<ix:nonFraction contextRef="c325" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:KeyManagementPersonnelCompensationSharebasedPayment" scale="3" unitRef="usd">973</ix:nonFraction> and $<ix:nonFraction contextRef="c326" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:KeyManagementPersonnelCompensationSharebasedPayment" scale="3" unitRef="usd">0</ix:nonFraction>, respectively. <ix:nonNumeric contextRef="c4" name="ifrs-full:DescriptionOfVestingRequirementsForSharebasedPaymentArrangement">As of December 31, 2022, Formula&#8217;s chief financial officer holds 31,834 Ordinary
shares, of which 16,834 are fully vested.</ix:nonNumeric></p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_10" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In March 2022, Formula&#8217;s
board of directors, following the approval by Formula&#8217;s compensation committee, awarded employees of the Company <ix:nonFraction contextRef="c327" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">2,400</ix:nonFraction> restricted
shares under the 2021 Plan (the &#8220;new restricted shares&#8221;). These restricted shares vest <span style="font-size: 10pt">at certain
points in time </span>over a six-year period, commencing on March 15, 2022 and concluding on December 31, 2027. The total fair value of
the grant was calculated based on the Formula share price on the grant date and equaled $<ix:nonFraction contextRef="c327" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:WeightedAverageFairValueAtMeasurementDateShareOptionsGranted" scale="0" unitRef="usd">232</ix:nonFraction> ($<ix:nonFraction contextRef="c327" decimals="1" format="ixt:num-dot-decimal" name="forty:FairValueOfGrantSharePricePerShare" scale="0" unitRef="usdPershares">96.7</ix:nonFraction> per share).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_11" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In November 2018,
Formula&#8217;s board of directors, following the approval by Formula&#8217;s compensation committee, awarded its chief operational officer
<ix:nonFraction contextRef="c328" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">10,000</ix:nonFraction> restricted shares under the 2011 plan (the &#8220;restricted shares&#8221;). <ix:nonNumeric contextRef="c329" name="ifrs-full:DescriptionOfVestingRequirementsForSharebasedPaymentArrangement">These restricted shares vest on an annual basis over
a four-year period, commencing on November 19, 2018 and concluding on November 19, 2022, provided that during such time the chief operational
officer will continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the directly held affiliates. The total
fair value of the grant was calculated based on the Formula share price on the grant date and equaled $382 ($38.2 per share). The total
compensation expense the Company recorded in its statement of profit or loss for the years ended December 31, 2022, 2021 and 2020 was
$21, $52 and $98, respectively. As of December 31, 2022 Formula&#8217;s chief operational officer holds 10,000 restricted shares from
this grant.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_12" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In November
2020, Formula&#8217;s board of directors, following the approval by Formula&#8217;s compensation committee, awarded Emil Sharvit
(2001) Consulting and Project Management Ltd., through which its chief executive officer provides services to Formula, <ix:nonFraction contextRef="c330" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">611,771</ix:nonFraction>
restricted stock units (&#8220;RSUs&#8221;) in respect of ordinary shares of the Company. <ix:nonNumeric contextRef="c331" name="ifrs-full:DescriptionOfVestingRequirementsForSharebasedPaymentArrangement">66.67% of the RSUs (i.e., 407,847 RSUs)
are subject to time-based vesting that shall start as of the grant date and shall end at December 31, 2027, subject to the continued
engagement of Formula&#8217;s chief executive officer with the Company as of that date (the &#8220;Vesting Period&#8221;); and up to
33.33% of the RSUs (i.e., 203,924 RSUs as of the date hereof) are subject to performance-based vesting, and shall vest at December
31, 2027 on a pro-rata basis with respect to each fiscal year (starting as of January 1, 2020) during the Vesting Period in which
the Target EBITDA (as defined below) is achieved, subject to the continued engagement of Formula&#8217;s chief executive officer
with the Company. At the end of the vesting period, the number of performances-based RSUs that vests shall be equal to (i) the
number of fiscal years in which the Target EBITDA was achieved multiplied by (ii) 25,490.50 RSUs (rounded to the nearest whole
number, up to a cap of 203,924 RSUs in total). The &#8220;Target EBITDA&#8221; in a given fiscal year during the Vesting Period
means the Company&#8217;s EBITDA in that certain fiscal year (as reflected in the Company&#8217;s annual audited consolidated
financial statements), excluding the cost attributed to the applicable portion of the RSUs in the Company&#8217;s annual audited
consolidated financial statements for the applicable fiscal year (as to which the review of performance is made to determine whether
one-eighth of the Performance Based RSUs (i.e., 25,490.50 RSUs) shall become vested at the end of the Vesting Period).</ix:nonNumeric> The Target
EBITDA shall be not less than <ix:nonFraction contextRef="c332" decimals="2" format="ixt:num-dot-decimal" name="forty:EarningsBeforeInterestTaxesDepreciationAndAmortizationPercentage" scale="-2" unitRef="pure">105</ix:nonFraction>% of <ix:nonFraction contextRef="c333" decimals="2" format="ixt:num-dot-decimal" name="forty:EarningsBeforeInterestTaxesDepreciationAndAmortizationPercentage" scale="-2" unitRef="pure">75</ix:nonFraction>% of the Company&#8217;s EBITDA in the previous fiscal year, excluding the cost attributed
to the applicable portion of the RSUs in the Company&#8217;s annual audited consolidated financial statements for such previous
fiscal year (the &#8220;Previous Year&#8221;). Such examination of EBITDA shall be made on the basis of the Company&#8217;s annual
audited consolidated financial statements as reflected in the Company&#8217;s annual report on Form 20-F, and in the event that the
Company sells any of its operations, the Target EBITDA shall be adjusted as applicable for future reference by removing the results
of the operations that were sold.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 278; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->87<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0in; text-align: left; text-indent: 0in"><b>NOTE 18:- EMPLOYEE
OPTION PLANS (<span style="text-transform: none">Cont</span>.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_13" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In the event that
with respect to any specific fiscal year (the &#8220;Specific Year&#8221;), the Target EBITDA is not achieved, the Target EBITDA with
respect to such Specific Year will still be deemed to have been met for the purpose of vesting of RSUs in the event that either: <ix:nonNumeric contextRef="c334" continuedAt="forty_EarningsBeforeInterestTaxesDepreciationAndAmortizationPercentageDescription-c334_cont_1" name="forty:EarningsBeforeInterestTaxesDepreciationAndAmortizationPercentageDescription">(i) the
EBITDA in the fiscal year immediately following the Specific Year was at least 110.25% of 75% of the Company&#8217;s EBITDA in the year
preceding the Specific Year, or (ii) in case that the condition in the foregoing clause (i) was not met, then the EBITDA in the second
fiscal year following the Specific Year was at least 115.7625% of 75% of the Company&#8217;s EBITDA in the year preceding the Specific
Year.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_14" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_13"><ix:continuation id="forty_EarningsBeforeInterestTaxesDepreciationAndAmortizationPercentageDescription-c334_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Accordingly, in case
that either clause (i) or (ii) was met for a certain Specific Year, then the vesting with respect to such Specific Year shall be deemed
to have been achieved, and those RSUs shall become vested as of the end of the Vesting Period. In the event that neither of the conditions
described in clauses (i) or (ii) was met, the portion of RSUs for the applicable Specific Year shall automatically expire and terminate.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_15" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Notwithstanding the
foregoing, in case the Target EBITDA is met (in accordance with the above terms) in a certain fiscal year, yet the Target EBITDA is less
than <ix:nonFraction contextRef="c333" decimals="2" format="ixt:num-dot-decimal" name="forty:EarningsBeforeInterestTaxesDepreciationAndAmortizationDecreasingPercentage" scale="-2" unitRef="pure">105</ix:nonFraction>% of <ix:nonFraction contextRef="c332" decimals="2" format="ixt:num-dot-decimal" name="forty:EarningsBeforeInterestTaxesDepreciationAndAmortizationDecreasingPercentage" scale="-2" unitRef="pure">75</ix:nonFraction>% of the average EBITDA for the three fiscal years that consist of the subject fiscal year and the <ix:nonNumeric contextRef="c334" continuedAt="forty_PrecedingYears-c334_cont_1" format="ixt-sec:durwordsen" name="forty:PrecedingYears">two</ix:nonNumeric> preceding<ix:continuation id="forty_PrecedingYears-c334_cont_1"> years</ix:continuation>
(excluding the cost attributed to the applicable portion of the RSUs in Company&#8217;s annual audited consolidated financial statements
for such applicable fiscal years), then regardless of meeting the Target EBITDA, the number of performance-based RSUs that vests shall
be reduced by <ix:nonFraction contextRef="c334" decimals="2" format="ixt:num-dot-decimal" name="forty:NumberOfVestedPercentage" scale="-2" unitRef="pure">20</ix:nonFraction>%.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_16" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The total fair value of the grant was calculated based on the Formula
share price on the grant date and equaled NIS <ix:nonFraction contextRef="c335" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:WeightedAverageFairValueAtMeasurementDateShareOptionsGranted" scale="0" unitRef="ils">170,684</ix:nonFraction>, or $<ix:nonFraction contextRef="c336" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:WeightedAverageFairValueAtMeasurementDateShareOptionsGranted" scale="3" unitRef="usd">50,054</ix:nonFraction> ($<ix:nonFraction contextRef="c2" decimals="1" format="ixt:num-dot-decimal" name="forty:FairValueOfGrantSharePricePerShare" scale="0" unitRef="usdPershares">81.8</ix:nonFraction> per share). The total compensation expense the Company recorded
in its statement of profit or loss in respect of this grant, in accordance with accounting principles, for the year ended December 31,
2022, was approximately $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:KeyManagementPersonnelCompensationSharebasedPayment" scale="3" unitRef="usd">7,089</ix:nonFraction>.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_17" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In addition to the
RSU grant terms described above, Formula&#8217;s board of directors has approved, following the approval by Formula&#8217;s compensation
committee, an adjustment to the above-described RSU grant based on dividends that the Company distributes to its shareholders. During
the vesting period of the RSUs, in the event that any dividend, in cash or in kind, is distributed to the shareholders of the Company,
then in addition to the distribution to all shareholders, there will be an equivalent payment to Formula&#8217;s chief executive officer
with respect to all RSUs that were not converted into shares (whether or not vested) in an amount equal to the pro-rata portion of the
overall dividend amount that the RSUs constitute out of the issued and outstanding share capital of the Company as of the date of the
distribution. For those purposes, the RSUs will be counted as if they are already vested and converted into shares. These special RSU
dividend amounts shall be paid and/or set aside by the Company for the benefit of its chief executive officer, all as described below.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_18" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">For the purpose of
payment of the dividend amounts to Formula&#8217;s chief executive officer, the vesting period shall be regarded as if it has commenced
on January 1, 2020 (other than with respect to distributions and any related dividend amount which were made prior to the grant of the
RSUs and which are explicitly excluded), and will be divided into 32 fiscal quarters (each, referred to as a Fiscal Quarter). The dividend
amount within each dividend distributed by the Company to its shareholders will be released to, or set aside for, Formula&#8217;s chief
executive officer together with the distribution of the dividend. The portion of the Dividend Amount to be released to Formula&#8217;s
chief executive officer will in each case be based on the number of Fiscal Quarters that have lapsed at the time of distribution of the
dividend. The remainder of the Dividend Amount will be set aside and paid to Formula&#8217;s chief executive officer on a pro-rata basis
upon the expiration of each Fiscal Quarter until the Dividend Amount is released in full at the end of the Vesting Period for the RSUs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_19" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In the event of termination
of Formula&#8217;s chief executive officer services agreement with the Company, by the Company for Cause (as defined in the services
agreement), the RSUs will immediately terminate and become null and void, and all interests and rights of Formula&#8217;s chief executive
officer in and to the same will expire. In case of termination of Formula&#8217;s chief executive officer services agreement by the Company
not for Cause, or due to the resignation of Formula&#8217;s chief executive officer for Good Reason<span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><sup>1</sup></span>,
all unvested RSUs that could have vested from the grant date until December 31, 2027, assuming all performance and time conditions and
future targets would have been fulfilled (including all targets that would have resulted in vesting with respect to any Previous Year
which could have still been met in future years), will accelerate and become immediately vested and exercisable, regardless of the actual
occurrence or failure to occur of any of the future performance targets relating to those RSUs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_20" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In the event of
resignation by Formula&#8217;s chief executive officer not for Good Reason, Formula&#8217;s chief executive officer RSUs will vest,
in an accelerated manner, in such portion equal to the pro-rata portion of the Vesting Period that has already lapsed (based on the
full number of Fiscal Quarters that have lapsed form January 1, 2020 until the actual resignation date, including notice period).
However, any Performance Based RSUs for which the applicable target was not achieved up until the resignation date (including the
notice period) will expire and terminate.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 25%"><div style="font-size: 1pt; border-top: Black 1.5pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_21" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_20"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-family: Times New Roman, Times, Serif"><sup>1</sup></span></td><td style="text-align: justify">&#8220;Good Reason&#8221; is a termination due to: (i) a
material reduction in Formula chief executive representative&#8217;s scope of authorities and responsibilities (excluding, for the avoidance
of doubt, as a result of changes in legislation or other legal restrictions which affect the scope of Services under its service agreement),
(ii) a material breach by the Company of any provision of the service agreement or its exhibits, or (iii) any acceleration event, in
each of (i) to (iii) which is not cured (if curable) by the Company within thirty (30) days of receipt of a written notice about such
breach from Formula chief executive officer, provided that during the three (3) months prior notice period with respect to resignation
for</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 279; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->88<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="border-bottom: Black 1.5pt solid; font: bold 10pt Times New Roman, Times, Serif; margin: 0pt; text-align: justify; text-indent: 0pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0in; text-align: left; text-indent: 0in"><b>NOTE 18:- EMPLOYEE
OPTION PLANS (<span style="text-transform: none">Cont</span>.)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_22" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Total unrecognized
compensation costs related to non-vested share-based compensation arrangements granted under the Formula equity incentive plan as of December
31, 2022 and 2021 were $<ix:nonFraction contextRef="c337" decimals="-3" format="ixt:num-dot-decimal" name="forty:UnrecognizedCompensationCosts" scale="3" unitRef="usd">34,972</ix:nonFraction> and $<ix:nonFraction contextRef="c338" decimals="-3" format="ixt:num-dot-decimal" name="forty:UnrecognizedCompensationCosts" scale="3" unitRef="usd">45,973</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_23" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In December 2020,
a motion to certify a derivative suit, referred to as the Motion, was filed against the Company by a shareholder, who is also referred
to as the Plaintiff, in the district court (economic division) of Tel Aviv-Jaffa, Israel, naming each of our then acting five directors,
as well as our chief executive officer and chief financial officer as defendants.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_24" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The suit challenged
the legality, under the Companies Law, of, among other things, compensation approved for the chief executive officer, including the re-approval
by our compensation committee and board of the subject eight-year RSU award to our chief executive officer.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_25" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">On January 12, 2023, the Company held
a special general meeting of shareholders for its shareholders to re-affirm the subject grant of RSUs (reflecting the adjusted <ix:nonFraction contextRef="c339" decimals="4" format="ixt:num-dot-decimal" name="forty:NumberOfVestedPercentage" scale="-2" unitRef="pure">66.67</ix:nonFraction>%-<ix:nonFraction contextRef="c340" decimals="4" format="ixt:num-dot-decimal" name="forty:NumberOfVestedPercentage" scale="-2" unitRef="pure">33.33</ix:nonFraction>%
ratio of time-based-vesting to performance-based-vesting RSUs) to the Company&#8217;s chief executive officer. Although the Company believes
that the legal challenge to the original re-approval, in November 2020, by the compensation committee and the board of directors of this
RSUs grant were without merit, the Company nevertheless brought the re-affirmation to its shareholders.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_26" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The January 12, 2023 special general
shareholders meeting did not re-affirm the RSUs grant. On January 15, and 16, 2023, the Company&#8217;s compensation committee and board
of directors, respectively, acting in accordance with the Companies Law, re-affirmed the RSUs grant once again. Since such additional
re-affirmation by the Company&#8217;s shareholders, compensation committee and board of directors was not required by law, the Company
considered November 2020 as the grant date for accounting purposes, in accordance with IFRS 2.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 17.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_27" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_26"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">c)</td><td style="text-align: justify"><span style="text-decoration:underline">Matrix IT</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_28" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In December 2017,
<ix:nonNumeric contextRef="c341" name="ifrs-full:DescriptionOfVestingRequirementsForSharebasedPaymentArrangement">Matrix IT extended its agreement with Revava Management Company Ltd. through which its chief executive officer, Mr. Moti Gutman, provides
services to Matrix IT, for five years&#8217; term starting on January 1, 2018. As part of the new agreement in January 2018, Matrix IT
awarded Mr. Gutman 256,890 (RSUs), which vest on an annual basis over a five-year period, commencing on January 16, 2018 and concludes
on December 31, 2022, but not before the publication of Matrix IT&#8217;s financial statements for each respective year, and subject to
certain conditions. In 2022, 51,378 restricted share units (RSU) were vested and exercised. As of December 31, 2022 Mr. Gutman holds 51,378
restricted share units (RSUs)
from this grant.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 280; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->89<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
18:- EMPLOYEE OPTION PLANS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_29" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">In December 2022,
Matrix IT entered into a new employment agreement with its chief executive officer, Mr. Moti Gutman, for the provision of management services
for a term of five years starting on January 1, 2023. As part of the new employment agreement, Matrix IT awarded Mr. Gutman <ix:nonFraction contextRef="c342" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">375,000</ix:nonFraction> Matrix
restricted shares. <ix:nonFraction contextRef="c343" decimals="2" format="ixt:num-dot-decimal" name="forty:NumberOfVestedPercentage" scale="-2" unitRef="pure">40</ix:nonFraction>% of the options will be vested on December 31, 2024 with the remaining amount vesting in equal parts on December
31, 2025, 2026 and 2027 but any case not before the publication of Matrix IT&#8217;s financial statements for each respective year.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_30" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_29"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The fair value of the restricted shares
amounted on the date of grant to NIS <ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:WeightedAverageFairValueAtMeasurementDateShareOptionsGranted" scale="0" unitRef="ils">27,851</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:WeightedAverageFairValueAtMeasurementDateShareOptionsGranted" scale="0" unitRef="usd">7,914</ix:nonFraction>).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_31" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_30"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In January 2019, <ix:nonNumeric contextRef="c344" name="ifrs-full:DescriptionOfVestingRequirementsForSharebasedPaymentArrangement">Matrix IT&#8217;s
board of directors approved, following the approval by Matrix IT&#8217;s compensation committee, the grant of 1,440,000 options which
are exercisable into up to 1,440,000 ordinary shares of Matrix IT of NIS 1 par value each, to 20 senior officers of Matrix IT. The exercise
price of the options was NIS 41.7 at the date of their grant, subject to adjustments, including upon the distribution of dividends. 50%
of the options will be vested on January 1, 2021 with the remaining amount vesting in equal parts on January 1, 2022 and 2023.</ix:nonNumeric> When the
actual exercise will take place, shares will be allotted, according to a net exercise mechanism resulting with Matrix IT not receiving
any cash consideration for the issuance of its shares.</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_32" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_31"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">In February 2019, the general shareholder
meeting of <ix:nonNumeric contextRef="c345" name="ifrs-full:DescriptionOfVestingRequirementsForSharebasedPaymentArrangement">Matrix IT approved, after obtaining the approval of Matrix IT&#8217;s compensation committee and Matrix IT&#8217;s board of
directors the grant of 80,000 options which are exercisable into up to 80,000 ordinary shares of Matrix IT of NIS 1 par value, to the
President and Vice Chairman of the Matrix IT board. The exercise price of the options was NIS 43.16 at the date of their grant, subject
to adjustments, including upon the distribution of dividends. 50% of the options will vest on January 1, 2021, with the remaining amount
vesting in equal parts on January 1, 2022 and 2023.</ix:nonNumeric> When the actual exercise will take place, shares will be allotted, according to a
net exercise mechanism resulting with Matrix IT not receiving any cash consideration for the issuance of its shares. In January 2022,
the general shareholder meeting of Matrix IT approved, after obtaining the approval of Matrix IT&#8217;s compensation committee and Matrix
IT&#8217;s board of directors the acceleration of the third tranche so that tranche will vest on January 31, 2022, Matrix IT&#8217;s President
and Vice Chairman of the Matrix IT expected retirement date, instead of January 1, 2023.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_33" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">The fair value of the options was estimated
on the date of grant using the Binomial model based on the terms which are: risk-free interest rate is <ix:nonFraction contextRef="c346" decimals="3" format="ixt:num-dot-decimal" name="ifrs-full:DescriptionOfRiskFreeInterestRateShareOptionsGranted" scale="-2" unitRef="pure">0.5</ix:nonFraction>% -<ix:nonFraction contextRef="c347" decimals="3" format="ixt:num-dot-decimal" name="ifrs-full:DescriptionOfRiskFreeInterestRateShareOptionsGranted" scale="-2" sign="-" unitRef="pure">1.6</ix:nonFraction>%, early exercise factor
is <ix:nonFraction contextRef="c348" decimals="2" format="ixt:num-dot-decimal" name="forty:DescriptionOfExerciseShareOptionsGranted" scale="-2" unitRef="pure">70</ix:nonFraction>% and expected volatility is <ix:nonFraction contextRef="c348" decimals="2" format="ixt:num-dot-decimal" name="ifrs-full:DescriptionOfExpectedVolatilityShareOptionsGranted" scale="-2" unitRef="pure">24</ix:nonFraction>%. The contractual life of the options is <ix:nonNumeric contextRef="c348" format="ixt-sec:duryear" name="forty:OptionsExpirePeriods">5</ix:nonNumeric> years from the date of grant.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><!-- Field: Page; Sequence: 281; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->90<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
18:- EMPLOYEE OPTION PLANS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_34" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_33"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The following table
summarizes Matrix IT&#8217;s employee stock-based compensation activity during the year ended December 31, 2022:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_35" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_34"><ix:nonNumeric contextRef="c68" escape="true" name="forty:ScheduleOfMatrixStockbasedCompensationActivityTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Weighted<br/>
 average<br/>
 exercise<br/>
 price</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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 contractual<br/>
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_36" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_35"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The aggregate intrinsic
value provided in the table above represents the total intrinsic value that would have been received by the option holders had all option
holders exercised their options on the respective dates. This value would change based on the change in the market value of Matrix IT&#8217;s
ordinary shares and the change in the exchange rate between the New Israeli Shekel and dollar. Total unrecognized compensation costs related
to non-vested share-based compensation arrangements granted under the Matrix IT equity incentive plan as of December 31, 2022 and 2021
were $<ix:nonFraction contextRef="c343" decimals="-3" format="ixt:num-dot-decimal" name="forty:UnrecognizedCompensationCosts" scale="3" unitRef="usd">0</ix:nonFraction> and $<ix:nonFraction contextRef="c349" decimals="-3" format="ixt:num-dot-decimal" name="forty:UnrecognizedCompensationCosts" scale="3" unitRef="usd">428</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_37" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_36"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0in"></td><td style="width: 0.25in">d)</td><td style="text-align: justify"><span style="text-decoration:underline">Sapiens:</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_38" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_37"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The following table
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_39" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_38"><ix:nonNumeric contextRef="c69" escape="true" name="forty:ScheduleOfSapiensStockbasedCompensationActivityTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_40" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_39"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"><ix:nonNumeric contextRef="c350" name="forty:NumberOfShareOptionGrantedInSharebasedPaymentArrangements">In 2022, 2021 and
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have been received by the option holders had all option holders exercised their options on the respective dates. This value would change
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 282; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->91<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
18:- EMPLOYEE OPTION PLANS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_41" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_40"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The options outstanding
under Sapiens&#8217; stock option plans as of December 31, 2022 have been separated into ranges of exercise price as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_43" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_42"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The total equity-based
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_44" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_43"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">In connection with
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is subject to both continued employment and other performance criteria<span style="font-family: Times New Roman, Times, Serif">.</span>
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_45" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_44"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">Sapiens recorded
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_46" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_45"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">A summary of the
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_47" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_46"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfNumberAndWeightedAverageExercisePricesOfShareOptionsExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 283; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->92<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
18:- EMPLOYEE OPTION PLANS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_48" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_47"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_49" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_48"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The following table
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_51" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_50"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The aggregate intrinsic
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_52" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_51"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The options outstanding
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_54" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_53"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">Stock Option Plan
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</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_55" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_54"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">Under the Comm-IT
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and consultants of Comm-IT Solutions and its subsidiaries. Pursuant to Comm-IT Solutions 2022 Plan, Comm-IT Solutions shall reserve in
its registered and reserved capital, such sufficient number of shares (subject to any adjustment in the capital under the Comm-IT Solutions
2022 Plan) required in order to consummate the Comm-IT Solutions 2022 Plan.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_56" id="forty_DisclosureOfEmployeeOptionPlansExplanatoryTextBlock-c0_cont_55"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">In December 2022,
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fully vested upon their grant, whereas the vesting of the remainder of the options are <span style="font-size: 10pt">subject to Comm-IT
Solutions and its subsidiaries meeting certain EBITDA targets for the years 2023-2024. Subject to the EBITDA targets to be met, as well
as the officers continued employment with Comm-IT Solutions throughout 2027, the options will vest at certain points in time throughout
the years 2023 to
2027.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 284; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->93<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
18:- EMPLOYEE OPTION PLANS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

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</div><div>

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</div><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfEmployeeBenefitsExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
19:- EMPLOYEE BENEFIT LIABILITIES</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: 0in">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_2" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">Employee benefits
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_3" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">a)</td><td style="text-align: justify"><span style="text-decoration:underline">Post-employment benefits</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_4" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">According to the
labor laws and Severance Pay Law in Israel, the Israeli companies in the Group are required to pay compensation to an employee upon dismissal
or retirement or to make current contributions in defined contribution plans pursuant to section 14 of the Severance Pay Law, as specified
below. These liabilities are accounted for as a post-employment benefit. The computation of the Group&#8217;s employee benefit liability
is made according to the current employment contract based on an employee&#8217;s salary and employment term which establish the entitlement
to receive the compensation.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="text-transform: uppercase">&#160;</span></p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in"></p><div>

</div><!-- Field: Page; Sequence: 285; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->94<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&#160;<b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
19:- EMPLOYEE BENEFIT LIABILITIES (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_5" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The post-employment
employee benefits are normally financed by contributions classified as a defined benefit plan or as a defined contribution plan, as detailed
below.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_6" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt">1)</td><td style="text-align: justify"><span style="text-decoration:underline">Defined contribution plans</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify; text-indent: -22.5pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_7" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Section 14 of the
Severance Pay Law, 1963 applies to part of the compensation payments, pursuant to which the fixed contributions paid by the Group into
pension funds and/or policies of insurance companies release the Group from any additional liability to employees for whom said contributions
were made. These contributions and contributions for benefits represent defined contribution plans.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_8" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_7"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal; text-transform: none">2)</span></td><td><span style="font-weight: normal; text-transform: none"><span style="text-decoration:underline">Defined benefit plans</span>:</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-transform: uppercase; text-indent: -22.5pt"><span style="font-weight: normal; text-transform: none">&#160;</span></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_9" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">The
Group accounts for that part of the payment of compensation that is not covered by contributions in defined contribution plans, as above,
as a defined benefit plan for which an employee benefit liability is recognized and for which the Group deposits amounts in central severance
pay funds and in qualifying insurance policies. </span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">&#160;</span></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_10" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_9"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal; text-transform: none">3)</span></td><td><span style="font-weight: normal; text-transform: none"><span style="text-decoration:underline">Other long-term benefits</span>:</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-transform: uppercase; text-indent: 0in"><span style="font-weight: normal; text-transform: none">&#160;</span></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_11" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">Certain
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_12" id="_DisclosureOfEmployeeBenefitsExplanatory-c0_cont_11"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
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</div><div>

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</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
20:- Commitments and Contingencies</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_2" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0in"></td><td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif">a)</span></td><td style="text-align: justify"><span style="text-decoration:underline">Liens</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 84.45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_3" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal">1)</span></td><td style="text-align: justify"><span style="font-weight: normal; text-transform: none">Liens have been incurred by Formula over a certain
portion of the Matrix IT, Magic Software and Sapiens&#8217; shares which it held. As of December 31, 2022 Formula has collateral in connection
with the Series A Secured Debentures and Series C Secured Debentures issued by Formula on the TASE (see Note 15).</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; text-align: justify; text-indent: -22.5pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_4" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal; text-transform: none">2)</span></td><td style="text-align: justify"><span style="font-weight: normal; text-transform: none">Composition of pledged shares of Matrix IT, Magic
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_5" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_4"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureOfDetailedInformationAboutCompositionOfPledgedSharesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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    <td style="text-align: left"><b>&#160;</b></td><td style="padding-bottom: 1.5pt"><b>&#160;</b></td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c402" decimals="0" format="ixt:num-dot-decimal" name="forty:FinancialInstitutionCreditAgreement" scale="0" unitRef="shares">1,260,266</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c402" decimals="0" format="ixt:num-dot-decimal" name="forty:SecuredDebentures" scale="0" unitRef="shares">2,957,590</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -31.5pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -31.5pt"></p><div>

</div><!-- Field: Page; Sequence: 286; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->95<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -31.5pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: -31.5pt"><span style="font-weight: normal; text-transform: none">&#160;</span></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">&#160;</span></p><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_6" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">In
August 2022, following the private placement of an additional NIS <ix:nonFraction contextRef="c379" decimals="0" format="ixt:num-dot-decimal" name="forty:AdditionalUnits" scale="0" unitRef="ils">200,000</ix:nonFraction> par value Series C Secured Debentures, Formula pledged an additional
<ix:nonFraction contextRef="c380" decimals="0" format="ixt:num-dot-decimal" name="forty:AdditionalShares" scale="0" unitRef="shares">138,000</ix:nonFraction> shares of Matrix IT and <ix:nonFraction contextRef="c381" decimals="0" format="ixt:num-dot-decimal" name="forty:AdditionalShares" scale="0" unitRef="shares">730,000</ix:nonFraction> shares of Magic (see Note 15).</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">&#160;</span></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_7" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0in"></td><td style="width: 0.25in">b)</td><td style="text-align: justify"><span style="text-decoration:underline">Guarantees</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_8" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">As of December 31, 2022, the Group
provided performance bank guarantees in an aggregate amount of approximately $<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:AggregateSecurityAmount" scale="3" unitRef="usd">43,300</ix:nonFraction> as security for performance of various contracts
with customers and suppliers. As of December 31, 2022, the Group provided bank guarantees in an aggregate amount of approximately $<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:BankGuaranteesAmount" scale="3" unitRef="usd">8,200</ix:nonFraction>
as security for rent to be paid for its leased offices. As of December 31, 2022, the Group had restricted bank deposits in an aggregate
amount of $<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:BalancesOnOtherDepositsFromCustomers" scale="3" unitRef="usd">400</ix:nonFraction> in favor of the above-mentioned bank guarantees. In addition, The Company and its subsidiaries provided certain cross guaranties
in favor of certain subsidiaries in the Group.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_9" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Each of Matrix IT, Sapiens, Magic Software
and Formula provides cross guarantees to its subsidiaries.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.55pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_10" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_9"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0in"></td><td style="width: 0.25in">c)</td><td style="text-align: justify"><span style="text-decoration:underline">Covenants</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_11" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">In connection with
the Group&#8217;s debentures and credit facility agreements with banks and other financial institutions, as of December 31, 2022, the
Group committed to the following:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_12" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_11"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal; text-transform: none">1)</span></td><td><span style="font-weight: normal; text-transform: none"><span style="text-decoration:underline">Formula</span></span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 170.1pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_13" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_12"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 40.5pt"></td><td style="width: 18pt">i)</td><td style="text-align: justify"><span style="text-decoration:underline">Formula&#8217;s Debentures </span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_14" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 58.5pt; text-align: justify; text-indent: 0in">In accordance with
Formula&#8217;s indenture for its Series A and Series C Secured Debentures, Formula has undertaken to comply with the following financial
covenants and obligations:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 110.7pt; text-align: justify; text-indent: 141.75pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_15" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_14"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 60pt"></td><td style="width: 18pt">a.</td><td style="text-align: justify">A covenant not to distribute dividends unless (i) Formula shareholders&#8217; equity attributable to Formula
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marketable securities, deposits and other liquid financial instruments) shall not exceed <ix:nonFraction contextRef="c383" decimals="2" format="ixt:num-dot-decimal" name="forty:ExceedPercentage" scale="-2" unitRef="pure">50</ix:nonFraction>% of net CAP (defined as financial indebtedness,
net, plus shareholders&#8217; equity), and (iii) the aggregate amount of distributions from January 1, 2016 shall not exceed the aggregate
amount of net oncome for the year ended December 31, 2015 together with <ix:nonFraction contextRef="c384" decimals="2" format="ixt:num-dot-decimal" name="forty:AccumulatedProfitPercentage" scale="-2" unitRef="pure">75</ix:nonFraction>% of accumulated profits from January 1, 2016 until the respective
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_16" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_15"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 60pt"></td><td style="width: 18pt">b.</td><td style="text-align: justify">Financial covenants, including: (i) the equity attributable to Formula Systems shareholders, as reported
in Formula&#8217;s annual or quarterly financial statements, shall not be less than $<ix:nonFraction contextRef="c336" decimals="-6" format="ixt:num-dot-decimal" name="forty:EquityAttributeAmount" scale="6" unitRef="usd">215</ix:nonFraction> million (as of December 31, 2022, Formula equity
attributable to Formula Systems&#8217; shareholders was approximately $<ix:nonFraction contextRef="c335" decimals="-5" format="ixt:num-dot-decimal" name="forty:EquityAttributeAmount" scale="6" unitRef="usd">551.9</ix:nonFraction> million); (ii) Formula&#8217;s net financial indebtedness
(financial indebtedness offset by cash, marketable securities, deposits and other liquid financial instruments) shall not exceed <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="forty:ExceedPercentage" scale="-2" unitRef="pure">65</ix:nonFraction>% of
net CAP (defined as financial indebtedness, net, plus total equity) (as of December 31, 2022 Formula&#8217;s net financial indebtedness
was <ix:nonFraction contextRef="c0" decimals="3" format="ixt:num-dot-decimal" name="forty:NetCAPPercentage" scale="-2" unitRef="pure">6.3</ix:nonFraction>% of net CAP); (iii) the ratio of Formula&#8217;s net financial indebtedness to the last twelve-months period EBITDA will not exceed
5 (all based on the Company&#8217;s quarterly and annual consolidated financial statements) (as of December 31, 2022 the ratio of Formula&#8217;s
net financial indebtedness
to EBITDA was 0.23); and (iv) at all times, Formula&#8217;s cash balance on a stand-alone basis will not be less than the semi annual
interest payments for the unpaid principal amount of Series A and Series C Secured Debentures (as of December 31, 2022 Formula&#8217;s
cash balances exceed the semi annual interest payments amount).</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 78pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 78pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 287; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->96<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 78pt; text-align: justify; text-indent: 0in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 78pt; text-align: justify; text-indent: 0in">&#160;&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_17" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_16"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 60pt"></td><td style="width: 18pt">c.</td><td style="text-align: justify">Standard events of default, including, among others:</td></tr></table><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_18" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_17"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 94.5pt"></td><td style="width: 22.5pt">1.</td><td style="text-align: justify">Suspension of trading of the debentures on the TASE over a period of 60 days;</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr>
                                                                                                                                                                                       </table></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_19" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_18"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 94.5pt"></td><td style="width: 22.5pt">2.</td><td style="text-align: justify">If the rating of the debentures is less than BBB- by Standard and Poors Maalot or equivalent rating of
other rating agencies;</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr>
                                </table></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_20" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_19"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 94.5pt"></td><td style="width: 22.5pt">3.</td><td style="text-align: justify">Failure to have the debentures rated over a period of 60 days;</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr>
                                                                                                                                                                        </table></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_21" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_20"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 94.5pt"></td><td style="width: 22.5pt">4.</td><td style="text-align: justify">If there is a change in control without consent of the rating agency; and</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr>
                                                                                                                                                                                   </table></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_22" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_21"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 94.5pt"></td><td style="width: 22.5pt">5.</td><td style="text-align: justify">If Formula fails to continue to control any of its subsidiaries;</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 117pt; text-align: justify; text-indent: -22.5pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_23" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_22"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal; text-transform: none">2)</span></td><td><span style="font-weight: normal; text-transform: none"><span style="text-decoration:underline">Matrix IT</span></span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_24" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_23"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">A.</td><td style="text-align: justify">In the context of Matrix IT&#8217;s engagements with banks and financial institutions for its credit facilities,
Matrix IT has undertaken to comply with the following financial covenants, as they are expressed in its financial statements:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_25" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_24"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in"><ix:nonNumeric contextRef="c385" continuedAt="forty_LiabilityToFinancialInstitutionDescription-c385_cont_1" name="forty:LiabilityToFinancialInstitutionDescription">(i)</ix:nonNumeric></td><td style="text-align: justify"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c385_cont_2" id="forty_LiabilityToFinancialInstitutionDescription-c385_cont_1">The total rate of Matrix IT financial debts and liabilities to banks with the addition of debts in respect
of debentures that have been and/or will be issued by Matrix IT and shareholders&#8217; loans that have been and/or will be granted to
Matrix IT (collectively, the &#8220;debts&#8221;) will not exceed 40% of its total balance sheet. As of December 31, 2022 the ratio between
Matrix IT&#8217;s financial debts and liabilities to banks versus Matrix IT total assets was 9.6%.</ix:continuation></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_26" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_25"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c385_cont_3" id="forty_LiabilityToFinancialInstitutionDescription-c385_cont_2"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(ii)</td><td style="text-align: justify">The ratio of Matrix IT net debt to the annual EBITDA will not exceed 3.5. As of December 31, 2022, Matrix
IT ratio of net debt to EBITDA was 0.74.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_27" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_26"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c385_cont_4" id="forty_LiabilityToFinancialInstitutionDescription-c385_cont_3"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(iii)</td><td style="text-align: justify">Matrix IT equity shall not be lower than NIS&#160;275,000 (approximately $78,147) at all times. As of
December 31, 2022 Matrix IT&#8217;s equity was approximately NIS&#160;916,000 (approximately $260,000 million).</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_28" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_27"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c385_cont_5" id="forty_LiabilityToFinancialInstitutionDescription-c385_cont_4"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(iv)</td><td style="text-align: justify">Matrix IT cash and cash equivalents and short-term bank deposits shall not be less than NIS&#160;50,000
(approximately $14,209). In the context of Matrix IT&#8217;s issuance of Commercial Securities which are not listed, Matrix IT committed
to maintain at least NIS 300,000 (approximately $85,251) of liquid assets including unused approved bank credits. Such liquid assets should
account for not less than NIS 200,000 of cash and cash equivalent and short-term bank deposit (approximately $56,834)<span style="font-family: Times New Roman, Times, Serif">.
</span>As of December 31, 2022, Matrix IT&#8217;s cash and cash equivalent and short-term bank deposits amounted to NIS&#160;839,313 (approximately
$238,509)<span style="font-family: Times New Roman, Times, Serif">.</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_29" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_28"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c385_cont_6" id="forty_LiabilityToFinancialInstitutionDescription-c385_cont_5"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(v)</td><td style="text-align: justify">Matrix IT has committed that the rate of ownership and control of Matrix IT-Systems shall never be below
50.1%.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_30" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_29"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c385_cont_7" id="forty_LiabilityToFinancialInstitutionDescription-c385_cont_6"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(vi)</td><td style="text-align: justify">Matrix IT will not create any pledge on all or part of its property and assets in favor of any third party
and will not provide any guarantee to secure any third party&#8217;s debts as they are today and as they will be without the banks&#8217;
consent (except for a first-rate fixed pledge on an asset which acquisition will be financed by a third party and which the pledge will
be in his favor).</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.9pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.9pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 288; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->97<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.9pt; text-align: justify; text-indent: 0in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 70.9pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_31" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_30"><ix:continuation id="forty_LiabilityToFinancialInstitutionDescription-c385_cont_7"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(vii)&#160;&#160;</td><td style="text-align: justify">Matrix IT will not sell and/or transfer all or part of its assets to others in any manner whatsoever without
the banks&#8217; advance written consent unless it is done in the ordinary course of business.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_32" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_31"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 18pt">B.</td><td style="text-align: justify">Matrix IT Series B Debentures:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_33" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">In accordance with
Matrix IT&#8217;s indenture for its Series B Debentures, Matrix IT has undertaken to comply with the following financial covenants and
obligations:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 110.7pt; text-align: justify; text-indent: 141.75pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_34" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_33"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(i)</td><td style="padding-left: -0.25in; text-align: justify">Matrix IT total shareholders&#8217; equity (all based on Matrix IT&#8217;s quarterly or annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) shall not be less than NIS <ix:nonFraction contextRef="c386" decimals="0" format="ixt:num-dot-decimal" name="forty:EquityAttributeAmount" scale="0" unitRef="ils">275,000</ix:nonFraction> (approximately
$<ix:nonFraction contextRef="c386" decimals="0" format="ixt:num-dot-decimal" name="forty:EquityAttributeAmount" scale="0" unitRef="usd">78,147</ix:nonFraction>). As of December 31, 2022, Matrix IT total shareholders&#8217; equity (all based on Matrix IT&#8217;s 2022 annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) was approximately NIS <ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="forty:EquityAttributeAmount" scale="0" unitRef="ils">964,874</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="forty:EquityAttributeAmount" scale="0" unitRef="usd">274,190</ix:nonFraction>).</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr> </table></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_35" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_34"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(ii)</td><td style="text-align: justify">Matrix IT net financial indebtedness (all based on Matrix IT&#8217;s quarterly or annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) shall not exceed <ix:nonFraction contextRef="c387" decimals="2" format="ixt:num-dot-decimal" name="forty:ExceedPercentage" scale="-2" unitRef="pure">45</ix:nonFraction>% of Matrix IT total assets (all
based on Matrix IT&#8217;s quarterly or annual consolidated financial statements, and as defined on Matrix IT Series B Debentures deed
of trust). As of December 31, 2022 Matrix&#8217;s net financial indebtedness (all based on Matrix IT&#8217;s 2022 annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) was <ix:nonFraction contextRef="c0" decimals="3" format="ixt:num-dot-decimal" name="forty:AssetPercentage" scale="-2" unitRef="pure">9.6</ix:nonFraction>% of total assets.</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr> </table></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_36" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_35"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.75in"></td><td style="width: 0.25in">(iii)</td><td style="text-align: justify">The ratio of Matrix IT net financial indebtedness (as defined on Matrix IT Series B Debentures deed of
trust) to the last twelve-months period EBITDA (as defined on Matrix IT Series B Debentures deed of trust) will not exceed 5 (all based
on Matrix IT&#8217;s quarterly and annual consolidated financial statements). As of December 31, 2022 the ratio of Matrix IT&#8217;s net
financial indebtedness to EBITDA (all based on Matrix IT&#8217;s 2022 annual consolidated financial statements, and as defined on Matrix
IT Series B Debentures deed of trust) was <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="forty:DeedOfTrustPercentage" scale="-2" unitRef="pure">0.76</ix:nonFraction>.</td></tr></table><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_37" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_36"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal; text-transform: none">3)</span></td><td><span style="font-weight: normal; text-transform: none"><span style="text-decoration:underline">Sapiens</span></span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 149.4pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_38" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_37"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In accordance with
the indenture for Sapiens&#8217; Series B Debentures, Sapiens has undertaken to maintain a number of conditions and limitations on the
manner in which it can operate its business, including limitations on its ability to undergo a change of control, distribute dividends,
incur a floating charge on its assets, or undergo an asset sale or other change that results in fundamental change in its operations.
Sapiens Series B Debentures deed of trust also requires it to comply with certain financial covenants, as described below. A breach of
the financial covenants for more than two successive quarters or a substantial downgrade in the rating of the debentures (below BBB-)
could result in the acceleration of Sapiens&#8217; obligation to repay the debentures. The deed of trust includes the following provisions:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_39" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_38"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">(i)</td><td style="text-align: justify">a negative pledge, subject to certain exceptions.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_40" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_39"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">(ii)</td><td style="text-align: justify">financial covenants, including: (a) the equity attributable to the shareholders of Sapiens, as reported
in its annual or quarterly financial statements, will not be less than $<ix:nonFraction contextRef="c388" decimals="-6" format="ixt:num-dot-decimal" name="forty:EquityAttributeAmount" scale="6" unitRef="usd">120</ix:nonFraction> million.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 289; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->98<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" name="forty:DescriptionOfFinancialCovenants"><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_41" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_40"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">(as of December 31,
2022 Sapiens shareholders&#8217; equity was $400,504); (ii) Sapiens&#8217; net financial indebtedness (financial indebtedness offset by
cash, marketable securities deposits and other liquid financial instruments) shall not exceed 65% of net CAP (defined as financial indebtedness,
net, plus shareholders equity, including deposits and other liquid financial instruments) (as of December 31, 2022 Sapiens&#8217; net
financial indebtedness was (32.96%) of net CAP); and (iii) the ratio of Sapiens&#8217; net financial indebtedness to EBITDA (based on
accumulated calculation for the four last quarters) shall not exceed 5.5 (as of December 31, 2022 the ratio of Sapiens&#8217; net financial
indebtedness to EBITDA was (1.14)).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_42" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_41"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in"><ix:nonNumeric contextRef="c389" continuedAt="forty_DescriptionOfFinancialCovenants-c389_cont_1" name="forty:DescriptionOfFinancialCovenants">(iii)</ix:nonNumeric></td><td style="text-align: justify"><ix:continuation id="forty_DescriptionOfFinancialCovenants-c389_cont_1">a covenant not to distribute dividends unless (a) Sapiens equity attributable to Sapiens shareholders&#8217;
shall not be less than $160 million, (b) Sapiens net financial indebtedness (financial indebtedness offset by cash, marketable securities,
deposits and other liquid financial instruments) does not exceed 65% of net CAP (defined as financial indebtedness, net, plus total equity),
(c) the amount of accumulated dividends from the issuance date and going forward shall not exceed Sapiens net income for the year ended
December 31, 2016 and the first three quarters of the year ended December 31, 2017, plus 75% of Sapiens accumulated profits from September
1, 2017 and up to the date of distribution, and (d) no event of default shall have occurred.</ix:continuation></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_43" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_42"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 18pt"><span style="font-weight: normal; text-transform: none">4)</span></td><td><span style="font-weight: normal; text-transform: none"><span style="text-decoration:underline">Magic Software</span></span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_44" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_43"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0pt">Under the terms of
the loan with an Israeli financial institution, Magic Software has undertaken to comply with the following financial covenants, as they
will be expressed in its consolidated financial statements:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 45pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_45" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_44"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
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times &#8211; as of December 31, 2022 Magic Software shareholders&#8217; equity was $276,311.</ix:continuation></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_46" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_45"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c390_cont_3" id="forty_LiabilityToFinancialInstitutionDescription-c390_cont_2"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">(ii)</td><td style="text-align: justify">Magic Software&#8217;s consolidated cash and cash equivalents and marketable securities available for
sale shall not be less than $10,000 &#8211; as of December 31, 2022 Magic Software&#8217;s cash and marketable securities available for
sale were $86,966.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_47" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_46"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c390_cont_4" id="forty_LiabilityToFinancialInstitutionDescription-c390_cont_3"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">(iii)</td><td style="text-align: justify">The ratio of Magic Software&#8217;s consolidated total financial debts to consolidated total assets will
not exceed 50% - as of December 31, 2022 Magic Software&#8217;s financial debts were 9.4% of its total assets;</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_48" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_47"><ix:continuation continuedAt="forty_LiabilityToFinancialInstitutionDescription-c390_cont_5" id="forty_LiabilityToFinancialInstitutionDescription-c390_cont_4"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">(iv)</td><td style="text-align: justify">The ratio of Magic Software&#8217;s total financial debts less cash, short-term deposits and short-term
marketable securities to the annual EBITDA will not exceed 3.25 &#8211; as of December 31, 2022 the ratio of Magic Software&#8217;s net
financial indebtedness to EBITDA was negative (-0.47) (cash exceeds indebtedness) ; and</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 170.1pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_49" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_48"><ix:continuation id="forty_LiabilityToFinancialInstitutionDescription-c390_cont_5"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">(v)</td><td style="text-align: justify">Magic Software shall not create any pledge on all of its property and assets in favor of any third party
without the financial institution&#8217;s consent.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_50" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_49"><p style="font: 10pt Times New Roman, Times, Serif; text-align: justify; margin: 0pt 0 0pt 22.5pt; text-transform: uppercase; text-indent: 0in"><span style="font-weight: normal; text-transform: none; background-color: white">As
of December 31, 2022, each of Formula, Matrix IT, Sapiens and Magic Software was in compliance with all of its financial covenants.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt"></p><div>

</div><!-- Field: Page; Sequence: 290; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->99<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_51" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_50"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 22.5pt">d)</td><td style="text-align: justify"><span style="text-decoration:underline">Legal proceedings</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_52" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_51"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 18pt">1)</td><td style="text-align: justify"><span>In September 2016, an Israeli software company, which was previously
involved in an arbitration proceeding with Magic Software in 2015 and won damages from it for $<ix:nonFraction contextRef="c391" decimals="-5" format="ixt:num-dot-decimal" name="forty:DamagesAmount" scale="6" unitRef="usd">2.4</ix:nonFraction> million, filed a lawsuit seeking damages
of NIS <ix:nonFraction contextRef="c392" decimals="0" format="ixt:num-dot-decimal" name="forty:lawsuitSeekingDamages" scale="0" unitRef="ils">34,106</ix:nonFraction> against Magic Software and one of its subsidiaries. This lawsuit was filed as part of an arbitration proceeding. In the
lawsuit, the software company claimed that warning letters that Magic Software sent to its clients in Israel and abroad, warning those
clients against the possibility that the conversion procedure offered by the software company may amount to an infringement of Magic Software&#8217;s
copyrights (the &#8220;Warning Letters&#8221;), as well as other alleged actions, have caused the software company damages resulting from
loss of potential business. The lawsuit is based on rulings given in the 2015 arbitration proceeding in which it was allegedly ruled that
the Warning Letters constituted a breach of a non-disclosure agreement (NDA) signed between the parties. Magic Software rejected the claims
by the Israeli software company and moved to dismiss the lawsuit entirely. In July 2021 the arbitrator of this proceeding rendered his
decision and determined that Magic Software should pay final damages in an amount of NIS5,<ix:nonFraction contextRef="c393" decimals="0" format="ixt:num-dot-decimal" name="forty:DamagesAmount" scale="0" unitRef="ils">316</ix:nonFraction> (approximately NIS <ix:nonFraction contextRef="c393" decimals="0" format="ixt:num-dot-decimal" name="forty:DamagesAmount" scale="0" unitRef="usd">1,650</ix:nonFraction>). Our financial
results of operations of 2021 included a net impact of $<ix:nonFraction contextRef="c4" decimals="-5" format="ixt:num-dot-decimal" name="forty:ArbitrationExpenses" scale="6" unitRef="usd">1.6</ix:nonFraction> million resulting from the arbitration expenses. </span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">&#160;</span></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_53" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_52"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 18pt">2)</td><td style="text-align: justify"><span style="background-color: white">On November 23, 2020, Olir Trade and Industries Ltd. (&#8220;Olir&#8221;)
filed a derivative action and a motion to certify a derivative action, with the District Court (Economic Division) of Tel Aviv-Jaffa,
Israel (Derivative Action No. 58348-11-20) (the &#8220;Claim&#8221; and the &#8220;Motion to Certify&#8221;, respectively) (as reported
in the Company&#8217;s Report of Foreign Private Issuer on Form 6-K furnished to the Securities and Exchange Commission on December 9,
2020). In the framework of the Motion to Certify, Olir requested permission to file the Claim, on the Company&#8217;s behalf, against
each of the Company&#8217;s five directors, as well as the Company&#8217;s chief executive officer (the &#8220;CEO&#8221;), Mr. Guy Bernstein,
and chief financial officer, Mr. Asaf Berenstin (the &#8220;CFO&#8221;), as defendants. The Company and the named defendants are all listed
as respondents to the Motion to Certify. The Claim challenges the legality, under the Israeli Companies Law, 5759-1999 (the &#8220;Companies
Law&#8221;), of compensation awarded to the Company&#8217;s CEO and CFO, including past engagements with the CEO and the recent re-approval
by the Company&#8217;s compensation committee and board of directors (as reported in the Company&#8217;s Report of Foreign Private Issuer on
Form 6-K furnished to the Securities and Exchange Commission on November 4, 2020), of the eight-year equity-based award of compensation&#8212;in
the form of <ix:nonFraction contextRef="c394" decimals="0" format="ixt:num-dot-decimal" name="forty:RestrictedShares" scale="0" unitRef="shares">611,771</ix:nonFraction> restricted share units&#8212; to the Company&#8217;s CEO. The Claim includes allegations of breaches of fiduciary
duties (duty of care and duty of loyalty) and the oppression of minority shareholders and unjust enrichment. The Claim seeks an accounting
from the defendants as to the alleged harm caused to the Company, as well as compensation to the Company for such harm. The Claim also
seeks a declaratory order preventing the board of directors from using voting powers allegedly granted to it under agreements related
to the Company&#8217;s ADSs. The Company rejects all claims made by Olir and believe that all actions taken by its board of directors
and its committees were taken in accordance with the Companies Law and based upon advice of legal counsel. All respondents intend to vigorously
defend against the Motion to Certify and on May 13, 2021 all respondents filed their responses to the Motion to Certify. </span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_54" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_53"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify"><span style="background-color: white">On
May 19, 2021 the Company filed a motion asking the court to order Olir to deposit a guarantee for our costs in the proceedings. On June
23, 2021 Olir filed its response to the motion. The parties held mediation meetings. The mediation meetings took place on February 16,
2022, May 17, 2022 and
May 24, 2022. The mediation ended without the parties reaching an agreement. On June 16, 2022, following the oral argument at the pre-trial
hearing, the district court accepted the company&#8217;s request and ordered Olir to deposit a guarantee for the Company&#8217;s costs. Olir deposited
the guarantee and paid the costs to the Company as ordered. in the proceedings in the amount of NIS <ix:nonFraction contextRef="c395" decimals="0" format="ixt:num-dot-decimal" name="forty:ProceedingAmount" scale="0" unitRef="ils">173</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c395" decimals="0" format="ixt:num-dot-decimal" name="forty:ProceedingAmount" scale="0" unitRef="usd">51</ix:nonFraction>). On January
24, 2023, the Company submitted a request for dismissal in limine of the motion to certify due to a change in the factual grounds of
the motion including, among otherthings, the reapproval of the compensation given to the CEO by a new and independent board of directors
made on January 15, 2023. The court asked the other parties to respond to the request for dismissal by March 1,2023. A cross examinations
hearing was held on January 31, 2023. On March 1, 2023, the other respondents to the motion to certify submitted their responses to the
request for dismissal in which they supported the request. On March 8, 2023, Olir filed its objection to the dismissal in limine. On
April 13, the Company submitted its response to Olir&#8217;s response. Olir should file its briefs by the beginning of July 2023. The respondents
should file their briefs 60 days thereafter and Olir has a right to respond 30 days thereafter. At this stage of the proceedings, the
Company believes that the chances for the approval of the motion to certify are low.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 291; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->100<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify"><span style="font-weight: normal; text-transform: none">&#160;</span></p><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_55" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_54"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 18pt">3)</td><td style="text-align: justify"><span>On December 24, 2019, a motion for the approval of a class action
(#60508-02-20), in an amount of NIS <ix:nonFraction contextRef="c396" decimals="0" format="ixt:num-dot-decimal" name="forty:ClaimAmount" scale="0" unitRef="ils">793,800</ix:nonFraction>, was filed against Zap Group with the Israeli District Court (central district), claiming
that Zap Group allegedly generated income illegally from paying customers through the &#8216;ZAP Group&#8217;s price comparison&#8217;
website. At the pre-trial hearing, it was decided that the plaintiffs would file an explanation to the court as to why they believe they
were fit to serve as class action plaintiffs and give an explanation as to why they have performed prohibited clicks on their competitor&#8217;s
websites through ZAP Group&#8217;s website. Additionally, the plaintiffs were requested to update whether they are willing to reduce the
amount of the claim. On July 15, 2021, the plaintiffs filed a motion to reduce the amount of the claim to NIS <ix:nonFraction contextRef="c397" decimals="0" format="ixt:num-dot-decimal" name="forty:ClaimAmount" scale="0" unitRef="ils">63,000</ix:nonFraction>. On December 15,
2021, a pre-trial hearing took place, in which the court clarified that it does not intend to interfere with Zap Group&#8217;s business
considerations regarding the click filtering mechanisms that it operates. The court recommended that the plaintiffs reach an agreed solution
with Zap Group on the issue of the necessary disclosure that Zap Group should include in its contracts with customers (as available on
its website). The parties were requested to file a joint notice in accordance with the court&#8217;s recommendation by January 15, 2022.
The plaintiffs submitted a request for an extension to file the notice. On April 5, 2022, the plaintiffs filed a notice with the court
stating that they had not reached agreement with Zap Group and therefore seek to set the case for evidentiary hearing. On December 12,
2022 the parties filed a joint notice with the court stating their agreement to initiate a mediation process. A mediation meeting took
place on February 6, 2023. The mediation ended without the parties reaching an agreement. A date for a hearing has not yet been set. As
this claim was filed against Zap Group prior to its acquisition by Formula, any liability resulting from it is covered by the indemnification
provided to Formula by the former shareholders of Zap Group.</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_56" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_55"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 18pt">4)</td><td style="text-align: justify"><span>On December 30, 2021, Ronen Har Even, Galit Har Even and TV Center
Ltd. (the &#8220;Plaintiffs&#8221;) submitted a monetary claim in the sum of NIS <ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="forty:ClaimAmount" scale="0" unitRef="ils">24,490</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="forty:ClaimAmount" scale="0" unitRef="usd">6,959</ix:nonFraction>) and a claim for the grant
of a mandamus order against Zap Group, in the District Court at Haifa. The Plaintiffs allege that Zap Group constitutes a monopoly in
the provision of price comparison services in the online arena in Israel, and excluded the Plaintiffs&#8217; business from the E-commerce
arena in Israel. According to the Plaintiffs, Zap Group prevented price comparisons between the prices of the Plaintiffs&#8217; televisions
and the prices of the televisions of the official importers, by causing systemic manipulations aimed at excluding the television models
sold by the Plaintiffs and blurring the fact that
they are cheaper in the search results. As mentioned in the Statement of Claim, concurrent with submission of</span></td></tr></table><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 292; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->101<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_57" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_56"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">the Claim, on April 19, 2021, the Plaintiffs
submitted a complaint against Zap Group to the Israel Competition Authority, and on August 18, 2021 and October 21, 2021, submitted supplements
to the aforesaid complaint. On June 1, 2022, Zap Group submitted a statement of defense, denying the Plaintiffs&#8217; allegations and
in particular the Plaintiffs&#8217; argument that Zap Group has a monopoly in the provision of price comparison services in the online
arena in Israel. On July 19, 2022, a pre-trial hearing took place, at the end of which it was held that the Parties must conclude the
discovery proceedings by September 10, 2022, and that should any of the Parties wish to submit a motion following receipt of the answers,
they must do so by November 15, 2022. On November 15, 2022 the Plaintiffs submitted a motion for the grant of an order of discovery of
documents and answer to interrogatories. On December 20, 2022, Zap Group submitted its response to the motion, in which it rejected all
of the Plaintiffs&#8217; demands. The Plaintiffs provided Zap Group with the documents that had been disclosed by them in the case, without
a suitable legend. On January 13, 2023, the Plaintiffs submitted a response to the motion. On January 16, 2023, a pre-trial hearing took
place, in which Zap Group insisted on the receipt of a suitable legend for the documents that had been disclosed to it by the Plaintiffs.
The Court held that the Plaintiffs would deliver a suitable legend within 45 days, after which Zap Group would be entitled to submit
a suitable motion in this regard within 30 days, should the need to do so arise. On March 5, 2023, the Plaintiffs submitted a new document
file in the context of the discovery proceedings, and an updated legend that was almost identical to the previous one. For that reason,
on April 3, 2023, Zap Group submitted a motion to strike out the Statement of Claim due to breach of the Court&#8217;s decision to provide
the discovery materials in a proper manner or, alternatively, for the for the lack of performing the court&#8217;s decision. The Plaintiffs
are required to respond to the motion by May 21, 2023. An additional pre-trial proceeding has been scheduled for October 2023. As this
claim was filed against Zap Group with respect to the period prior to its acquisition by Formula, any liability resulting from it is
covered by the indemnification provided to Formula by the former shareholders of Zap Group.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.5pt; text-transform: uppercase; text-align: justify; text-indent: 0in"><span style="font-weight: normal; text-transform: none">&#160;</span></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_58" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_57"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 18pt">5)</td><td style="text-align: justify"><span>In addition to the above-described legal proceedings, from time
to time, Formula and/or its subsidiaries and affiliates are subject to legal, administrative and regulatory proceedings, claims, demands
and investigations in the ordinary course of business, including claims with respect to intellectual property, contracts, employment and
other matters. The Group accrues a liability when it is both probable that a liability has been incurred and the amount of the loss can
be reasonably estimated. Significant judgment is required in the determination of both the probability and as to whether a loss is reasonably
estimable. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice
of legal counsel and other information and events pertaining to a particular matter. The Group intends to defend itself vigorously against
the above claims, and it generally intends to vigorously defend any other legal claims to which it is subject. While for most litigations,
the outcome is difficult to determine, to the extent that there is a reasonable possibility that the losses to which the Group may be
subject could exceed the amounts (if any) that it has already accrued, the Group attempts to estimate such additional loss, if reasonably
possible, and disclose it (or, if it is an immaterial amount, indicate accordingly). The aggregate provision that the Group has recorded
for all other legal proceedings (other than the particular material proceedings described above) is not material.</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 293; Value: 6 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">NOTE 20:- COMMITMENTS
AND CONTINGENCIES (<span style="text-transform: none">Cont.</span>)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_59" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_58"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">e)</td><td style="text-align: justify"><span style="text-decoration:underline">Royalty commitments: </span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_60" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_59"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Sapiens Technologies
(1982) Ltd. (&#8220;Sapiens Technologies&#8221;), a wholly owned subsidiary of Sapiens incorporated in Israel, was partially financed
under programs sponsored by the IIA, formerly the Office of the Chief Scientist (&#8220;OCS&#8221;) for the support of certain research
and development activities conducted in Israel. In exchange for participation in the programs by the IIA, Sapiens Technologies agreed
to pay <ix:nonFraction contextRef="c0" decimals="3" format="ixt:num-dot-decimal" name="forty:MaintenanceRevenuePercentage" scale="-2" unitRef="pure">3.5</ix:nonFraction>% of total net consolidated license and maintenance revenue and <ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="forty:ServiceRevenuePercentage" scale="-2" unitRef="pure">0.35</ix:nonFraction>% of the net consolidated consulting services revenue related
to the software developed within the framework of these programs based on an understanding with IIA reached in January 2012. The royalties
will be paid up to a maximum amount equaling <ix:nonFraction contextRef="c398" decimals="2" format="ixt:num-dot-decimal" name="forty:RoyaltyPaymentPercentage" scale="-2" unitRef="pure">100</ix:nonFraction>%-<ix:nonFraction contextRef="c399" decimals="2" format="ixt:num-dot-decimal" name="forty:RoyaltyPaymentPercentage" scale="-2" sign="-" unitRef="pure">150</ix:nonFraction>% of the grants provided by the IIA, linked to the dollar, and for grants received
after January 1, 1999, bear annual interest at a rate based on LIBOR.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_61" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_60"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">As of December 31, 2022, the total remaining
unpaid royalties to the IIA amounted to $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="forty:UnpaidRoyaltiesAmount" scale="0" unitRef="usd">5,661</ix:nonFraction>, out of which, an amount of $<ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="forty:AmountOfLiabilityAccordance" scale="0" unitRef="usd">1,659</ix:nonFraction> was recorded as a liability in accordance with IAS 20.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_62" id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_61"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">f)</td><td style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><span style="text-decoration:underline">Insurance: </span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: left">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory-c0_cont_62"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Company and its
subsidiaries and affiliates insure themselves in bodily injury and property damage insurance policies, including third party, professional
liability and employer&#8217;s liability insurance policies. Formula, Sapiens, Magic Software, Zap Group, Insync, Michpal, Shamrad and
Ofek directors and officers (D&amp;O) are insured under an &#8220;umbrella&#8221; policy for insurance of directors and officers including
D&amp;O side A DIC policy (another layer of protection for officers) acquired by the Company for itself and its subsidiaries, for a period
of 12 months from February 14, 2022.</p></ix:continuation><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
21:- equity</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_2" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -85.05pt">The composition
of the Company&#8217;s share capital is as follows:</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_3" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfClassesOfShareCapitalExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_4" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">a.</td><td style="text-align: justify">Formula&#8217;s ordinary shares, par value NIS <ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="forty:DividendPayableAmountPerShare" scale="0" unitRef="ilsPershares">1</ix:nonFraction> per share, are traded on the TASE, and Formula&#8217;s
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_5" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">b.</td><td style="text-align: justify">Formula holds <ix:nonFraction contextRef="c2" decimals="0" format="ixt:num-dot-decimal" name="forty:FormulaHoldShares" scale="0" unitRef="shares">568,620</ix:nonFraction> of its own ordinary shares.</td></tr></table><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_6" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">c.</td><td style="text-align: justify">In February 2021, Formula declared a cash dividend of approximately NIS <ix:nonFraction contextRef="c403" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="0" unitRef="ils">33,036</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c403" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="3" unitRef="usd">10,155</ix:nonFraction>)
or NIS <ix:nonFraction contextRef="c403" decimals="2" format="ixt:num-dot-decimal" name="forty:DividendPayableAmountPerShare" scale="0" unitRef="ilsPershares">2.16</ix:nonFraction> per share (approximately $<ix:nonFraction contextRef="c403" decimals="2" format="ixt:num-dot-decimal" name="forty:DividendPayableAmountPerShare" scale="0" unitRef="usdPershares">0.66</ix:nonFraction> per share) to shareholders of record on February 18, 2021 that was paid on March 4, 2021.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_7" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_6"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">d.</td><td style="text-align: justify">In August 2021, Formula declared a cash dividend of approximately NIS <ix:nonFraction contextRef="c317" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="0" unitRef="ils">38,694</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c317" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="3" unitRef="usd">11,932</ix:nonFraction>) or
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 294; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->103<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
21:- equity (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_8" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_7"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">e.</td><td style="text-align: justify">In March 2022, Formula declared a cash dividend of approximately NIS <ix:nonFraction contextRef="c324" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="0" unitRef="ils">39,213</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c324" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="3" unitRef="usd">12,018</ix:nonFraction>) or
NIS <ix:nonFraction contextRef="c324" decimals="2" format="ixt:num-dot-decimal" name="forty:DividendPayableAmountPerShare" scale="0" unitRef="ilsPershares">2.56</ix:nonFraction> per share (approximately $<ix:nonFraction contextRef="c324" decimals="2" format="ixt:num-dot-decimal" name="forty:DividendPayableAmountPerShare" scale="0" unitRef="usdPershares">0.78</ix:nonFraction> per share) to shareholders of record on April 12, 2022 that was paid on April 25, 2022.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_9" id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_8"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">f.</td><td style="text-align: justify">In November 2022, Formula declared a cash dividend of approximately NIS <ix:nonFraction contextRef="c404" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="0" unitRef="ils">33,086</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c404" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DividendPayables" scale="3" unitRef="usd">9,571</ix:nonFraction>)
or NIS <ix:nonFraction contextRef="c404" decimals="2" format="ixt:num-dot-decimal" name="forty:DividendPayableAmountPerShare" scale="0" unitRef="ilsPershares">2.16</ix:nonFraction> per share (approximately $<ix:nonFraction contextRef="c404" decimals="2" format="ixt:num-dot-decimal" name="forty:DividendPayableAmountPerShare" scale="0" unitRef="usdPershares">0.62</ix:nonFraction> per share) to shareholders of record on December 5, 2022 that was paid on December 19, 2022.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory-c0_cont_9"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">g.</td><td style="text-align: justify">For information concerning Formula&#8217;s employees and officers share-based plans, see Note 18.</td></tr></table></ix:continuation><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfIncomeTaxExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
22:- INCOME TAX</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_2" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0"></td><td style="width: 0.25in">a.</td><td style="text-align: justify">Israeli taxation:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_3" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">1)</td><td style="text-align: justify"><span style="text-decoration:underline">Corporate tax rate in Israel</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_4" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Taxable income of
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are eligible for certain tax benefits, as described below.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_5" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_4"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">2)</td><td style="text-align: justify">Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the &#8220;Law&#8221;):</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_6" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Amendment 73 to
the Law:</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_7" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In December 2016,
the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years) 2016, which includes
Amendment 73 to the Law for the Encouragement of Capital Investments (the &#8220;2017 Amendment&#8221;) was published and was pending
the publication of regulations, in May 2017 regulations were promulgated by the Finance Ministry to implement the &#8220;Nexus Principles&#8221;
based on OECD guidelines published as part of the Base Erosion and Profit Shifting (BEPS) project. Following the publication of the regulations
the 2017 Amendment became fully effective. <ix:nonNumeric contextRef="c405" continuedAt="forty_DescriptionOfNewAmendmentTaxRate-c405_cont_1" name="forty:DescriptionOfNewAmendmentTaxRate">According to the 2017 Amendment, a Preferred Technological Enterprise, as defined in the 2017
Amendment, with total consolidated revenues of the group companies is less than NIS 10 billion, shall be subject to 12% tax rate on income
derived from intellectual property (in development area A&#8212;a tax rate of 7.5%). In order to qualify as a Preferred technological
enterprise certain criterion must be met, such as a minimum ratio of annual R&amp;D expenditure and R&amp;D employees, as well as having
at least 25% of annual revenues derived from exports. A Preferred Technology Enterprise that acquires Benefited Intangible Assets from
a foreign company for more than NIS 200 million after January 1, 2017, will be eligible for 12% reduce tax rate on capital gain upon sale
of the Benefited Intangible Assets.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 141.75pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_8" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_7"><ix:continuation continuedAt="forty_DescriptionOfNewAmendmentTaxRate-c405_cont_2" id="forty_DescriptionOfNewAmendmentTaxRate-c405_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The 2017 Amendment
further provides that a technology company satisfying certain conditions will qualify as a Special Preferred Technology Enterprise (&#8220;SPTE&#8221;)
(an enterprise for which, among others, total consolidated revenues of its parent company and all subsidiaries is at least NIS 10 billion)
and will thereby enjoy a reduced corporate tax rate of 6% on PTI regardless of the company&#8217;s geographic location within Israel.
In addition, a SPTE will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain &#8220;Benefited Intangible
Assets&#8221; to a related foreign company if the Benefited Intangible Assets were either developed by the Special Preferred Technology Enterprise
or acquired from a foreign company on or after January 1, 2017.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 295; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->104<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_9" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_8"><ix:continuation id="forty_DescriptionOfNewAmendmentTaxRate-c405_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Starting from 2017
under Amendment 73 to the Investment Law, part of the Group&#8217;s taxable income in Israel is entitled to a preferred 12% tax rate.
Since 2019, under SPTE the tax rate for part of the Group&#8217;s taxable income in Israel has been reduced to a 6% corporate tax rate.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_10" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><span style="text-decoration:underline">Amendment 74 to
the Encouragement Law:</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_11" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">On November 15, 2021,
the Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2021 and 2022 Budget Years), 2021 (the &#8220;Economic
Efficiency Law&#8221;), was enacted. This Law establishes a temporary order allowing Israeli companies to release tax-exempt earnings
(&#8220;trapped earnings&#8221; or &#8220;accumulated earnings&#8221;) accumulated until December 31, 2020, through a mechanism established
for a reduced corporate income tax rate applicable to those earnings (the &#8220;Temporary Order&#8221;)<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_12" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In addition to the
reduced corporate income tax (CIT) rate, Article 74 to the Encouragement Law was amended whereby effective from August 15, 2021, for any
dividend distribution (including a dividend as per Article 51B to the Encouragement Law) by a company which has trapped earnings, there
will be a requirement to allocate a portion of that distribution to the trapped earnings<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_13" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The tax-exempt income
is attributable to certain Group members&#8217; previous status as &#8220;Approved Enterprise&#8221; and &#8220;Benefited Enterprise&#8221;.
Such tax-exempt income cannot be distributed to shareholders without subjecting the Company to payable income taxes. If dividends are
distributed from previous tax-exempt profits, the Company will be liable for income tax at the rate applicable to its profits from the
Approved Enterprise in at the tax rate enacted in the year in which the income was earned<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_14" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">According to the Temporary
Order, the reduction of CIT will apply to earnings that are released (with no requirement for an actual distribution) within a period
of one year from the date of enactment of the Temporary Order. The reduction in the CIT is dependent on the proportion of the trapped
earnings that are released in relation to the total trapped earnings, and on the applicable CIT rate in the years the earnings were generated.
Consequently, the larger the proportion of the trapped earnings that are released, the lower the tax in respect of the distribution. The
minimum tax rate is <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="ifrs-full:AverageEffectiveTaxRate" scale="-2" unitRef="pure">6</ix:nonFraction>%. Further, a company that elects to pay a reduced CIT is required to invest in its industrial enterprise a designated
amount in accordance with the Economic Efficiency Law within a period of five years commencing from the tax year in which the election
is made. The designated investment should be utilized for the acquisition of production assets, and/or investments in research and development
and/or compensation to additional new employees<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_15" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">According to IAS 12,
a deferred tax liability would generally be recorded relating to corporate taxes that would be owed on the distribution of profits if
management has currently the intention to declare dividends of its tax-exempt earnings<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_16" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In 2021, Sapiens elected
to benefit from the Temporary Order and pay the reduced CIT as per the provisions of the Economic Efficiency Law in respect of its total
accumulated tax-exempt earnings amounting to NIS <ix:nonFraction contextRef="c4" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:TaxEffectOfRevenuesExemptFromTaxation2011" scale="0" unitRef="ils">109,000</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:TaxEffectOfRevenuesExemptFromTaxation2011" scale="3" unitRef="usd">35,048</ix:nonFraction>), and accordingly recognized deferred tax liability of
$<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DeferredTaxLiabilityAssociatedWithRegulatoryDeferralAccountBalances" scale="3" unitRef="usd">3,531</ix:nonFraction>. In 2022, the Sapiens filed its application for the Temporary Order and paid the required amount to the Israeli tax authority.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 296; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->105<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_17" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In November 2022,
Magic Software also elected to benefit from the Temporary Order and filed its application for the Temporary Order and paid the required
reduced CIT as per the provisions of the Economic Efficiency Law in respect of its total accumulated tax-exempt earnings amounting to
NIS <ix:nonFraction contextRef="c406" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:TaxEffectOfRevenuesExemptFromTaxation2011" scale="0" unitRef="ils">25,022</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c406" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:TaxEffectOfRevenuesExemptFromTaxation2011" scale="3" unitRef="usd">7,100</ix:nonFraction>), and accordingly recognized a tax liability of NIS <ix:nonFraction contextRef="c404" decimals="0" format="ixt:num-dot-decimal" name="ifrs-full:DeferredTaxLiabilityAssociatedWithRegulatoryDeferralAccountBalances" scale="0" unitRef="ils">2,502</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c404" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DeferredTaxLiabilityAssociatedWithRegulatoryDeferralAccountBalances" scale="3" unitRef="usd">711</ix:nonFraction>).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_18" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">As of December 31,
2022 all of Sapiens&#8217; and Magic Software&#8217;s trapped earnings were released.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_19" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_18"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">3)</td><td style="text-align: justify"><span style="text-decoration:underline">Tax benefits under the Israeli Law for the Encouragement of Industry (Taxes), 1969</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_20" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">It is Formula&#8217;s
management&#8217;s belief that certain of its Israeli operations currently qualify as Industrial Companies within the meaning of the Law
for the Encouragement of Industry (Taxes), 5729-1969 (the &#8220;Industrial Encouragement Law&#8221;). The Industrial Encouragement Law,
provides several tax benefits for an &#8220;IndustrialCompany&#8221;. Pursuant to the Industry Encouragement Law, a company qualifies
as an Industrial Company if it is an Israeli resident company which was incorporated in Israel and at least <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="forty:IncomeTax" scale="-2" unitRef="pure">90</ix:nonFraction>% of its income in any tax
year (other than income from certain government loans) is generated from an &#8220;Industrial Enterprise&#8221; that it owns and located
in Israel or in the &#8220;Area,&#8221; in accordance with the definition under Section 3A of the Israeli Income Tax Ordinance (NewVersion)
1961, or the Ordinance. An &#8220;Industrial Enterprise&#8221; is defined as an enterprise which is held by an Industrial Company whose
major activity, in any given tax year, is industrial production.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_21" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">An Industrial Company
is entitled to certain corporate tax benefits, including:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_22" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_21"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 56.7pt"></td><td style="width: 18pt">i.</td><td style="text-align: justify">Amortization of the cost of purchased patents, or the right to use a patent or know-how or certain other
intangible property rights (other than goodwill) that were purchased in good faith and are used for the development or promotion of the
Industrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised.</td></tr></table><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_23" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_22"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 56.7pt"></td><td style="width: 18pt">ii.</td><td style="text-align: justify">The right to elect, under certain conditions, to file a consolidated tax return together with Israeli
Industrial Companies controlled by it.</td></tr></table><p style="margin-top: 0; margin-bottom: 0">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_24" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_23"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 56.7pt"></td><td style="width: 18pt">iii.</td><td style="text-align: justify">Expenses related to a public offering are deductible in equal amounts over three years beginning from
the year of the offering.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_25" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Eligibility for the
benefits under the Industrial Encouragement Law is not subject to receipt of prior approval from any governmental authority<span style="font-family: Times New Roman, Times, Serif">.</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_26" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group believes
that certain of its Israeli subsidiaries currently qualify as Industrial Companies within the definition under the Industry Encouragement
Law. The Group cannot assure you that those subsidiaries will continue to qualify as Industrial Companies or that the benefits described
above will be available in the future.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_27" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_26"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">4)</td><td style="text-align: justify"><span style="text-decoration:underline">Foreign Exchange Regulations</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_28" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Under the Foreign
Exchange Regulations, certain Israeli subsidiaries of the Group calculate their tax liability in dollars according to certain orders.
The tax liability, as calculated in dollars is translated into NIS according to the exchange rate as of December 31 of each year for tax
purposes only.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt"></p><div>

</div><!-- Field: Page; Sequence: 297; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->106<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_29" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_28"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">5)</td><td style="text-align: justify"><span style="text-decoration:underline">Structural changes in Matrix IT</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_30" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_29"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">On June 11, 2020, a tax ruling was signed
determining that effective December 31, 2019 as part of a merger process, three subsidiaries of Matrix IT will transfer all their assets
and liabilities subject to the provisions of section 103 of the Income Tax Ordinance. </p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_31" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_30"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">During the fourth quarter of 2022, Matrix
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_32" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_31"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0in"></td><td style="width: 0.25in">b.</td><td style="text-align: justify">Non-Israeli subsidiaries:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_33" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">Non-Israeli subsidiaries
are taxed according to the tax laws in their respective countries of residence. Deferred income taxes were provided in relation to undistributed
earnings of non-Israeli subsidiaries, which the Group intends to distribute in the near future.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_34" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_33"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The Group intends
to permanently reinvest undistributed earnings in the foreign subsidiaries in which earnings arose, in the vast majority of its subsidiaries.
If the earnings, for which deferred taxes were not provided, were distributed in the form of dividends or otherwise, the Group would be
subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and non-Israeli withholding taxes.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_35" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_34"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The amount of undistributed
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However, a determination of the amount of the unrecognized deferred tax liability for temporary difference related to those undistributed
earnings of foreign subsidiaries is not practicable due to the complexity of the structure of our group of subsidiaries for tax purposes
and the difficulty of projecting the amount of future tax liability.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_36" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_35"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">The amount of cash
and cash equivalents that were held by the Group&#8217;s subsidiaries outside of Israel and would have been subject to income taxes if
distributed as dividend as of December 31, 2022 and 2021 was $<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="forty:CashAndCashEquivalentsHeldByGroupsInvesteesOutsideOfIsrael" scale="3" unitRef="usd">81,756</ix:nonFraction> and $<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="forty:CashAndCashEquivalentsHeldByGroupsInvesteesOutsideOfIsrael" scale="3" unitRef="usd">56,916</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 298; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->107<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_37" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_36"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">c.</td><td style="text-align: justify">Tax Reform - United States of America</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_38" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_37"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The U.S. Tax Cuts
and Jobs Act of 2017 (&#8220;TCJA&#8221;) was approved on December 22, 2017. This legislation makes significant changes to the U.S. Internal
Revenue Code. Such changes include a reduction in the corporate tax rate and limitations on certain corporate deductions and credits,
among other changes. <ix:nonNumeric contextRef="c0" name="forty:FederalCorporateIncomeTaxRateDescription">The TCJA reduces the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.</ix:nonNumeric></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_39" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_38"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">In addition, the
TCJA makes certain changes to the depreciation rules and implements new limits on the deductibility of certain expenses and deduction.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_40" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_39"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The TCJA introduced
the rules for tax on the global intangible low-taxed income (&#8220;GILTI&#8221;) on foreign income in excess of a deemed return on tangible
assets of foreign corporations. One of our subsidiaries is subject to GILTI.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_41" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_40"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Except for one U.S.
subsidiary which has a share interest in a subsidiary in India, all of the Group&#8217;s other subsidiaries in the United States do not
have any foreign subsidiaries and, therefore, the remaining provisions of the TCJA have no material impact on the Group&#8217;s results
of operations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_42" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_41"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Starting from 2022,
the TCJA requires taxpayers to capitalize research and development expenses with amortization periods over five years for research activities
conducted in the United States and over fifteen years for research activities conducted outside of the United States, which has increased
the Group&#8217;s tax liability in the U.S. The tax provision expense has increased from prior year to account for the capitalization
of research and development costs starting in 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_43" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_42"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">d.</td><td style="text-align: justify">Net operating loss carried forward:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_44" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_43"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">As of December 31,
2022, Formula and its subsidiaries have cumulative losses for tax purposes totaling approximately $<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="3" unitRef="usd">174,524</ix:nonFraction>, of which $<ix:nonFraction contextRef="c408" decimals="-3" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="3" unitRef="usd">136,443</ix:nonFraction> was in respect
of Israeli subsidiaries and approximately $<ix:nonFraction contextRef="c409" decimals="-3" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="3" unitRef="usd">38,081</ix:nonFraction> of which was in respect of subsidiaries abroad.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_45" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_44"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">1)</td><td style="text-align: justify"><span style="text-decoration:underline">Formula</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_46" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_45"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">As of December 31,
2022, Formula stand-alone had cumulative carry forward tax losses in Israel totaling approximately NIS <ix:nonFraction contextRef="c0" decimals="0" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="0" unitRef="ils">257,503</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c410" decimals="-3" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="3" unitRef="usd">73,180</ix:nonFraction>),
which can be carried forward and offset against taxable income in the future for an indefinite period.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_47" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_46"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">2)</td><td style="text-align: justify"><span style="text-decoration:underline">Matrix IT</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_48" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_47"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">As of December 31,
2022, certain subsidiaries of Matrix IT had operating carry-forward tax losses totaling approximately NIS <ix:nonFraction contextRef="c411" decimals="0" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="0" unitRef="ils">110,185</ix:nonFraction> (approximately $<ix:nonFraction contextRef="c411" decimals="-3" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="3" unitRef="usd">31,311</ix:nonFraction>),
which resulted from Israeli operations and as such can be carried forward and offset against taxable income in the future for an indefinite
period.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_49" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_48"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">3)</td><td style="text-align: justify"><span style="text-decoration:underline">Magic Software</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_50" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_49"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">As of December 31,
2022, certain subsidiaries of Magic Software had operating carry forward tax losses totaling approximately $<ix:nonFraction contextRef="c70" decimals="-3" format="ixt:num-dot-decimal" name="forty:CumulativeLossesForTaxPurposes" scale="3" unitRef="usd">22,427</ix:nonFraction>, which can be carried
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 299; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->108<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_51" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_50"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">4)</td><td style="text-align: justify"><span style="text-decoration:underline">Sapiens</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_52" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_51"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">As of December 31,
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_53" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_52"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">5)</td><td style="text-align: justify"><span style="text-decoration:underline">Zap</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_54" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_53"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">As of December 31,
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_55" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_54"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">6)</td><td style="text-align: justify">As of December 31, 2022 Insync, Michpal, Ofek and Shamrad did not have any carry forward tax losses.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_56" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_55"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_57" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_56"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Formula and its subsidiaries
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_58" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_57"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">1)</td><td style="text-align: justify"><span style="text-decoration:underline">Formula</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:nonNumeric contextRef="c337" name="forty:IncomeTaxAssessmentsDescription"><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_59" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_58"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Formula has received
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_60" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_59"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">2)</td><td style="text-align: justify"><span style="text-decoration:underline">Matrix IT</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_61" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_60"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Matrix IT has received
final tax assessments through the tax year 2018. <ix:nonNumeric contextRef="c68" name="forty:IncomeTaxAssessmentsDescription">Matrix IT subsidiaries have received final tax assessments (or assessments that are deemed
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_62" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_61"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_63" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_62"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Magic Software has
received final tax assessments through the year 2016. Magic Software subsidiaries have received final tax assessments (or assessments
that are deemed final) through the tax year 2017.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_64" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_63"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">4)</td><td style="text-align: justify"><span style="text-decoration:underline">Sapiens</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_65" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_64"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in"><ix:nonNumeric contextRef="c69" name="forty:IncomeTaxAssessmentsDescription">Tax assessments filed
by some of Sapiens&#8217; Israeli subsidiaries through the year 2017 are considered to be final.</ix:nonNumeric> Sapiens is currently under audit in several
jurisdictions for the tax years 2017 and onwards. Timing of the resolution of audits is highly uncertain and therefore, as of December
31, 2022, the Company cannot estimate the change in unrecognized tax benefits resulting from these audits.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_66" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_65"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">5)</td><td style="text-align: justify"><span style="text-decoration:underline">Zap Group</span></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_67" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_66"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0in">Zap Group has received
final tax assessments (or assessments that are deemed final) through the tax year 2018. Zap Group&#8217;s subsidiaries have received final
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_68" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_67"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">6)</td><td style="text-align: justify">Other than those aforementioned subsidiaries, all other Formula&#8217;s subsidiaries have received final
tax assessments (or assessments that are deemed final) through the tax year 2017.</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 300; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->109<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_69" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_68"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">f.</td><td style="text-align: justify">Deferred tax liabilities, net:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_70" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_69"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.5in"></td><td style="width: 0.25in">1)</td><td style="text-align: justify"><span style="text-decoration:underline">Presentation in consolidated statements of financial position</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_71" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_70"><ix:nonNumeric contextRef="c0" escape="true" name="forty:DisclosureOfDetailedInformationAboutDeferredTaxAssetsLiabilitiesNetExplanatoryTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
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    <td style="width: 76%; text-align: left">Deferred taxes assets</td><td style="width: 1%">&#160;</td>
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    <td style="text-align: left; padding-bottom: 4pt">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_72" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_71"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_73" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_72"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfCompositionOfGroupExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_74" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_73"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_75" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_74"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfIncomeBeforeTaxesOnIncomeTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_76" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_75"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 21.3pt">h.</td><td style="text-align: justify">Income tax (tax benefit) consist of the following:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 84.45pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_77" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_76"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfTaxesOnIncomeTaxBenefitTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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</div><div>


</div><!-- Field: Page; Sequence: 301; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->110<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_78" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_77"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">i.</td><td style="text-align: justify">Theoretical tax:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_79" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_78"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
presents reconciliation between the theoretical tax expense, assuming that all income was taxed at statutory tax rates, and the actual
income tax expense, as recorded in the Group&#8217;s consolidated statements of profit or loss:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in"></p><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_80" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_79"><ix:nonNumeric contextRef="c0" escape="true" name="ifrs-full:DisclosureOfTemporaryDifferenceUnusedTaxLossesAndUnusedTaxCreditsExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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ended December 31,</b></p></td><td style="padding-bottom: 1.5pt">&#160;</td></tr>
  <tr style="vertical-align: bottom">
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    <td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left; text-indent: -11.35pt; padding-left: 13.3pt">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -11.35pt; padding-left: 13.3pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-left: 1.1pt">Uncertain tax positions</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:UncertainTaxPositions" scale="3" unitRef="usd">3,065</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt; padding-left: 1.1pt">Other</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-left: 1.1pt">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 4pt; text-indent: -10.25pt; padding-left: 10.25pt">Taxes on income</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IncomeTaxExpenseContinuingOperations" scale="3" unitRef="usd">55,235</ix:nonFraction></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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    <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:IncomeTaxExpenseContinuingOperations" scale="3" unitRef="usd">31,269</ix:nonFraction></td><td style="padding-bottom: 4pt; text-align: left"></td></tr>
  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_81" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_80"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">j.</td><td style="text-align: justify">Uncertain tax positions:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_82" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_81"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">A reconciliation
of the beginning and ending amount of total unrecognized tax benefits in Formula&#8217;s subsidiaries is as follows:</p></ix:continuation><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_83" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_82"><ix:nonNumeric contextRef="c0" escape="true" name="forty:ScheduleOfUnrecognizedTaxBenefitsTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td style="width: 88%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Balance as of January 1, 2021</span></td>
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    <td style="width: 1%"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
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  <tr style="vertical-align: bottom; background-color: white">
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: #CCEEFF">
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Decrease in tax positions</span></td>
    <td>&#160;</td>
    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: white">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfIncomeTaxExplanatory-c0_cont_84" id="_DisclosureOfIncomeTaxExplanatory-c0_cont_83"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">Although the Group
believes that it has adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement, there is no assurance
that the final tax outcome of its tax audits will not be different from that which is reflected in the Group&#8217;s income tax provisions.
Such differences could have a material effect
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is made.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 302; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->111<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
22:- INCOME TAX (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0in">&#160;&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt"><span style="font-weight: normal">&#160;</span></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_1" escape="true" name="forty:SupplementaryFinancialStatementInformationTextBlock"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-indent: 0in">Note 23:- Supplementary
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</div><div>

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    <td style="width: 0.25in">&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_3" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="forty:NonControllingInterestInMaterialPartiallyOwnedSubsidiariesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.35pt; text-align: justify; text-indent: -14.85pt"></p><div>

</div><!-- Field: Page; Sequence: 303; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->112<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.35pt; text-align: justify; text-indent: -14.85pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.35pt; text-align: justify; text-indent: -14.85pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
23: - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.35pt; text-align: justify; text-indent: -14.85pt">&#160;</p><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_6" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_5"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 14.85pt">c.</td><td style="text-align: justify">Geographical information:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_8" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_7"><ix:nonNumeric contextRef="c0" escape="true" name="forty:PropertyAndEquipmentTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
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</div><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_9" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_8"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_10" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The Group&#8217;s
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</div><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_11" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_10"><ix:nonNumeric contextRef="c0" escape="true" name="forty:RevenuesClassifiedByGeographicAreaTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_12" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_11"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
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</div><div>

</div><ix:continuation continuedAt="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_13" id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The following table
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</div><div>

</div><ix:continuation id="forty_SupplementaryFinancialStatementInformationTextBlock-c0_cont_13"><ix:nonNumeric contextRef="c0" escape="true" name="forty:BasicAndDilutedNetEarningsPerShareTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.35pt; text-align: justify; text-indent: -14.85pt">&#160;</p><div>

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</div><div>

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through seven directly held subsidiaries&#8212; Matrix IT; Sapiens; Magic Software; Michpal, Zap, Insync, Ofek and Shamrad; and one jointly
controlled entity: TSG&#8212; in providing software services, proprietary and non-proprietary software solutions, software product marketing
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</div><div>

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Israel&#8217;s leading IT services company. Matrix IT provides software solutions and services, software development projects, outsourcing,
integration of software systems and services, project management services and comprehensive consulting and management services in complex
infrastructure projects, urban and environment planning &#8211; all in accordance with its customers&#8217; specific needs. Matrix IT
also provides upgrading and expansion of existing software systems.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

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through its directly and indirectly held subsidiaries in the following segments: (1) Information Technology (IT) Software solutions and
services, Consulting &amp; Management in Israel; (2) Information Technologies (IT) Software solutions and services in the U.S.; (3) Training
and integration; (4) Computer and cloud infrastructure and integration solutions; and (5) Software product marketing and support.</p><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">&#160;</p></ix:continuation><div>

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</div><div>

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and services in Israel provided by Matrix IT consist mainly of providing tailored software solutions and upgrading and expanding mainly
existing large-scale software systems. These services include, among others, developing customized software, adapting software to the
customer&#8217;s specific needs, implementing software and modifying it based on the customer&#8217;s needs, outsourcing, software project
management, software testing and QA and integrating all or part of the above elements. Furthermore, the activity in this segment includes
project management consulting services and multi-disciplinary operational and engineering consulting services, including supervision of
complex engineering projects, all according to client specific needs as the scope of work invested in each element varies from one customer
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provide software solutions and services of Governance Risk and Compliance (&#8220;GRC&#8221;) experts, including activities on the following
topics: risk management, management and fraud prevention, anti-money laundering, trade surveillance as well as, specialized advisory services
in the area of compliance with financial regulation and operational services, as well as solutions and specialized technological services
in areas such as: portals, BI (Business Intelligence) DBA (Data Base Administration), CRM (Customer Relation Management) and EIM (Enterprise
Information Management). Furthermore, the activity in this segment includes dedicated solutions for the GovCon Government contracting
market, IT help desk services specializing in healthcare and software product distribution services particularly IBM, BMC and Atlassian
products to customers in the public-government
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

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</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">Note
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professional training courses and advanced professional studies in the high-tech industry, courses of soft skills and management training
and provision of training and implementation of computer systems. Matrix IT also outsources IT services based on graduates of its courses.
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the business specializing unit of the Company - Cloud Zone) and a myriad of services and products regarding office automation and printing
solutions, representation of global leading manufacturers of test and measurement equipment, communication and cyber and RF solutions,
projects and integration in the field of automation, calibration services in advanced technologies, provision of industrial video and
image processing solutions as well as Database services and Big data services (through the specialized business unit Data zone). In 2022,
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data warehouse mining, application integration, database and systems, data management and software development tools. In 2022, activity
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global provider of software solutions for the insurance industry. Sapiens&#8217; extensive expertise is reflected in its innovative software,
solutions and professional services for property &amp; casualty (P&amp;C); reinsurance; life, pension &amp; annuity (L&amp;A); workers&#8217;
compensation (WC); medical professional liability (MPL); financial &amp; compliance (F&amp;C); and decision modelling for both insurance
and financial markets. Sapiens offers an end-to-end solutions for insurers core systems, as well as complementary data &amp; analytics
and digital. Importantly its wide array of professional services ensures that Sapiens not only makes a sale but accompanies and guides
its customers on their path to digital transformation and bring important insights from the field into its products roadmap. Sapiens&#8217;
offerings not only enable its customers to effectively manage their core business functions &#8211; including policy administration, claims
and billing &#8211; they support insurers on their path to digital transformation. Its portfolio also provides a variety of complimentary
solutions for critical requirements such as reinsurance management, underwriting management, illustration software, electronic applications
and financial compliance tools. The latest versions of its platforms possess modern, modular
cloud-first architecture and are digital-driven, providing full coverage for all business aspects of policy management, digital engagement
and data analysis. They empower customers to respond to the rapidly changing insurance market and frequent regulatory changes, while improving
the efficiency of their core operations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 306; Value: 6 --><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
24: - OPERATING SEGMENTS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in">&#160;&#160;</p><div>

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</div><div>

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application development and business process integration platforms; (iii) selected packaged vertical software solutions; as well as (iv)
cloud based services for end to end digital transformation. Magic Software&#8217;s technology is used by customers to develop, deploy
and integrate on-premise, mobile and cloud-based business applications quickly and cost effectively. In addition, Magic Software&#8217;s
technology enables enterprises to accelerate the process of delivering business solutions that meet current and future needs and allow
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</div><div>

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and delivery, application development, technology consulting planning and implementation services, integration projects, project management,
software testing and quality assurance, engineering consulting (including supervision of engineering projects), support services, cloud
computing for deployment of highly available and massively-scalable applications and API&#8217;s and supplemental outsourcing services,
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</div><div>

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and fully integrated medical platform (&#8220;Clicks&#8221;), specializing in the design and management of patient-file oriented software
solutions for managed care and large-scale health care providers. This platform aims to allow providers to securely access an individual&#8217;s
electronic health record at the point of care, and it organizes and proactively delivers information with potentially real time feedback
to meet the specific needs of physicians, nurses, laboratory technicians, pharmacists, front- and back-office professionals and consumers;
(ii) enterprise management systems for both hubs and traditional air cargo ground handling operations from physical handling and cargo
documentation through customs, seamless electronic data interchange, or EDI communications, dangerous goods, special handling, track and
trace, security to billing (&#8220;Hermes&#8221;); (iii) enterprise human capital management, or HCM, solutions, to facilitate the collection,
analysis and interpretation of quality data about people, their jobs and their performance, to enhance HCM decision making (&#8220;HR
Pulse&#8221;); (iv) revenue management and monetization solutions in mobile, wireline, broadband and mobile virtual network operator/enabler,
or MVNO/E (&#8220;Leap&#8221;); (v) comprehensive systems for managing broadcast channels in the area of TV broadcast management through
cloud-based on-demand service or on-premise solutions; (vi) comprehensive solution for sales and distribution field activities, such as
order taking, route accounting, trade marketing, retail execution, proof of deliveries and B2B E-commerce (&#8220;Mobisale&#8221;); and
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 307; Value: 6 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
24: - OPERATING SEGMENTS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

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In addition, its technology enables enterprises to accelerate the process of delivering business solutions that meet current and future
needs and allow customers to dramatically improve their business performance and return on investment. Its software solutions include
application platforms for developing and deploying specialized and high-end large-scale business applications (Magic xpa application platform,
formerly branded uniPaaS, Appbuilder and Magic SmartUX), an integration platform that allows the integration and interoperability of diverse
solutions, applications and systems in a quick and efficient manner (Magic xpi business and process integration platform, formerly branded
iBOLT), Magic BusinessEye &#8211; a cloud-based platform for all verticals enabling smooth end-to-end digital transformation and full
organizational business intelligence and FactoryEye - a proprietary high performance, low-code, flexible, hybrid platform for manufacturers
based on existing infrastructure enabling real-time virtualizations of all production data and advanced analytics (based on machine learning)
for improved productivity and competitive advantage. These solutions enable Magic Software customers to improve their business performance
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_24" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0pt">Magic Software products
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_25" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0pt"><b><span style="text-decoration:underline">Insync</span></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

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national supplier of employees to Vendor Management Systems (VMS) Workforce Management Program accounts. Insync specializes in providing
professionals in the following areas; Accounting and Finance, Administrative, Customer Service, Clinical, Scientific and Healthcare, Engineering,
Manufacturing and Operations, Human Resources, IT Technology, LI/MFG, and Marketing and Sales. InSync currently supports more than 30
VMS program customers with employees in over 40 states.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_27" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0pt"><b><span style="text-decoration:underline">Michpal</span></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

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enterprises and payroll service providers. Michpal also developed several complementary modules such as attendance reporting, which are
sold to its customers for additional fees. Together with its subsidiaries Unique Software Industries Ltd, a software development and services
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consulting services in the fields of operational cost savings and procurement, as well as salary control and monitoring a payroll, labor,
pensions, social security and employee income tax matters. As of December 31, 2022, Michpal serves approximately 8,000 customers, most
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</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_29" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0pt"><b><span style="text-decoration:underline">Zap Group</span></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_30" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_29"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Zap Group, is Israel&#8217;s
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more than 17 million visits per month, including Zap Price
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an Israeli private company, provides a variety of digital advertising solutions for its customers (small and medium businesses in Israel)
and an access to an E-commerce platform to allow them engage with their consumers. Zap Group serves over 400,000 listed businesses on
its platforms; approximately 16,000 of them are paying customers. The websites managed and offered by Zap Group offer consumers a user-friendly
search experience with a variety of advanced tools, which enable them to make educated purchase decisions in the best and most informed
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
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</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
24: - OPERATING SEGMENTS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><b>&#160;</b></p><div>

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that allows them to engage with their consumers. Zap Group regularly seeks to develop attractive digital solutions, which it believes
to have market potential for small and medium businesses and their end user. All of Zap Group&#8217;s investments in this area have been
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</div><div>

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</div><div>

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website and application, allow end users to compare prices of the various stores for over 1.2 million products in 650 categories. The
platform provides to more than 120 million visiting end users annually, 300,000 reviews of stores and products and 5,000 quality guides
(videos and articles), which allow them to engage through the platform directly with the stores for a purchase of a certain product they
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for buying a second-hand car (B2C). The platform allows the buyer to compare prices, specs, financing, peripheral services, accessories
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</div><div>

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including doctors, lawyers, and other service and product providers. The platform, both website and application allow end users to contact
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
24: - OPERATING SEGMENTS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

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its customers other digital services as Search Engine Marketing (Pay Per Click Google and Facebook campaigns) and Search Engine Optimization
for their websites. Zap Group also provides website design services, creation of new websites on various tools (ZAP-X), management of
social media, online business cards (GMB), and big data services.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>&#160;</i></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_39" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_38"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><i>Restaurants and
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_40" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_39"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Zap Group provides
digital advertising platforms and services for more than 17,000 restaurants listed and provides services for social events. Approximately
2,500 of them are paying customers. The platform, both website and application allow end users to directly contact the restaurant for
table ordering, ordering of delivery or take away, to post visit reviews or explore the restaurant menu, photo gallery and other content
such as articles, etc. The platform provides to more than 30 million visiting end users annually, approximately two million food deliveries,
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_41" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_40"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><i>Other </i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_42" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_41"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Zap Group provides
digital advertising platform for domestic travel and hospitality businesses in Israel (the &#8220;Platform&#8221;). The platform, both
website and application, allows end users to order directly from the provider (hotel, guesthouse or attraction service provider). The
platform provides access to millions of visiting end users annually, to approximately 1,200 vacation and leisure locations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_43" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_42"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><b><span style="text-decoration:underline">Ofek</span></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_44" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_43"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">Founded in 1987, Ofek
is one of the leading companies in Israel in the fields of aerial and satellite mapping, geographic data collection and processing, and
provider of services in numerous geographic applications. Among Ofek&#8217;s customers are many government authorities and foreign government.
Ofek employs approximately 100 employees, all situated at Ofek&#8217;s headquarter in Natanya, Israel, in multiple areas of expertise:
geodetic engineers, software experts, geographers and aerial photo interpreters, GIS and surveying engineers, 3D mapping and data processing
experts. The company owns three aerial photography aircrafts equipped with state-of-the-art mapping sensors. Ofek operates worldwide.
It has successfully completed projects for various clients (government and private) in Asia, America, Europe, Middle East and Africa,
and it constantly involved in ongoing international geographic projects. Ofek aerial photography has accumulated experience in managing
and executing NSDI and GIS projects and surveys for detecting, collecting and analyzing diverse geographic cadastral and environmental
information.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.5pt; text-align: justify; text-indent: 0in"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_45" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_44"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"><b><span style="text-decoration:underline">TSG</span></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_46" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_45"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">TSG is a global high<b>-</b>technology
company engaged in high-end technical solutions for protecting the safety of national borders, improving data gathering mechanisms, and
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_47" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_46"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">TSG operates primarily
in the defense and homeland security arenas. The nature of military and homeland security actions in recent years, including low intensity
conflicts and ongoing terrorist activities, as well as budgetary pressures to focus on leaner but more technically advanced forces, have
caused a shift in the defense and homeland security priorities for many of TSG&#8217;s major customers. As a result, TSG believes there
is a continued demand in the areas of command, control, communications, computer
and intelligence (C4I) systems, intelligence, surveillance and reconnaissance (ISR) systems, intelligence gathering systems, border and
perimeter security systems, cyber-defense systems. There is also a continuing demand for cost-effective logistic support and training
and simulation services. TSG believes that its synergistic approach of finding solutions that combine elements of its various activities
positions it to meet evolving customer requirements in many of these areas. TSG tailors and adapts its technologies, integration skills,
market knowledge and operationally-proven systems to each customer&#8217;s individual requirements in both existing and new platforms.
By upgrading existing platforms with advanced technologies, TSG provides customers with cost-effective solutions, and its customers are
able to improve their technological and operational capabilities within limited budgets.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><!-- Field: Page; Sequence: 310; Value: 6 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.05pt 0pt 0; text-align: justify"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
24: - OPERATING SEGMENTS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;&#160;</p><div>

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and products either as a prime contractor or as a subcontractor to various governments and defense and homeland security contractors worldwide.
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</div><div>

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</div><div>

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systems and electronic security systems. Shamrad represents several companies in the field of security: ATI systems &#8211; sirens, Garrett
&#8211; Metal detectors, Kopp &#8211; Ferro Magnetic detectors for MRI rooms. Shamrad holds vast experience in design, supply and installation
of security systems, integrated with command and control solutions, CCTV, access control and intruder detection. Shamrad provides video
solutions together with high speed networks and wireless links, allowing hundreds of camera channels to be viewed in one or many control
centers. Shamrad installs IP and analog cameras in various configurations such as, Bullet, Dome, PTZ, Box, and Thermal. Shamrad offers
customers complete solutions for communications and telephony infrastructure, both in the fields of passive and active equipment. Amongst
the services offered are installation and maintenance of networks (local and wireless) and specific dedicated communications rooms. Shamrad
has, since it&#8217;s inception, a dedicated department offering a complete and professional solution, with a system wide view tailored
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_51" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_50"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_53" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_52"><table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">c)</td><td style="text-align: justify"><span style="text-decoration:underline">Reporting on operating segments</span>:</td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 85.05pt; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_54" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_53"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">The operating segments
are identified on the basis of information that is reviewed by the chief operating decision maker (&#8220;CODM&#8221;) to make decisions
about resources to be allocated and assesses its performance. The CODM has been identified as Formula&#8217;s CEO. The CODM assess the
performance of the Group based on each of the Group&#8217;s directly held subsidiaries and company accounted for at equity operating income
(or loss). Headquarters and finance expenses of Formula are allocated proportionally among the investees.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in"></p><div>

</div><ix:continuation continuedAt="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_55" id="_DisclosureOfEntitysReportableSegmentsExplanatory-c0_cont_54"><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfOperatingSegmentsExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfOperatingSegmentsExplanatory"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: center">&#160;</td>
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    <td style="text-align: center">&#160;</td>
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    <td style="text-align: center">&#160;</td>
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    <td style="text-align: center">&#160;</td>
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  <tr style="vertical-align: bottom">
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td style="width: 7%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c474" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:RevenueFromContractsWithCustomers" scale="3" unitRef="usd">474,736</ix:nonFraction></span></td>
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    <td style="width: 7%; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:RevenueFromContractsWithCustomers" scale="3" unitRef="usd">2,572,357</ix:nonFraction></span></td>
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    <td>&#160;</td>
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    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c474" decimals="-3" format="ixt:num-dot-decimal" name="forty:RevenuesByProductServices" scale="3" unitRef="usd">474,736</ix:nonFraction></span></td>
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    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c475" decimals="-3" format="ixt:num-dot-decimal" name="forty:RevenuesByProductServices" scale="3" unitRef="usd">566,792</ix:nonFraction></span></td>
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    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c477" decimals="-3" format="ixt:num-dot-decimal" name="forty:RevenuesByProductServices" scale="3" unitRef="usd">49,893</ix:nonFraction></span></td>
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    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c478" decimals="-3" format="ixt:num-dot-decimal" name="forty:RevenuesByProductServices" scale="3" unitRef="usd">133,886</ix:nonFraction></span></td>
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    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="forty:RevenuesByProductServices" scale="3" unitRef="usd">2,572,357</ix:nonFraction></span></td>
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    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c473" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" unitRef="usd">48,288</ix:nonFraction></span></td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><div>




</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><div>

</div><!-- Field: Page; Sequence: 311; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->120<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt; text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
24: - OPERATING SEGMENTS (<span style="text-transform: none">Cont</span>.)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 7pt; text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><p style="margin: 0">&#160;</p><div>

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    <td style="text-align: center; width: 1%">&#160;</td>
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    <td style="text-align: center; width: 1%">&#160;</td>
    <td style="text-align: center; width: 1%">&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c480" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" unitRef="usd">45,736</ix:nonFraction></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c481" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" unitRef="usd">45,732</ix:nonFraction></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c482" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" unitRef="usd">19,837</ix:nonFraction></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c483" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" unitRef="usd">4,023</ix:nonFraction></span></td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c484" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" unitRef="usd">7,486</ix:nonFraction></span></td>
    <td>&#160;</td>
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    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c485" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" unitRef="usd">3,776</ix:nonFraction></span></td>
    <td>&#160;</td>
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    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">(<ix:nonFraction contextRef="c486" decimals="-3" format="ixt:num-dot-decimal" name="ifrs-full:DepreciationAndAmortisationExpense" scale="3" sign="-" unitRef="usd">4,406</ix:nonFraction></span></td>
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    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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    <td>&#160;</td>
    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#160;$</span></td>
    <td style="border-bottom: black 4.5pt double; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><ix:nonFraction contextRef="c480" decimals="-3" format="ixt:num-dot-decimal" name="forty:SegmentOperatingIncome" scale="3" unitRef="usd">102,054</ix:nonFraction></span></td>
    <td>&#160;</td>
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    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td>&#160;</td>
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    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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    <td style="border-bottom: black 4.5pt double"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</span></td>
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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    <td>&#160;</td>
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    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: white">
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: #CCEEFF">
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
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    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
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    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: right">&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
    <td>&#160;</td>
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  </table></ix:continuation></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 312; Value: 6 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->121<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="text-align: right; margin: 0pt"><b>FORMULA SYSTEMS (1985) LTD.</b></p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt">NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS</p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="border-top: Black 1.5pt solid; font-size: 1pt">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-align: justify; text-indent: -56.7pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>U.S. dollars in thousands, except share and
per share data</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_DisclosureOfEventsAfterReportingPeriodExplanatory-c0_cont_1" escape="true" name="ifrs-full:DisclosureOfEventsAfterReportingPeriodExplanatory"><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 56.7pt; text-transform: uppercase; text-indent: -56.7pt">NOTE
25:- SUBSEQUENT EVENTS</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfEventsAfterReportingPeriodExplanatory-c0_cont_2" id="_DisclosureOfEventsAfterReportingPeriodExplanatory-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">a)</td><td style="text-align: justify">On January 1, 2023, <ix:nonNumeric contextRef="c494" name="forty:PurchaseAgreement">Matrix IT purchased 70% of the share capital of Zebra Technologies Ltd. for NIS 53,000
(including equity). Zebra Technologies Ltd. is engaged in the distribution and marketing of solutions in the fields of data communication,
cyber protection, hardware, software and services. As part of the transaction, Matrix IT entered into a mutual option agreement with the
seller for the sale and purchase of the remaining shares.</ix:nonNumeric></td></tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_DisclosureOfEventsAfterReportingPeriodExplanatory-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt" width="100%"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">b)</td><td style="text-align: justify">On March 27, 2023, <ix:nonNumeric contextRef="c495" name="ifrs-full:ExplanationOfFactThatEntitysOwnersOrOthersHavePowerToAmendFinancialStatementsAfterIssue">Magic Software entered into a loan agreement with an Israeli bank, pursuant to which,
Magic Software borrowed $20,000 for a four-year term (the &#8220;Bank Loan&#8221;). The Bank Loan will mature on March 27, 2027, and will
be repaid in four (4) equal annual installments of $6,052 (including interest) as of March 27, 2024. The Bank Loan bears interest at the
rate of SOFR + 3.38% and can be redeemed with no additional cost after one (1) year.</ix:nonNumeric></td></tr></table></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 113.4pt; text-align: justify; text-indent: -28.35pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">- - - - - - - - -
- - - - - - - - - -</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 313 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->122<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0"><b><span style="text-decoration:underline">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</span></b></p><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0">To the Board of Directors and Shareholders of<br/>
 Magic Software Japan K. K.</p><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><p style="text-align: left; margin-top: 0; margin-bottom: 0"><b>Opinion on the Financial Statements</b></p><div>

</div><p style="text-align: left; margin-top: 0; margin-bottom: 0"><b>&#160;</b></p><div>

</div><p style="text-indent: 0.5in; text-align: justify; margin-top: 0; margin-bottom: 0">We have audited the accompanying statements of financial position of Magic Software Japan K.K. (the &#8220;Company&#8221;) as of January 1, 2021,
December 31, 2021 and December 31, 2022, and the related statements of profit or loss, comprehensive income and cash flows and for each
of the two years in the period ended December 31, 2022, and the related notes. In our opinion, based on our audits the financial statements
present fairly, in all material respects, the financial position of the Company at January 1, 2021, December 31, 2021 and December 31,
2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity
with International Financial Reporting Standards as issued by the International Accounting Standards Board.</p><div>

</div><p style="text-indent: 0.5in; text-align: justify; margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><p style="text-indent: 0.5in; text-align: justify; margin-top: 0; margin-bottom: 0">We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), (PCAOB), the
Company&#8217;s internal control over financial reporting as of December 31, 2022, based on Section 404 of the Sarbanes-Oxley Act (&#8220;SOA&#8217;&#8217;) and
our report dated February 20, 2023 expressed an unqualified opinion thereon.</p><div>

</div><p style="text-indent: 0.5in; text-align: justify; margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><p style="text-align: left; margin-top: 0; margin-bottom: 0"><b>Basis for Opinion</b></p><div>

</div><p style="text-align: left; margin-top: 0; margin-bottom: 0"><b>&#160;</b></p><div>

</div><p style="text-indent: 0.5in; text-align: justify; margin-top: 0; margin-bottom: 0">These financial statements are the responsibility of the Company&#8217;s management.
Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.</p><div>

</div><p style="text-align: left; margin-top: 0; margin-bottom: 0"><b>&#160;</b></p><div>

</div><p style="text-indent: 0.5in; text-align: justify; margin-top: 0; margin-bottom: 0">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.</p><div>

</div><p style="text-indent: 0.5in; text-align: justify; margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<tr style="vertical-align: top; text-align: left">
  <td style="text-align: left; width: 60%; vertical-align: bottom">Tokyo, Japan</td>
  <td style="width: 40%"></td></tr>
<tr style="vertical-align: top; text-align: left">
  <td>February 20, 2023</td>
  <td style="border-bottom: Black 1.5pt solid">/s/ KDA Audit Corporation</td></tr>
<tr style="vertical-align: top; text-align: left">
  <td>&#160;</td>
  <td>KDA Audit Corporation</td></tr>
</table><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0"><b>&#160;</b></p><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0"><b>&#160;</b></p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="font-size: 1pt; border-top: Black 1.5pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="text-align: center; margin-top: 0; margin-bottom: 0"></p><div>



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31
,
2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
__________
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
__________
Commission File Number:
000-29442
FORMULA SYSTEMS (1985) LTD
.
(Exact Name of Registrant as Specified in Its Charter
and translation of Registrant's name into English)
Israel
(Jurisdiction of Incorporation or Organization)
Yahadut Canada 1 Street
,
Or Yehuda
6037501
,
Israel
(Address of Principal Executive Offices)
Asaf Berenstin
;
Yahadut Canada 1 Street
,
Or Yehuda
6037501
,
Israel
Tel:
972
3 5389389
, Fax:
972 3 5389300
(Name, Telephone, E-mail and/or Facsimile Number
and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each
Exchange On Which Registered
American Depositary Shares, each representing one Ordinary Share, NIS 1 par value
FORTY
Nasdaq
Global Select Market
Securities registered or to be registered pursuant
to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each
of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:
As of December 31, 2022, the registrant had
15,317,667
outstanding ordinary shares, NIS 1 par value, of which 141,398 were represented by American Depositary Shares.
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☒
No
☐
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
Yes
☐
No
☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of "large
accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Emerging Growth Company
☐
If an emerging growth company that prepares its
financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during
the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
☐
International Financial Reporting
Standards as issued by the International
Accounting Standards Board
☒
Other
☐
If "Other" has been checked in response
to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17
☐
Item
18
☐
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☒
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
ii
CERTAIN TERMS AND CONVENTIONS
iv
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
1
ITEM 3. KEY INFORMATION
1
ITEM 4. INFORMATION ON THE COMPANY
26
ITEM 4A. UNRESOLVED STAFF COMMENTS
93
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
93
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
139
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
156
ITEM 8. FINANCIAL INFORMATION
161
ITEM 9. THE OFFER AND LISTING
166
ITEM 10. ADDITIONAL INFORMATION
166
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
176
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
178
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
179
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
179
ITEM 15. CONTROLS AND PROCEDURES
179
ITEM 16. RESERVED
180
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
180
ITEM 16B. CODE OF ETHICS
180
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
180
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
181
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
181
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
181
ITEM 16G. CORPORATE GOVERNANCE
182
ITEM 16H. MINE SAFETY DISCLOSURE
182
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
182
PART III
ITEM 17. FINANCIAL STATEMENTS
183
ITEM 18. FINANCIAL STATEMENTS
183
ITEM 19. EXHIBITS
183
SIGNATURES
184
INDEX TO FINANCIAL STATEMENTS
F-1
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form
20-F contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the U.S Private Securities Litigation
Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking statements
reflect our current view with respect to future events and financial results. Statements which use the terms "anticipate,"
"believe," "expect," "plan," "intend," "estimate", "may", "will"
and similar expressions are intended to identify forward looking statements. Such statements reflect our current views with respect to
future events and are subject to certain risks and uncertainties. There are important factors that could cause our actual results, levels
of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed
or implied by the forward-looking statements, including, but not limited to:
●
the degree of our success in our plans to leverage our global footprint to grow our sales;
●
the degree of our success in integrating the companies that we have acquired through the implementation of our M&A growth strategy;
●
the degree of our success in developing and deploying new technologies for software solutions that address the updated needs of our customers and serve as the basis for our revenues;
●
the lengthy development cycles for a portion of our solutions, which may frustrate our ability to realize revenues and/or profits from our potential new solutions;
●
our lengthy and complex sales cycles, which do not always result in the realization of revenues;
●
the degree of our success in retaining our existing customers and competing effectively for greater market share;
●
difficulties in successfully planning and managing changes in the size of our operations;
●
the frequency of long-term, large, complex projects that we perform from time to time that involve complex estimates of project costs and profit margins, which sometimes change mid-stream;
●
the challenges and potential liability that heightened privacy laws and regulations pose to our business;
●
occasional disputes with clients, which may adversely impact our results of operations and our reputation;
●
various intellectual property issues related to our business;
●
potential unanticipated product vulnerabilities or cybersecurity breaches of our or our customers' systems,
particularly in the current work-from-home environment
;
●
risks related to industries, such as the insurance, healthcare, defense and the telecom, in which certain of our clients operate;
●
risks posed by our global sales and operations, such as changes in regulatory requirements, supply chain disruptions, geopolitical instability stemming from Russia's invasion of Ukraine, wide-spread viruses and epidemics like the
COVID-19 pandemic or fluctuations in currency exchange rates
;
●
the duration of macroeconomic headwinds caused by inflation, rising interest rates and currency exchange rate movements, and their impact on our revenues, profitability and cash flows; and
●
risks related to our and our subsidiaries' principal location in Israel.
While we believe our forward-looking
statements are based on reasonable assumptions, should one or more of the underlying assumptions prove incorrect, or these risks or uncertainties
materialize, our actual results may differ materially from those expressed or implied by the forward-looking statements. Please read the
risks discussed in Item 3 – "Key Information" under the caption "Risk Factors" and cautionary statements
appearing elsewhere in this annual report in order to review conditions that we believe could cause actual results to differ materially
from those contemplated by the forward-looking statements.
You should not rely upon forward-looking
statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking
statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this annual report, to conform these statements to actual results or to changes in our expectations.
ii
Risk Factors Summary
The
following is a summary of the principal risks that could materially adversely affect our business, results of operations, and financial
condition, all of which are more fully described below. This summary should be read in conjunction with the other information discussed
in this Item 3.D, and should not be relied upon as an exhaustive summary of the material risks facing our business. Please carefully consider
all of the information discussed in this Item 3.D. "Risk Factors" and elsewhere in this annual report for a more thorough
description of these and other risks.
Summary of Risks Related
to Our Business, Our Industry and Our Financial Condition
●
Our performance is dependent on the success of our M&A growth strategy, and the integration and continued success of the entities that we acquire.
●
We may be unable to successfully develop and deploy new technologies to address the updated needs of our customers.
●
Our product development and sales cycles are often lengthy, requiring us to expend significant time and resources prior to, and without assurances of, generating associated revenues.
●
Macroeconomic headwinds caused by inflation, rising interest rates, and currency exchange rates have been adversely impacting, and may continue to adversely impact, our revenues, profitability and cash flows.
●
If we are unable to keep our supply of skills and resources in balance with client demand around the world and attract and retain professionals with strong leadership skills, our business, the utilization rate of our professionals and our results of operations may be materially adversely affected.
●
Retention of key talent is challenging in the current labor markets in Israel and the other regions in which we operate.
●
Failure to manage our growth— both organic and non-organic—could effectively harm our business.
●
The market for software solutions and related services is highly competitive and dynamic, and we may be unable to adapt rapidly enough to changing market conditions and to compete successfully with existing or new competitors.
●
Customers switching to cloud-based solutions may lead to a decrease in demand for our products.
●
Long-term, large, complex implementation projects that we work on often involve changes, which could cause disputes between us and our customers.
●
We enter from time to time into fixed-price contracts that could subject us to losses in the event we fail to properly estimate our costs.
●
Security vulnerabilities in our software solutions could lead to reduced revenue or to liability claims.
●
We are subject to risks that are characteristic of the insurance market, including catastrophes, potential capital markets crashes, and consolidation.
●
Breaches or significant disruptions of our information technology systems have occurred and may occur again in the future.
●
Regulation of the internet and telecommunications, privacy and data security may adversely affect sales of our products and result in increased compliance costs.
●
We face increased competition from a wide variety of market participants.
iii
Summary of Risks Related to Our International Operations
●
Fluctuations in foreign currency exchange rates
    have been adversely affecting, and could continue to adversely affect, our results of operations.
●
Our expanding international operations are accompanied
    by costs, operational risks and required regulatory compliance in many jurisdictions.
●
Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our results of operations and share price.
Summary of Risks Related
to Intellectual Property
●
We may be unable to protect our patents and trademarks from infringement and avoid infringing the intellectual property rights of others.
●
We and our customers rely on technology and intellectual property of third-parties, the loss of which could limit the functionality of our products and disrupt our business.
●
We could be required to provide the source code of our products to our customers.
●
We may be liable to our clients for damages caused by a violation of intellectual property rights.
Summary of Risks Related
to Our Status as Israeli Company and Our Israeli Operations
●
A reduction of government spending
in Israel on IT services may reduce our revenues and profitability; and any delay in the annual budget approval process may negatively
impact our cash flows.
●
Israeli government tax benefits
we receive may be terminated if we cease to qualify for them.
●
Our Israeli research and development
grants impose various limitations on us, including restrictions on our ability to transfer manufacturing operations or technology outside
of Israel.
●
Political, economic, and military
conditions in Israel could negatively impact our business.
CERTAIN TERMS AND CONVENTIONS
Unless the context requires otherwise, all references
in this annual report to:
●
"Formula"
refer to Formula Systems (1985) Ltd. alone;
●
"we," "our," "ours," "our company," "our Group" and "us"
refer to Formula, together with its subsidiaries and its affiliate company, unless otherwise indicated.
Our operations are currently
conducted through our subsidiaries—
●
"Matrix",
which refers to Matrix IT Ltd. and its subsidiaries;
iv
●
"Sapiens",
which
refers to Sapiens International Corporation N.V. and its subsidiaries;
●
"Magic Software",
which refers to Magic Software Enterprises Ltd. and its subsidiaries;
●
"Michpal",
which
refers to Michpal Micro Computers (1983) Ltd. and its subsidiaries;
●
"InSync",
which
refers to InSync Staffing Solutions, Inc. and its subsidiaries;
●
"Ofek Aerial Photography",
which refers to Ofek Aerial Photography Ltd.;
●
"Zap Group",
which refers to Zap Group Ltd. and its subsidiaries; and
●
"Shamrad",
which
refers to Shamrad Electronics (1977) Ltd. (which we acquired in October 2022); and
and our affiliated company—
●
"TSG,"
which
refers to TSG Advanced IT Systems, Ltd., in which we hold a 50% share interest
.
●
"Companies Law"
refer to the Israeli Companies Law, 5759-1999.
●
"dollars" or "$"
are to U.S. dollars;
●
"NIS"
are to New Israeli Shekels;
●
"ADSs"
refer to our American Depositary Shares, each of which represents one ordinary share, par value NIS 1 per share, of our company;
●
"ordinary shares"
refer to our ordinary share, par value NIS 1 per share, and include ordinary shares that are represented by ADSs;
●
"Nasdaq"
refer to the Nasdaq Stock Market, on which the ADSs are listed for trading;
●
"TASE"
refer to the Tel Aviv Stock Exchange, on which the ordinary shares are listed for trading;
●
"SEC"
refer to the U.S. Securities and Exchange Commission;
●
"Israeli CPI"
refer to the Israeli consumer price index;
●
"IFRS"
refer to International Financial Reporting Standards, as issued by the IASB; and
●
"IASB"
refer to the International Accounting Standards Board.
Our consolidated financial
statements appearing in this annual report are prepared in U.S. dollars and in accordance with IFRS.
Statements made in this annual
report concerning the contents of any contract, agreement or other document are summaries of such contracts, agreements or documents and
are not complete descriptions of all of their terms. If we have filed any of these documents as an exhibit to this annual report or to
any previous filling with the SEC, you may read the document itself for a complete recitation of its terms.
All trademarks appearing in
this annual report are the property of their respective holders.
v
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A.
[Reserved]
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Investing in our ordinary
shares, including ordinary shares represented by ADSs, involves a high degree of risk and uncertainty. You should carefully consider the
risks and uncertainties described below before investing in our ordinary shares or ADSs. Our business prospects, operating results and
financial condition could be seriously harmed due to any of the following risks. Additional risks and uncertainties that we are not aware
of or that we currently believe are immaterial may also adversely affect our business prospects, financial condition, and results of operations.
The trading prices of our ordinary shares and ADSs could decline as a result of the realization of any of these risks, in which case you
may lose part or all of your investment.
1
Risks Related to Our Business, Our Industry
and Our Financial Condition
The implementation of our M&A growth
strategy, which requires the integration of our multiple acquired companies and their respective businesses, operations and employees
with our own, and their respective businesses, operations and employees with our own, involves significant risks, and the failure
to integrate successfully may adversely affect our future results.
In the past decade we have
completed a significant number of important acquisitions. In particular, we have acquired the following companies in the following fiscal
periods: in early 2023, we acquired 70% of the share capital of Zebra AGR Technologies Ltd.; in 2022, we acquired 100% of the share capital
of RDT Equipment and Systems (1993) Ltd, Shamrad Electronic (1997) Ltd, I.T Cognitive Ltd, The Goodkind Group, LLC., Intrabases SAS and
70% of the share capital of Formally Smart Form System Ltd; in 2021, we acquired the entire share capital of Zap Group Ltd., EnableIT
LLC., and Menarva Software Solutions Ltd., 60% of the of the share capital of 9540 Y.G. Soft I.T Ltd., 60% of the of the share capital
of SQ Service Quality Ltd., 75% of the share capital of A.A Engineering Ltd., 75% of the of the share capital of I.T.D. Group Ltd., and
60% of the of the share capital of AVB Technologies Ltd.; in the fourth quarter of 2020, we acquired Tia Technology (which, along with
sum.cumo, has been renamed or will be renamed Sapiens Denmark and Sapiens Germany, respectively), Thor Denmark Holding ApS, and RightStar
Inc.; in the third quarter of 2020, we acquired Delphi Technology Inc. (which has been merged into Sapiens America), Stockell Information
Systems, Inc, Gestetnertec Ltd. (51%) and Mobisoft Ltd (70%); in the second quarter of 2020, we acquired Tiful Gemel Ltd. (75%), Magic
Hands B.V, Liram Financial Software Ltd. (70%) and Aptonet Inc, and in the first quarter of 2020, we acquired sum.como GmbH and Ofek Aerial
Photography (80%).  These acquisitions are part of our integrated M&A growth strategy, which is centered on three key factors:
growing our customer base, expanding our geographic footprint and adding complementary solutions to our portfolio— all while we
seek to ensure our continued high quality of services and product delivery. Any failure to successfully integrate the business, operations
and employees of our acquired companies, or to otherwise realize the anticipated benefits of these acquisitions, could harm our results
of operations. Our ability to realize these benefits will depend on the timely integration and consolidation of organizations, operations,
facilities, procedures, policies and technologies, and the harmonization of differences in the business cultures between these companies
and their personnel. Integration of these businesses will be complex and time-consuming, will involve additional expense and could disrupt
our business and divert management's attention from ongoing business concerns. The challenges involved in integrating these acquired
entities and other former acquisitions include:
●
Preserving customer and other important relationships
●
Integrating complex, core products and services that we acquire with our existing products and services
●
Integrating financial forecasting and controls, procedures and reporting cycles
●
Combining and integrating information technology, or IT, systems
●
Integrating employees and related HR systems and benefits, maintaining employee morale and retaining key employees
●
Potential confusion that we may have in our dealings with customers and prospective customers as to the products we are offering to them and potential overlap among those products
●
Investment of significant management time and attention towards the integration process
The benefits we expect to
realize from these acquisitions are, necessarily, based on projections and assumptions about the combined businesses of our Group, and
assume, among other things, the successful integration of these acquired entities into our business and operations. Our projections and
assumptions concerning our acquisitions may be inaccurate, however, and we may not successfully integrate the acquired companies and our
operations in a timely manner, or at all. We may also be exposed to unexpected contingencies or liabilities of the acquired companies.
If we do not realize the anticipated benefits of these transactions, our growth strategy and future profitability could be adversely affected.
If we do not successfully develop and deploy
new technologies to address the updated needs of our customers, our business and results of operations could suffer.
Our success has been based
in part on our ability to design software solutions that enable our customers to facilitate, improve and automate traditional processes
to make them easier for end-customers, by utilizing advanced technologies, such as digital engagement, low-code/no-code, API layer, advanced
analytics and cloud computing. We spend substantial amounts of time and money researching and developing new technologies and enhanced
versions of existing features to meet our customers' and potential customers' rapidly evolving needs. There is no assurance
that our enhancements to our solutions or our new solutions' features, capabilities, or offerings, will be compelling to our customers
or gain market acceptance. If our research and development investments do not accurately anticipate customer demand or if we fail to develop
our solutions in a manner that satisfies customer preferences in a timely and cost-effective manner, we may fail to retain our existing
customers or increase demand for our solutions.
2
Introduction of new products
and services by competitors or the development of entirely new technologies to replace existing offerings could make our solutions obsolete
or adversely affect our business, financial condition, and results of operations. We may experience difficulties with software development,
design, or marketing that delay or prevent our development, introduction, or implementation of new solutions, features, or capabilities.
We have in the past experienced delays in our internally planned release dates of new features and capabilities, and there can be no assurance
that new solutions, features, or capabilities will be released according to schedule. Any delays could result in adverse publicity, loss
of revenue or market acceptance, or claims by customers brought against us, any of which could harm our business. Moreover, the design
and development of new solutions or new features and capabilities to our existing solutions may require substantial investment, and we
have no assurance that such investments will be successful. If customers do not widely adopt our new solutions, experiences, features,
and capabilities, we may not be able to realize a return on our investment and our business, financial condition, and results of operations
may be adversely affected.
Our new and existing solutions and changes to our
existing solutions could fail to attain sufficient market acceptance for many reasons, including:
●
Our failure to predict market demand accurately in terms of product functionality and to supply offerings that meet that demand in a timely fashion;
●
Product defects, errors, or failures or our inability to satisfy customer service level requirements;
●
Negative publicity or negative private statements about the security, performance, or effectiveness of our solutions or product enhancements;
●
Delays in releasing to the market our new offerings or enhancements to our existing offerings, including new product modules;
●
Introduction or anticipated introduction of competing solutions or functionalities by our competitors;
●
Inability of our solutions or product enhancements to scale and perform to meet customer demands;
●
Receiving qualified or adverse opinions in connection with security or penetration testing, certifications or audits, such as those related to IT controls and security standards and frameworks or compliance;
●
Poor business conditions for our customers, causing them to delay software purchases;
●
Reluctance of customers to purchase proprietary software solutions; and
●
Reluctance of customers to purchase products incorporating open source software.
If we are not able to continue
to identify challenges faced by our customers and develop, license, or acquire new features and capabilities for our solutions in a timely
and cost-effective manner, or if such enhancements do not achieve market acceptance, our business, financial condition, results of operations,
and prospects may suffer and our anticipated revenue growth may not be achieved.
Because we derive, and expect
to continue to derive, a material portion of our revenue from implementation of our solutions, along with post-implementation services
such as ongoing support and maintenance and professional services, market acceptance of these solutions, and any enhancements or changes
thereto, is important to our success.
Our development cycles are often lengthy,
and we may not have the resources available to complete development of new, enhanced or modified solutions. We may incur significant expenses
before we generate revenues, if any, from our solutions.
Because certain of our solutions
are complex and require rigorous testing, development cycles can be lengthy, taking us up to two years to develop and introduce new, enhanced
or modified solutions. Moreover, development projects can be technically challenging and expensive. The nature of these development cycles
may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate
revenues, if any, from such expenses. We may not have, in the future, sufficient funds or other resources to make the required investments
in product development. Furthermore, we may invest substantial resources in the development of solutions that do not achieve market acceptance
or commercial success. Even where we succeed in our sales efforts and obtain new orders from customers, the complexity involved in delivering
our solutions to such customers makes it more difficult for us to consummate delivery in a timely manner and to recognize revenue and
maximize profitability. Failure to deliver our solutions in a timely manner could result in order cancellations, damage our reputations
and require us to indemnify our customers. Any of these risks relating to our lengthy and expensive development cycle could have a material
adverse effect on our business, financial conditions and results of operations.
3
Our sales cycle is variable and often lengthy, depending upon
many factors outside our control, which requires us to expend significant time and resources prior to generating associated revenues.
The typical sales cycle for
certain of our solutions and services is lengthy and unpredictable, requires pre-purchase evaluation by a significant number of persons
in our customers' organizations, and often involves a significant operational decision by our customers. Our sales efforts sometimes
involve educating our customers, industry analysts and consultants about the use and benefits of our solutions, including the technical
capabilities of those solutions and the efficiencies achievable by organizations deploying our solutions. Customers typically undertake
a significant evaluation process, which frequently involves not only our solutions, but also those of our competitors, and can result
in a lengthy sales cycle. Our sales cycle for new customers is sometimes one to two years and can extend even longer in some cases. We
often spend substantial time, effort and money in our sales efforts without any assurance that such efforts will produce any sales.
Macro-economic headwinds caused by inflation,
rising interest rates, global supply problems and fluctuations in currency exchange rates may adversely impact our revenues, profitability
and cash flows.
Our business depends on
various elements, including, the economic health of our current and prospective clients, worldwide economic conditions, and with respect
to Sapiens, the overall demand within the global insurance technology sector. Sapiens markets and sells its insurance software solutions
and services primarily in the European and North American regions, as well as, to a smaller extent, in various parts of the rest of the
world. Adverse economic conditions in those markets, including due to rising inflation, increased interest rates and decreased economic
output, may reduce overall demand for its insurance software solutions and services. These factors could also delay or lengthen sales
cycles, and inhibit international expansion of our subsidiaries and/or affiliates, and may also lead to longer collection cycles for payments
due from customers, as well as result in an increase in customer bad debt. In addition, the weakening of European currencies in comparison
to the U.S. dollar has been adversely impacting in a material manner, and may continue to adversely impact, Sapiens' revenues and
results of operations as measured in U.S. dollars. While the implications of these macroeconomic trends for Sapiens' business, results
of operations and overall financial position remain uncertain over the long term, the headwinds that are being created by these trends
are creating challenges for Sapiens' business in the short term. In 2022, Sapiens experienced a slower growth rate in revenues,
profitability and cash flows as a result of those headwinds. Please see "Risks Relating to our International Operations-Our international
operations expose us to risks associated with fluctuations in foreign currency exchange rates that have been adversely affecting, and
could continue to adversely affect, our business" for a discussion of the headwinds created by currency exchange rates.
In addition to exerting the
foregoing impact, macro-economic headwinds may amplify a number of risks for us, including, but not limited to, the following:
●
our ability to increase sales
of new, enhanced solutions to existing customers may be hindered due to more cautious purchasing and investment strategies by corporate
customers;
●
reduced economic activity, which
could lead to a prolonged recession, could negatively impact customer discretionary spending on insurance solutions, which in turn could
substantially impact our business operations and financial condition in an adverse manner;
●
our customer success efforts,
our ability to enter into new markets and to acquire new customers may be impeded, in part due to lengthening of our sales cycles;
●
there may be an increase in
our credit losses reserves as customers face economic hardship and collectability becomes more uncertain, including due to the risk of
bankruptcies;
●
our ability to retain, attract
and recruit employees may be adversely impacted if our growth rate and profitability decrease;
●
our ability to complete acquisitions
may be hampered if we need to seek financing for such acquisitions; and
●
our ability to raise capital
may be hurt.
The full impact of economic
headwinds on our business and our future performance may also have the effect of heightening any of our other risk factors described in
this annual report, and is difficult to predict how long those trends will continue, so there is some level of risk that any guidance
we provide to the market may turn out to be incorrect.
Investment in highly skilled research and
development, product implementation, customer support and other personnel is a critical factor in our ability to develop and enhance our
solutions and support our customers, but that personnel may nevertheless be hard to retain and an increase in that investment may furthermore
reduce our profitability.
As a provider of proprietary
software solutions that rely upon technological advancements, we rely heavily on our research and development activities to remain competitive.
We consequently depend in large part on the ability to attract, train, motivate and retain highly skilled information technology professionals
for our research and development team, as well as software programmers and communications engineers, and product implementation experts,
particularly individuals with knowledge and experience in the insurance industry. Because our software solutions are highly complex and
are generally used by our customers to perform critical business functions, we also depend heavily on other skilled technology professionals
to provide ongoing support to our customers. Skilled technology professionals are often in high demand and short supply.
4
Our research and development,
product delivery, and general and administrative, activities are conducted at locations where the competition for skilled technology professionals
is particularly intense. While there has been strong competition for qualified human resources in the high-tech industry historically,
the industry experienced record growth and activity in 2021, both at the earlier stages of venture capital and growth equity financings,
and at the exit stage of initial public offerings and mergers and acquisitions. This flurry of growth and activity has caused a sharp
increase in job openings in both high-tech companies and research and development centers, as well as the intensification of competition
between employers to attract qualified employees in those jurisdictions. Employee attrition— for all fields and professions, and
for all levels of management— has accompanied this strong competition, and High-Tech companies such as ours that are based in Israel
and these other jurisdictions are currently facing a shortage of skilled human capital, including engineering, research and development,
sales and customer support personnel. Many of the companies with which we compete for qualified personnel may have greater resources than
we do, and we may not succeed in recruiting additional experienced or professional personnel, retaining personnel or effectively replacing
current personnel who may depart with qualified or effective successors.
If we are unable to hire or
retain qualified research and development personnel and other technology professionals to develop, implement and modify our solutions,
we may be unable to meet the needs of our customers. Even if we succeed at retaining the necessary skilled personnel in our research and
development and customer support efforts, our investments in our personnel and product development efforts increase our costs of operations
and thereby reduce our profitability, unless accompanied by increased revenues. As a result of the intense competition for qualified human
resources, the High-Tech market in which we operate has experienced and may continue to experience significant wage inflation. Accordingly,
our efforts to attract, retain and develop personnel may also result in significant additional expenses, which could adversely affect
our profitability. Given the highly competitive industry in which we operate, we may not succeed in increasing our revenues in line with
our increasing investments in our personnel and research and development efforts.
Furthermore, as we seek to
expand the marketing and offering of our products and services into new territories, it requires the retention of new, additional skilled
personnel with knowledge of the particular market and applicable regulatory regime. Such skilled personnel may not be available at a reasonable
cost relative to the additional revenues that we expect to generate in those territories, or may not be available at all. In particular,
wage costs in lower-cost markets where we have recently added personnel, such as India, are increasing and we may need to increase the
levels of our employee compensation more rapidly than in the past to remain competitive. The transition of projects to new locations may
also lead to business disruptions due to differing levels of employee knowledge and organizational and leadership skills. Although we
have never experienced an organized labor dispute, strike or work stoppage, any such occurrence, including with unionization efforts,
could disrupt our business and operations and harm our financial condition. In addition, we may need to attract and train additional IT
professionals at a rapid rate in order to serve several new customers or implement several new large-scale projects in a short period
of time. If the current adverse macroeconomic headwinds develop into a full-fledged downturn in economic conditions and we need to lay
off some of those employees, that will result in our loss of the time and resources that we had invested in training them, and our loss
of their accumulated know-how.
Failure to manage our growth— both organic and non-organic—could
effectively harm our business.
In recent years, we experienced,
and expect to continue to experience in the future, growth in our international operations that has placed, and will continue to place,
a significant strain on our operational and financial resources and our personnel. To manage our anticipated future growth effectively,
we must continue to maintain and may need to enhance our information technology infrastructure, financial and accounting systems and controls
and manage expanded operations and employees in geographically distributed locations. We also must attract, train and retain a significant
number of additional qualified sales and marketing personnel, professional services personnel, software engineers, technical personnel
and management personnel. Our failure to manage our growth effectively could have a material adverse effect on our business, results of
operations and financial condition. Our growth could require significant capital expenditures and may divert financial resources from
other projects, such as the development of new services or product enhancements. For example, since it may take as long as six months
to hire and train a new member of our professional services staff, we make decisions regarding the size of our professional services staff
based upon our expectations with respect to customer demand for our products and services. If these expectations are incorrect, and we
increase the size of our professional services organization without experiencing an increase in sales of our products and services, we
will experience reductions in our gross and operating margins and net income. If we are unable to effectively manage our growth, our expenses
may increase more than expected, our revenues could decline or grow more slowly than expected and we may be unable to implement our business
strategy. Our growth may also be accompanied by greater exposure to litigation, including suits by clients, vendors, employees or former
employees, as the sizes of our workforce and our overall international operations increase. All such litigation carries with it related
costs and could divert our management's attention from ongoing business concerns. We also intend to continue to expand into additional
international markets which, if not technologically or commercially successful, could harm our financial condition and prospects.
5
The market for software solutions and related
services is highly competitive and dynamic, and we need to adapt quickly to trends in order to retain or grow our market share.
The market for software solutions
and related services, including for business solutions for the insurance and financial services industry, in which we compete, is highly
competitive and continuously evolving.
Our competitors include, with
respect to Magic Software and Matrix IT:
●
multinational IT service providers, including the services arms of global technology providers;
●
off-shore IT service providers in lower-cost locations such as India and Eastern Europe;
●
accounting firms and consultancies that provide consulting and other IT services and solutions;
●
solution or service providers that compete with us in a specific geographic market, industry or service area, including advertising agencies, engineering services providers and technology start-ups and other companies that can scale rapidly to focus on or disrupt certain markets and provide new or alternative products, services or delivery models; and
●
in-house IT departments that use their own resources, rather than engage an outside firm.
With respect to Sapiens'
insurance software solutions, our competitors generally consist of:
●
global software providers with their own IP;
●
local/domestic software vendors with their own IP, operating in a designated geographic market and/or within a designated segment of the insurance industry;
●
BPO providers (as described below in this risk factor) who offer end-to-end outsourcing of insurance carriers' business, including core software administration (although BPO providers want to buy comprehensive software platforms to serve as part of the BPO proposition from vendors and may seek to purchase our solutions for this purpose);
●
internal IT departments, who often prefer to develop solutions in-house; and
●
new insurtech companies with niche solutions.
Our failure to adapt to changing
market conditions and to compete successfully with established or new competitors could have a material adverse effect on our results
of operations and financial condition. Many of our smaller competitors have been acquired by larger competitors, which provides those
smaller competitors with greater resources and potentially a larger client base for which they can develop solutions. Our customers or
potential customers may prefer suppliers that are larger than us, are better known in the market or that have a greater global reach.
In lieu of being acquired by larger competitors, current and potential competitors have established, and may establish in the future,
cooperative relationships among themselves, or with third parties to increase their abilities to address the needs of our existing, or
prospective, customers. As a result, our competitors may be able to adapt more quickly than us to new or emerging technologies and changes
in customer requirements, and may be able to devote greater resources to the promotion and sale of their products. As a means of adapting
to competition, we and some of our competitors have developed systems to allow customers to outsource their core systems to external providers
(known as BPO). We are seeking to partner with BPO providers, but there can be no assurance that such BPO providers will adopt our solutions
rather than those of our competitors. Determinations by current and potential customers to use BPO providers that do not use our solutions
may result in the loss of such customers and limit our ability to gain new customers.
A number of our competitors
also have operational advantages relative to us, as they are generally private companies that are not required to report results of operations
on a regular basis, and can consequently benefit from the ability to take more risky actions in the hope of building up strong brand name
recognition, such as payment of higher salaries as a recruitment tool, sale of products at cheaper prices, and very rapid growth of sales
and marketing teams, even if those actions result in operating losses.
To compete in the rapidly
changing environment, and win the competition for end-customers, we also need to offer a coherent digital and data propositions, allowing
our insurance provider customers to better interact with their own customers in a digital and omni-channel manner. If we fail to adapt
and accelerate the development of our digital and data offerings, that may adversely impact our ability to compete in some of our target
markets. Consolidation in the insurance industry in which some of our clients operate also increases competitiveness for us by reducing
the number of potential clients for whose business we and our competitors compete. The high level of continuity with which insurance and
other financial services clients remain with their providers of software-related services also increases general competitiveness by tying
clients to their service providers and thereby shrinking the market of potential clients.
6
Customers switching to cloud-based solutions
may lead to a decrease in demand for our products.
Our competitiveness in the
market is also tied to our ability to adapt quickly to the movement towards cloud-based solutions. Our ability to provide solutions that
may be deployed in the cloud has required, and may continue to require, considerable investment in resources, including technical, financial,
legal, sales, information technology and operational systems. Market acceptance of cloud offerings is affected by a variety of factors,
including but not limited to: security, service availability, reliability, availability of tools to automate cloud migration, scalability,
integration with public cloud platforms, customization, availability of qualified third-party service providers to assist customers in
transitioning to cloud-based solutions, performance, current license terms, customer preference, customer concerns with entrusting a third
party to store and manage their data, public concerns regarding privacy and the enactment of restrictive laws or regulations. We may not
meet our financial and strategic objectives if the pace at which we transform our solutions to be cloud-compatible is slower than our
customers' adoption of cloud-based solutions. To address the challenges in transitioning our customers to the cloud, we continue
to invest in innovation and feature development, simplified cloud migration, and performance and reliability, as well as other cloud customer
success and sales initiatives. There can be no assurance, however, that these initiatives will improve our ability to capture or retain
customers that prefer cloud-based solutions. If we are unable to win over those new customers or retain those existing customers, we may
experience a negative impact on our overall financial performance.
This movement towards cloud-based
solutions is occurring in the insurance and financial services sectors in which our subsidiary Sapiens operates, and also in other sectors
in which our subsidiaries operate. The rising trend of Matrix's and Magic Software's customers to switch to cloud-based solutions,
is, on the one hand, a business opportunity for us to expand our cloud-based offerings, yet, on the other hand, also carries with it the
risk of those customers consuming less of the other services provided by us. For example, in the marketing and software support solutions
sector, Matrix and Magic Software have many opportunities for marketing new software solutions products and related services, new solutions
which are cloud-based. Yet, in many cases these will be an alternative to our traditional software solutions products, which are also
being promoted by Matrix and Magic Software. As long as the decrease in demand for Matrix's and Magic Software's services,
due to customers switching to cloud based solutions, is greater than the increase in demand for Matrix's and Magic Software's
cloud based solutions, the business results of Matrix and Magic Software may be harmed.
Additionally, the gross profit
derived by Matrix and by Magic Software from their cloud-based solutions may be lower than the gross profit that they derive from their
traditional solutions, which were replaced by the cloud-based solutions.
We may be required to increase or decrease
the scope of our operations in response to changes in the demand for our products and services, and if we fail to successfully plan and
manage changes in the size of our operations, our business will suffer.
In the past, we have both
grown and contracted our operations, in some cases rapidly, to profitably offer our products and services in a continuously changing market.
If we are unable to manage these changes, or to plan and manage any future changes in the size and scope of our operations, our business
may be negatively impacted.
Restructurings and cost reduction
measures that we have implemented in the past have reduced the size of our subsidiaries' operations and workforce. Reductions in
personnel can result in significant severance, administrative and legal expenses, and may also adversely affect or delay various sales,
marketing and product development programs and activities. These cost reduction measures have included, and may in the future include,
employee separation costs and consolidating and/or relocating certain of our subsidiaries' operations to different geographic locations.
Acquisitions, organic growth
and absorption of significant numbers of customers' employees in connection with managed services projects have, from time to time,
increased our subsidiaries' headcount. During periods of expansion, our subsidiaries may need to serve several new customers or
implement several new large-scale projects in short periods of time. This may require our subsidiaries to attract and train additional
IT professionals at a rapid rate, as well as quickly expand their facilities, which may be difficult to successfully implement.
If existing customers are not satisfied
with our solutions and services and either do not make subsequent purchases from us or do not continue using such solutions and services,
or if our relationships with our largest customers are impaired, our revenue could be negatively affected.
We depend to an extent on repeat product and service revenues from
our base of existing customers. For example, five of Sapiens' largest customers accounted for, in the aggregate, 15.5% and 14.9%
of its revenues in the years ended December 31, 2022 and 2021, respectively. Two of Magic Software's largest clients accounted together
for 20.6% and 21.2% of its revenues in the years ended December 31, 2022 and 2021, respectively, and five of Magic Software's largest
clients accounted for 26.4% and 27.5% of its revenues in the years ended December 31, 2022 and 2021, respectively. If our existing customers
are not satisfied with our solutions and services, they may not enter into new project contracts with us or continue using our technologies.
A significant decline in our revenue stream from existing customers, including due to termination of agreement(s), would have an adverse
effect on our business, results of operations and financial condition.
7
We are in part dependent on a limited number
of core product families, and a decrease in revenues from these products would adversely affect our business, results of operations and
financial condition; our future success will be partially dependent on the acceptance of future releases of our core product offerings,
and if we are unsuccessful with these efforts, our business, results of operations and financial condition will be adversely affected.
We (through our Magic Software
subsidiary) derive a portion of our revenues and profits from sales of application and integration platforms and vertical software solutions
and from related professional services, software maintenance and technical support. Our future growth depends in substantial part on our
ability to effectively develop and sell new products developed by us or acquired from third parties as well as add new features to existing
products and new software service offerings. A decrease in revenues from our principal products and related services would adversely affect
our business, results of operations and financial condition.
Our future success depends
in part on the continued acceptance of our application platforms and integration products and our vertical packaged software solutions.
The continued acceptance of our platforms and software solutions will be dependent in part on the continued acceptance and growth of the
cloud market, including rich internet applications, or RIAs, mobile and software as a service, or SaaS, for which certain of them are
particularly useful and advantageous. We will need to continue to enhance our products to meet evolving requirements and if new versions
of such products are not accepted, our business, results of operations and financial condition may be adversely affected.
Our business sometimes involves long-term,
large, complex implementation projects across the globe, which involve uncertainties, mainly during the implementation period, such as
changes to the estimated project costs and changes in project schedule. Such changes may cause disputes between us and our customers,
whether or not due to failure on our part, and may in some cases result in cancellation of those projects. Such cancellation can adversely
impact our revenues, profitability and/or, in some cases, our relationship with the relevant customer.
Our business is, in part,
characterized by relatively large, complex implementation projects or engagements that can have a material impact on our total revenue
and cost of revenue from quarter to quarter. A material percentage of our expenses, particularly employee compensation, are relatively
fixed. Therefore, variations in the timing of the initiation, estimated scope of work, progress or completion of projects or engagements
can cause significant variations in operating results from quarter to quarter.
This is particularly the case
for fixed-price contracts, where our delivery requirements sometimes span more than one year. For a highly complex, fixed-price project
that requires customization, we may not be able to accurately estimate our actual costs of completing the project. We are sometimes dependent
on the assistance of third-parties (such as our customers' vendors or IT employees, or our system integrator partners) in implementing
such projects, which may not be provided in a timely manner. If our actual cost-to-completion of a project significantly exceeds the estimated
costs, we could experience a loss on the related contract, which (when multiplied by multiple projects) could have an adverse effect on
our results of operations, financial position and cash flow.
Similarly, delays in implementation
projects (whether fixed price or not) may affect our revenue and cause our operating results to vary. Some of our solutions are delivered
over periods of time ranging from several months to a few years. Payment terms for those solutions are generally based on periodic payments
or on the achievement of milestones. Any delays in payment or in the achievement of milestones may have an adverse effect on our results
of operations, financial position or cash flows.
For non-fixed price contracts,
we generally provide our customers with up-front estimates regarding the duration, budget and costs associated with the implementation
of their project. Due to the complexities described above, however, we may not meet those upfront estimates and/or the expectations of
our customers, which could lead to a dispute with a client. In the past, these disputes have sometimes arisen with significant customers
of Sapiens that have accounted for a significant portion of its revenues, and the settlement of these disputes reduced its revenues and
operating profit relative to its prior estimates. In 2022 and 2021, certain customers of Sapiens canceled projects with us at the stage
of implementation, resulting in the loss of potential future revenues from those customers. We expect that we may have similar cancellations
by our customers in the future, during the implementation phase. These cancellations, if coupled with disputes with significant customers
in the future, whether or not due to failure on our part, could result in lost revenues, lower profit margins, legal claims against us
and even the refund of the customers' money and could harm our reputation, thereby adversely affecting our ability to attract new
customers and to sell additional solutions and services to existing customers.
8
We may be liable to our clients for damages
caused by a violation of intellectual property rights, the disclosure of other confidential information, including personally identifiable
information, system failures, errors or unsatisfactory performance of services, and our insurance policies may not be sufficient to cover
these damages.
We often have access to, and
are required to collect and store, sensitive or confidential client information, including personally identifiable information. Some of
our client agreements do not limit our potential liability for breaches of confidentiality, infringement indemnity and certain other matters.
Furthermore, breaches of confidentiality may entitle the aggrieved party to equitable remedies, including injunctive relief. If any person,
including any of our employees and subcontractors, penetrates our network security or misappropriates sensitive or confidential client
information, including personally identifiable information, we could be subject to significant liability from our clients or from our
clients' customers for breaching contractual confidentiality provisions or privacy laws. Despite measures we take to protect the
intellectual property and other confidential information or personally identifiable information of our clients, unauthorized parties,
including our employees and subcontractors, may attempt to misappropriate certain intellectual property rights that are proprietary to
our clients or otherwise breach our clients' confidences. Unauthorized disclosure of sensitive or confidential client information,
including personally identifiable information, or a violation of intellectual property rights, whether through employee misconduct, breach
of our computer systems, systems failure or otherwise, may subject us to liabilities, damage our reputation and cause us to lose clients.
Many of our contracts involve
projects that are critical to the operations of our clients' businesses and provide benefits to our clients that may be difficult
to quantify. Any failure in a client's system or any breach of security could result in a claim for substantial damages against
us, regardless of our responsibility for such failure. Furthermore, any errors by our employees in the performance of services for a client,
or poor execution of such services, could result in a client terminating our engagement and seeking damages from us.
In addition, while we have
taken steps to protect the confidential information that we have access to, including confidential information we may obtain through usage
of our cloud-based services, our security measures may be breached. If a cyber-attack or other security incident were to result in unauthorized
access to or modification of our customers' data or our own data or our IT systems or in disruption of the services we provide to
our customers, or if our products or services are perceived as having security vulnerabilities, we could suffer significant damage to
our business and reputation.
Although we attempt to limit
our contractual liability for consequential damages in rendering our services, these limitations on liability may not apply in all circumstances,
may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. There may be instances when liabilities
for damages are greater than the insurance coverage we hold and we will have to internalize those losses, damages and liabilities not
covered by our insurance.
Changes in privacy regulations may impose
additional costs and liabilities on us, limit our use of information, and adversely affect our business.
Personal privacy has become
a significant issue in the United States, Europe, and many other countries where we operate. Many government agencies and industry regulators
continue to impose new restrictions and modify existing requirements about the collection, use, and disclosure of personal information.
Changes to laws or regulations affecting privacy and security may impose additional liability and costs on us and may limit our use of
such information in providing our services to customers. If we were required to change our business activities, revise or eliminate services
or products, or implement burdensome compliance measures, our business and results of operations may be harmed. Additionally, we may be
subject to regulatory enforcement actions resulting in fines, penalties, and potential litigation if we fail to comply with applicable
privacy laws and regulations.
In particular, our European
activities are subject to the European Union General Data Protection Regulation, or GDPR, which has created additional compliance requirements
for us. GDPR broadens the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to
report on data breaches within 72 hours and be bound by more stringent rules for obtaining the consent of individuals on how their data
can be used. GDPR became enforceable on May 25, 2018 and non-compliance may expose entities such as our company to significant fines or
other regulatory claims. In the United States, our operations in various states, such as New York and California, are now subject to expanded
privacy regulations. In California, we are subject to the California Consumer Privacy Act, or CCPA, a statute that went into effect on
January 1, 2020. The CCPA imposes enhanced disclosure requirements for us regarding our interactions with customers who are residents
of California, such as comprehensive privacy notices for consumers when we, or our agents, collect their personal information. We may
be further required to ensure third-party compliance, as under the CCPA we could be liable if third parties that collect, process or retain
personal information on our behalf violate the CCPA's privacy requirements. The sanctions for non-compliance could include fines
and/or civil lawsuits.
While we have invested in,
and intend to continue to invest in, reasonably necessary resources to comply with these standards, to the extent that we fail to adequately
comply, that failure could have an adverse effect on our business, financial conditions, results of operations and cash flows.
9
Significant disruptions of our information
technology systems or breaches of our data security could adversely affect our business.
A significant invasion, interruption,
destruction or breakdown of our information technology, or IT, systems and/or infrastructure by persons with authorized or unauthorized
access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational
damage from cyber-attacks, which may compromise our systems and lead to data leakage internally. Both data that has been input into our
main IT platform, which covers records of transactions, financial data and other data reflected in our results of operations, as well
as data related to our proprietary rights (such as research and development, and other intellectual property- related data), are subject
to material cyber security risks. From time to time, we experience cyber-attacks and other security incidents of varying degrees, though
none which individually or in the aggregate has led to costs or consequences which have materially impacted our operations or business.
Sapiens experienced attacks in or about April 2020, which resulted in a ransom payment and a brief interruption of service availability
to customers, prior to restoration of secure computing operations. The amount paid in connection with, and the consequences of, the foregoing
did not have a material adverse effect on Sapiens' or our business or operations. In response, we and Sapiens implemented further
controls and planned for other preventative actions to further strengthen our systems against future attacks. We also have in place disclosure
controls that require the reporting of a cyber attack internally, which help to ensure that our senior management team has relevant information
concerning such an attack in a timely manner upon its discovery. However, we cannot assure you that such measures will provide absolute
security, that we will be able to react in a timely manner, or that our remediation efforts following past or future attacks will be successful.
Outside parties have furthermore
in the past, and may also in the future, attempt to fraudulently induce our subsidiaries' employees to disclose sensitive, personal
or confidential information via illegal electronic spamming, phishing or other tactics. This existing risk is compounded in the aftermath
of the COVID-19 pandemic, as some of our subsidiaries have implemented in their offices a hybrid model where a large portion of their
workforce spends a portion of their time working in their offices and a portion of their time working from home. Unauthorized parties
may also attempt to gain physical access to our subsidiaries' facilities in order to infiltrate their or our information systems
or attempt to gain logical access to our subsidiaries' products, services, or information systems for the purpose of exfiltrating
content and data. These actual and potential breaches of our and our subsidiaries' security measures and the accidental loss, inadvertent
disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our subsidiaries,
their employees or their customers, including the potential loss or disclosure of such information or data as a result of hacking, fraud,
trickery or other forms of deception, could expose us, our subsidiaries, their employees or their customers to a risk of loss or misuse
of this information. This may result in litigation and liability or fines, our or our subsidiaries' compliance with costly and time-intensive
notice requirements, governmental inquiry or oversight or a loss of customer confidence, any of which could harm our subsidiaries'
business or damage our or their brand and reputation, thereby requiring time and resources to mitigate these impacts.
In addition, we and our subsidiaries,
including Sapiens, rely on third party vendors and their employees for the implementation of our solutions, which heightens our exposure
to potential cyber incidents. In particular, that reliance raises the following cyber risks, among others:
●
When third-party vendors handle
sensitive information, they can become a target for cybercriminals who aim to steal that data.
●
Third-party software or systems
could introduce malware, viruses, or other malicious code into the networks of our subsidiaries, causing significant damage.
●
Cybercriminals can infiltrate
the supply chain of a third-party vendor to gain access to their systems and data, potentially compromising our organization as well.
●
Third-party employees with access
to the systems or data of any of our subsidiaries can intentionally or unintentionally cause damage or data leaks.
●
Third-party vendors may not
comply with data protection regulations or cybersecurity standards, which could result in legal penalties or reputational damage for
us and our subsidiaries.
●
If a third-party vendor experiences
a cyber incident or data breach, it could interrupt its services, affecting Sapiens as well.
Our subsidiaries have invested
in advanced detection, prevention and proactive systems to reduce these risks. Based on independent audits, we believe that our subsidiaries'
level of protection is in keeping with the industry standards of peer technology companies. Our subsidiaries also maintain a disaster
recovery solution, as a means of assuring that a breach or cyber-attack does not necessarily cause the loss of their information. They
furthermore review their protections and remedial measures periodically in order to ensure that such measures are adequate. Our subsidiaries
devote resources to address security vulnerabilities through enhancing security and reliability features in their systems, code hardening,
conducting rigorous penetration tests, deploying updates to address security vulnerabilities, providing resources such as mandatory security
training for their workforce and improving their incident response time, but security vulnerabilities cannot be totally eliminated. The
cost of these steps could reduce our subsidiaries' or our operating margins.
Despite these protective systems
and remedial measures, techniques used to obtain unauthorized access are constantly changing, are becoming increasingly more sophisticated
and often are not recognized until after an exploitation of information has occurred. We and our subsidiaries may be unable to anticipate
these techniques or implement sufficient preventative measures, and we therefore cannot assure you that our and our subsidiaries'
preventative measures will be successful in preventing compromise and/or disruption of our or their information technology systems and
related data. We furthermore cannot be certain that our or our subsidiaries' remedial measures will fully mitigate the adverse financial
consequences of any cyber-attack or incident. If we or our subsidiaries do not make the appropriate level of investment in our or their
technology systems or if such systems become out-of-date or obsolete and we or they are not able to deliver the quality of data security
that meet our or their independent security control certification requirements, our consolidated business could be adversely affected.
10
Security vulnerabilities in our software solutions could lead
to reduced revenue or to liability claims.
Maintaining the security of
the software solutions and related services that we offer is a critical issue for us and our customers. Security researchers, criminal
hackers and other third parties regularly develop new techniques to penetrate our customers' end points, information systems and
network security measures. Cyber threats are constantly evolving and becoming increasingly sophisticated and complex, making it increasingly
difficult to detect and successfully defend against them. Unauthorized parties have, in the past, infiltrated Sapiens' internal
IT systems, gaining access to certain proprietary information. If they were to similarly breach the security related to, and misuse, software
solutions that we offer, they might access the authentication, payment and personal information of our customers. In addition, cyber-attackers
(which may include individuals or groups, as well as sophisticated groups such as nation-state and state-sponsored attackers, which can
deploy significant resources to plan and carry out exploits) also develop and deploy viruses, worms, credential stuffing attack tools
and other malicious software programs, some of which may be specifically designed to attack the solutions and services that we offer.
Software and operating system applications that we develop have contained and may contain defects in design or manufacture, including
bugs, vulnerabilities and other problems that could unexpectedly compromise the security of the software or impair a customer's
ability to operate or use our solutions. The costs to prevent, eliminate, mitigate, or alleviate cyber- or other security problems, bugs,
viruses, worms, malicious software programs and security vulnerabilities are significant, and our efforts to address these problems, including
notifying affected parties, may not be successful or may be delayed and could result in interruptions, delays, cessation of service and
loss of existing or potential customers. It is impossible to predict the extent, frequency or impact these problems may have on us.
Actual and potential breaches
of our security measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive,
personal or confidential data about our customers, including the potential loss or disclosure of such information or data as a result
of hacking, fraud, trickery or other forms of deception, could expose our customers to a risk of loss or misuse of this information. This
may result in litigation and liability or fines, our compliance with costly and time-intensive notice requirements, governmental inquiry
or oversight or a loss of customer confidence, any of which could harm our business or damage our brand and reputation, thereby requiring
time and resources to mitigate these impacts.
From time to time we have
identified, and in the future we may identify other, vulnerabilities in some of our solutions and services. We devote significant resources
to address security vulnerabilities through engineering more secure solutions, enhancing security and reliability features in our solutions
and services, code hardening, conducting rigorous penetration tests, deploying updates to address security vulnerabilities, regularly
reviewing our solutions' security controls, reviewing and auditing our solutions against independent security control frameworks
(such as ISO 27001, SOC 2 and PCI), providing resources such as security training for our customers' workforces and improving our
incident response time, but security vulnerabilities cannot be totally eliminated. The cost of these steps could reduce our subsidiaries'
or our operating margins, and we may be unable to implement these measures quickly enough to prevent cyber-attackers from gaining unauthorized
access into our solutions. Despite our preventative efforts, actual or perceived security vulnerabilities in our solutions may harm our
subsidiaries' or our reputation or lead to claims against our subsidiaries (and have in the past led to such claims) or us, and
could lead some customers to stop using certain systems or services, to reduce or delay future purchases of solutions or services, or
to use competing solutions or services. If we do not make the appropriate level of investment in our solutions or if our solutions become
out-of-date or obsolete and we are not able to deliver the quality of data security our customers require, our business could be adversely
affected. Customers may also adopt security measures designed to protect their existing computer systems from attack, which could delay
their adoption of our new solutions. Moreover, delayed sales, lower margins or lost customers resulting from disruptions caused by cyber-attacks
and implementation of preventative measures could adversely affect our financial results, share price and reputation.
Errors or defects in our software solutions
could inevitably arise and harm our profitability and our reputation with customers, and could even give rise to claims against us.
The quality of our solutions,
including new, modified or enhanced versions thereof, is critical to our success. Since our software solutions are complex, they may contain
errors that cannot be detected at any point in their testing phase. While we continually test our solutions for errors or defects and
work with customers to identify and correct them, errors in our technology may be found in the future. Quality assurance is complicated
because it is difficult to simulate the breadth of operating systems, user applications and computing environments that our customers
use, and our solutions themselves are increasingly complex. Errors or defects in our technology have resulted in terminated work orders
and could result in delayed or lost revenue, diversion of development resources and increased services, termination of work orders, damage
to our brand and warranty and insurance costs in the future. In addition, time-consuming implementations may also increase the number
of services personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business, results of
operations and financial condition.
In addition, since our customers
rely on our solutions to operate, monitor and improve the performance of their business processes, they are sensitive to potential disruptions
that may be caused by the use of, or any defects in, our software. As a result, we may be subject to claims for damages related to software
errors in the future. Liability claims could require us to spend significant time and money in litigation or to pay significant damages.
Regardless of whether we prevail, diversion of our subsidiaries' key employees' time and attention from our business, the
incurrence of substantial expenses and potential damage to our reputation might result. While the terms of our sales contracts typically
limit our exposure to potential liability claims and we carry errors and omissions insurance against such claims, there can be no assurance
that such insurance will continue to be available on acceptable terms, if at all, or that such insurance will provide us with adequate
protection against any such claims. A significant liability claim against us could have a material adverse effect on our business, results
of operations and financial position.
11
Incorrect or improper use of our products
or our failure to properly train customers on how to implement or utilize our products could result in customer dissatisfaction and negatively
affect our business, results of operations, financial condition and growth prospects.
Some of our products are more
complex than others and are deployed in a wide variety of network environments. The proper use of our solutions requires training of the
customer. If our solutions are not used correctly or as intended, inadequate performance may result. Additionally, our customers or third-party
partners may incorrectly implement or use our solutions. Our solutions may also be intentionally misused or abused by customers or their
employees or third parties who are able to access or use our solutions. Similarly, our solutions are sometimes installed or maintained
by customers or third parties with smaller or less qualified IT departments, potentially resulting in sub-optimal installation and, consequently,
performance that is less than the level anticipated by the customer. Because our customers rely on our software, services and maintenance
support to manage a wide range of operations, the incorrect or improper use of our solutions, our failure to properly train customers
on how to efficiently and effectively use our solutions, or our failure to properly provide implementation or maintenance services to
our customers, has resulted in terminated work orders and may result in termination of work orders, negative publicity or legal claims
against us in the future. Also, as we continue to expand our customer base, any failure by us to properly provide these services will
likely result in lost opportunities for follow-on sales of our software and services.
In addition, if there is substantial
turnover of customer personnel responsible for implementation and use of our products, or if customer personnel are not well trained in
the use of our products, customers may defer the deployment of our products, may deploy them in a more limited manner than originally
anticipated or may not deploy them at all. Further, if there is substantial turnover of the customer personnel responsible for implementation
and use of our products, our ability to make additional sales may be substantially limited.
Catastrophes may adversely impact the insurance
industry, preventing us from expanding or maintaining our existing customer base and increasing our revenues.
Sapiens' customers include
insurance carriers that have experienced, and will likely experience in the future, catastrophic losses that adversely impact their businesses.
Catastrophes can be caused by various events, including, amongst others, hurricanes, tsunamis, floods, windstorms, earthquakes, hail,
tornados, explosions, severe weather and fires, or the spread of pandemics of disease, such as the coronavirus. Moreover, acts of terrorism
or war could cause disruptions in Sapiens' or our customers' businesses or the economy as a whole. The risks associated with
natural disasters and catastrophes are inherently unpredictable, and it is difficult to predict the timing of such events or estimate
the amount of loss they will generate. In the event a future catastrophe adversely impacts Sapiens' or our current or potential
customers, they or we may be prevented from maintaining and expanding their or our customer base and from increasing their or our revenues
because such events may cause customers to postpone purchases of new products and professional service engagements or discontinue projects.
The increasing amount of identifiable intangible
assets and goodwill recorded on our consolidated statements of financial position may lead to significant impairment charges in the future.
The amount of goodwill and
identifiable intangible assets on our consolidated balance sheet has increased significantly over the last five years from approximately
$781.3 million as of December 31, 2017 to $1,148.9 million as of December 31, 2022 because of our acquisitions, and may increase further
following future acquisitions. We regularly review our long-lived assets, including identifiable intangible assets and goodwill, for impairment.
Goodwill and indefinite life intangible assets are subject to impairment review at least annually. Other long-lived assets are reviewed
when there is an indication that impairment may have occurred. Impairment testing, subject to downturns in our operating results and financial
condition, may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our
results of operations.
Decreases in the capital markets may adversely
impact the industries in which we operate, thereby preventing us from expanding or maintaining our existing customer base and increasing
our revenues.
Our customers include life
insurance carriers and other financial industry participants that have invested some of their funds in the capital markets. Those carriers
may experience in the future major losses in those capital market investments that may cause disruptions to their businesses or to the
economy as a whole. Any such major disruption, may cause those existing or potential new customers to postpone purchases of new products
or professional service engagements, or discontinue existing projects, which, in turn, may prevent us from increasing our revenues, or
from maintaining or expanding or our customer base.
12
There may be consolidation in the insurance
or other markets in which we operate, which could reduce the use of our products and services and adversely affect our revenues.
Mergers or consolidations
among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenues even if
these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with
or are acquired by other entities that are not our customers, or that use fewer of our products and services, they may discontinue or
reduce their use of our products and services. Any of these developments could materially and adversely affect our results of operations
and cash flows.
Our and our investees' credit facility
agreements with banks and other financial institutions, and our investees' debentures, are subject to a number of restrictive covenants
which, if breached, could result in acceleration of our obligation to repay our debt.
In the context of our and our subsidiaries' and affiliate's
engagements with banks and other financial institutions for receiving various credit facilities and under the terms governing our Series
A Secured Debentures and Series C Secured Debentures, Matrix Series B Debentures and Sapiens' non-convertible unsecured Series B
Debentures, we have undertaken to comply with a number of conditions and limitations on the manner in which we can operate our business.
These include limitations on our ability to undergo a change of control, distribute dividends, incur debt or a floating charge on our
assets, or undergo an asset sale or other change that results in a fundamental change in our operations. These credit facilities, agreements
and deed of trusts that we have entered into with the trustees for the holders of each of our debentures also require us to comply with
certain financial covenants. Those covenants include maintenance of certain financial ratios related to shareholders' equity, total
rate of debt and liabilities, minimum outstanding balance of total cash and short-term investments, and operating results that are customary
for companies of comparable size, and maintenance of a minimum rating level for the debentures. These limitations and covenants may force
us to pursue less than optimal business strategies or forego business arrangements which could have been financially advantageous to us
and, by extension, to our shareholders. The deeds of trust of each of our debentures furthermore provides for an upwards adjustment in
the interest rate payable under the debentures in the event that our debentures' rating is downgraded below a certain level. A breach
of the financial covenants for more than two successive quarters or a substantial downgrade in the rating of any of our debentures (below
BBB-) would constitute an event of default that could result in the acceleration of our obligation to repay the debentures, which accelerated
repayment may be difficult for us to effect. In addition, the Formula Series A Secured Debentures and Series C Secured Debentures are
secured by certain of the shares of Formula's publicly held subsidiaries— Matrix, Sapiens and Magic Software. A breach of
the restrictive covenants could result in the acceleration of our obligations to repay Formula's or its subsidiaries' debt.
To the extent it returns in a significant manner in regions in
which our or our subsidiaries' revenues are primarily generated, including in India where many of Sapiens' employees are located,
the global COVID-19 pandemic, or any other pandemic, may adversely affect our operating results in a material manner.
Wide-spread viruses and
epidemics, such as the recent COVID-19 pandemic, to the extent it returns in full-force, could negatively affect our customers' spending
on our products and services. For example, with respect to Sapiens, in 2022, 41.6%, 13.6%, 35.5% and 9.3% of its revenues were generated
from North America, the United Kingdom, the rest of Europe and the rest of the world, respectively. With respect to Magic Software, in
2022, 54.4%, 36.2%, 6.9% and 2.5% of its revenues were generated from North America, Israel, Europe and the rest of the world, respectively.
In addition, a significant portion of our revenue are generated from customers in the financial services industry, including banking and
insurance. Negative economic conditions created by a pandemic may cause its customers in general, and in that industry in particular,
to reduce their IT spending. In general, our customers may delay or cancel projects, choose to focus on in-house development efforts or
seek to lower their costs by renegotiating maintenance and support agreements. Additionally, customers may be more likely to make late
payments in worsening economic conditions, which could require us to increase our collection efforts and incur additional associated costs
to collect expected revenues. Moreover, with respect to Sapiens, to the extent that the purchase of licenses for its software are perceived
by customers and potential customers to be discretionary, its revenues may be disproportionately affected by delays or reductions in general
IT spending. If economic conditions generally, or in the industries in which we operate specifically, worsen from present levels, the
results of our operations could be adversely affected.
To the extent the COVID-19
pandemic returns in full-force, in any wave or via any variant of the virus, including in India, where a significant percentage of Sapiens'
worldwide employees are located, that may also adversely impact our operating results, as the resulting closures, restrictions and health
problems for our workers may compromise our ability to service our customers in various regions of the world.
13
Risks Related to Intellectual Property
Assertions by third parties of infringement
or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and
results of operations.
The software industry is characterized
by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property
rights. In particular, leading companies in the software industry own large numbers of patents, copyrights, trademarks and trade secrets,
which they may use to assert claims against us. From time to time, third parties, including certain of these leading companies, may assert
patent, copyright, trademark or other intellectual property claims against us, our customers and partners, and those from whom we license
technology and intellectual property.
Although we believe that our
products and services do not infringe upon the intellectual property rights of third parties, we cannot assure you that third parties
will not assert infringement or misappropriation claims against us with respect to current or future products or services, or that any
such assertions will not require us to enter into royalty arrangements or result in costly litigation, or result in us being unable to
use certain intellectual property. We cannot assure you that we are not infringing or otherwise violating any third party intellectual
property rights. Infringement assertions from third parties may involve patent holding companies or other patent owners who have no relevant
product revenues, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing
intellectual property rights claims against us.
Any intellectual property
infringement or misappropriation claim or assertion against us, our customers or partners, and those from whom we license technology and
intellectual property could have a material adverse effect on our business, financial condition, reputation and competitive position regardless
of the validity or outcome. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without
merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources
on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble
damages and attorneys' fees, if we are found to have willfully infringed on a party's intellectual property; cease making,
licensing or using our products or services that are alleged to infringe or misappropriate the intellectual property of others; expend
additional development resources to redesign our products or services; enter into potentially unfavorable royalty or license agreements
in order to obtain the right to use necessary technologies or works; and to indemnify our partners, customers, and other third parties.
Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant
royalty payments and other expenditures. Any of these events could seriously harm our business, results of operations and financial condition.
In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be costly to resolve and divert the
time and attention of our management and technical personnel.
Although we apply measures to protect our
intellectual property rights and our source code, there can be no assurance that the measures that we employ to do so will be successful.
In accordance with industry
practice, we rely on a combination of contractual provisions and intellectual property law to protect our proprietary technology. We believe
that due to the dynamic nature of the computer and software industries, copyright protection is less significant than factors such as
the knowledge and experience of our management and personnel, the frequency of product enhancements and the timeliness and quality of
our support services. We seek to protect the source code of our products as trade secret information and as unpublished copyright works.
We also rely on security and copy protection features in our proprietary software. We distribute our products under software license agreements
that grant customers a personal, non-transferable license to use our products and contain terms and conditions prohibiting the unauthorized
reproduction or transfer of our products. In addition, while we attempt to protect trade secrets and other proprietary information through
non-disclosure agreements with employees, consultants and distributors, not all of our employees have signed invention assignment agreements.
Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. Our failure to
protect our rights, or the improper use of our products by others without licensing them from us could have a material adverse effect
on our results of operations and financial condition.
We and our customers
rely on technology and intellectual property of third parties, the loss of which could limit the functionality of our products and disrupt
our business.
We use technology and intellectual property licensed
from unaffiliated third parties in certain of our products, and we may license additional third-party technology and intellectual property
in the future. Any errors or defects in this third-party technology and intellectual property could result in errors that could harm our
brand and business. In addition, licensed technology and intellectual property may not continue to be available on commercially reasonable
terms, or at all. The loss of the right to license and distribute this third party technology could limit the functionality of our products
and might require us to redesign our products. Further, although we believe that there are currently adequate replacements for the third-party
technology and intellectual property we presently use and distribute, the loss of our right to use any of this technology and intellectual
property could result in delays in producing or delivering affected products until equivalent technology or intellectual property is identified,
licensed or otherwise procured, and integrated. Our business would be disrupted if any technology and intellectual property we license
from others or functional equivalents of this software were either no longer available to us or no longer offered to us on commercially
reasonable terms. In either case, we would be required either to attempt to redesign our products to function with technology and intellectual
property available from other parties or to develop these components ourselves, which would result in increased costs and could result
in delays in product sales and the release of new product offerings. Alternatively, we might be forced to limit the features available
in affected products. Any of these results could harm our business and impact our results of operations.
14
We could be required to provide the source code of our products
to our customers.
Some of our customers have
the right to require the source code of our products to be deposited into a source code escrow. Under certain circumstances, our source
code could be released to our customers. The conditions triggering the release of our source code vary by customer. A release of our source
code would give our customers access to our trade secrets and other proprietary and confidential information which could harm our business,
results of operations and financial condition. A few of our customers have the right to use the source code of some of our products based
on the license agreements signed with such clients (mostly with respect to older versions of our solutions), although such use is limited
for specific matters and cases, these clients are exposed to some of our trade secrets and other proprietary and confidential information
which could harm us.
Some of our services and technologies may
use "open source" software, which may restrict how we use or distribute our services or require that we release the source
code of certain products subject to those licenses.
Some of our services and
technologies may incorporate software licensed under so-called "open source" licenses, including, but not limited to, the
GNU General Public License and the GNU Lesser General Public License. In addition to risks related to license requirements, usage of open
source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide
warranties or controls on origin of the software. Additionally, open source licenses typically require that source code subject to the
license be made available to the public and that any modifications or derivative works to open source software continue to be licensed
under open source licenses. These open source licenses typically mandate that proprietary software, when combined in specific ways with
open source software, become subject to the open source license. If we combine our proprietary software with open source software, we
could be required to release the source code of our proprietary software.
We take steps to ensure that
our proprietary software is not combined with, and does not incorporate, open source software in ways that would require our proprietary
software to be subject to an open source license. However, few courts have interpreted open source licenses, and the manner in which these
licenses may be interpreted and enforced is therefore subject to some uncertainty. Additionally, we rely on multiple software programmers
to design our proprietary technologies, and although we take steps to prevent our programmers from including open source software in the
technologies and software code that they design, write and modify, we do not exercise complete control over the development efforts of
our programmers and we cannot be certain that our programmers have not incorporated open source software into our proprietary products
and technologies or that they will not do so in the future. In the event that portions of our proprietary technology are determined to
be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all
or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate
the value of our services and technologies and materially and adversely affect our business, results of operations and prospects.
Risks Relating to Our International Operations
Our international operations expose us to
risks associated with fluctuations in foreign currency exchange rates that have been adversely affecting, and could continue to adversely
affect, our business.
Many of our subsidiaries derive
revenues from international operations that are conducted in local currencies. Those operations are conducted in currencies that include
the U.S. dollar, British pound sterling, or GBP, Euro, NIS, Danish Krone, or DKK, and Swedish Krona, or SEK.
In some territories, like
in Israel, India, and Poland, our cost of operations in local currency is higher than the revenues derived from such operations. In other
territories, such as in the United Kingdom and Europe, revenues are higher than our cost of operations in local currency. Because exchange
rates between the NIS, GBP, Euro, Indian Rupee, or INR, and the Polish Zloty, or PLN, against the US dollar fluctuate continuously, exchange
rate fluctuations and especially larger periodic devaluations could negatively affect our revenue and profitability. In 2022, the GBP
and Euro depreciated relative to the U.S. dollar by 14% and 13% (based on the average exchange rates over the course of 2022 as compared
to 2021), respectively, thereby decreasing the U.S. dollar value of the revenues that we generated in those other currencies and having
a material adverse impact on our revenues and results of operations. Any continuation of that trend in future periods would have a similar
adverse impact.
In certain locations, we engage
in currency-hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our financial position
and results of operations. However, there can be no assurance that any such hedging transactions will materially reduce the effect of
fluctuation in foreign currency exchange rates on such results. In addition, if for any reason exchange or price controls or other restrictions
on the conversion of foreign currencies were imposed, our financial position and results of operations could be adversely affected. For
additional information relating to the exchange rates between different relevant currencies, see "Item 5. Operating and Financial
Review and Prospects— Overview— Our Functional and Reporting Currency."
15
Our international sales and operations subject
us to additional risks that can adversely affect our business, results of operations and financial condition.
We are continuing to expand
our international operations as part of our growth strategy. In fiscal years 2022 and 2021, approximately 39% and 37%, respectively, of
our revenues were derived from outside of Israel. Our current international operations and our plans to further expand our international
operations subject us to a variety of risks, including:
●
Increased exposure to fluctuations in foreign currency exchange rates.
●
Increased exposure to global macroeconomic headwinds
    being caused by inflation and rising interest rates.
●
Complexity in our tax planning, and increased exposure to changes in tax regulations in various jurisdictions in which we operate, which could adversely affect our operating results and hinder our ability to conduct effective tax planning.
●
Increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations.
●
Longer payment cycles and difficulties in enforcing contracts and collecting accounts receivable.
●
The need to localize our products and licensing programs for international customers.
●
Lack of familiarity with and unexpected changes in foreign regulatory requirements.
●
The burden of complying with a wide variety of foreign laws and legal standards.
●
Compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, or FCPA, particularly in emerging market countries.
●
Import and export license requirements, tariffs, taxes and other trade barriers.
●
Increased financial accounting and reporting burdens and complexities.
●
Weaker protection of intellectual property rights in some countries.
●
Multiple and possibly overlapping tax regimes.
●
Political, social and economic instability abroad, terrorist attacks and general security concerns.
As we continue to expand our
business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated
with our international operations. Any of these risks could harm our international operations and reduce our international sales, adversely
affecting our business, results of operations, financial condition and growth prospects.
International operations in the insurance
industry, in which a significant portion of our business is concentrated, are accompanied by additional costs related to adaptation to
regulations in specific territories.
As we seek to expand the marketing
and offering of our products into new territories, because insurance regulations vary by legal jurisdiction, the investment required to
adapt our solutions to the legal and language requirements of such territories may prevent or delay us from effectively expanding into
such territories. Such adaptation process requires the retention of new, additional skilled personnel with knowledge of the particular
market and applicable regulatory regime. Such skilled personnel may not be available at a reasonable cost relative to the additional revenues
that we expect to recognize in those territories or may not be available at all. However, since insurance carriers are regularly required
to adopt their systems and software to comply with the changing regulations, this provides an additional revenue source for Sapiens by
providing related services for compliance.
16
Our business may be
materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or
the uncertainty surrounding their potential effects, could adversely affect our results of operations and share price.
As a multinational corporation,
we are subject to income taxes, withholding taxes and indirect taxes in numerous jurisdictions worldwide. Significant judgment and management
attention and resources are required in evaluating our tax positions and our worldwide provision for taxes. In the ordinary course of
business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations
and effective tax rates could be adversely affected by changes in the relevant tax, accounting, and other laws, regulations, principles
and interpretations. This may include recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory
rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, changes in foreign currency exchange
rates, or changes in the valuation of our deferred tax assets and liabilities.
We may be audited in various
jurisdictions, and such jurisdictions may assess additional taxes against us. If we experience unfavorable results from one or more such
tax audits, there could be an adverse effect on our tax rate and therefore on our net income. Although we believe our tax estimates are
reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and
accruals, which could have a material adverse effect on our operating results or cash flows in the period or periods for which a determination
is made. Additionally, we are subject to transfer pricing rules and regulations, including those relating to the flow of funds between
us and our affiliates, which are designed to ensure that appropriate levels of income are reported in each jurisdiction in which we operate.
As we continue to expand our business in
emerging markets, such as India, we face increasing challenges that could adversely impact our results of operations, reputation and business.
Approximately 46% of our subsidiary
Sapiens' employees are currently located in India. Our significant presence in India, in particular Sapiens' Research &
Development personnel and Sapiens' personnel for the delivery of its professional services, poses a number of challenges. These
challenges are related to more volatile economic conditions, poor protection of intellectual property, inadequate protection against crime
(including counterfeiting, corruption and fraud), lack of due process, and inadvertent breaches of local laws or regulations. In addition,
local business practices may be inconsistent with international regulatory requirements, such as anti-corruption and anti-bribery laws
and regulations (including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act) to which we are subject. It is possible that
some of our employees, subcontractors, agents or partners may violate such legal and regulatory requirements, which may expose us to criminal
or civil enforcement actions, including penalties and suspension or disqualification from U.S. federal procurement contracting. If we
fail to comply with such legal and regulatory requirements, our business and reputation may be harmed.
Conducting business in India
involves unique challenges, including potential political instability; threats of terrorism; the transparency, consistency and effectiveness
of business regulation; corruption; the protection of intellectual property; and the availability of sufficient qualified local personnel.
Any of these or other challenges associated with operating in India may adversely affect our business or operations. Terrorist activity
in India and Pakistan has contributed to tensions between those countries and our operations in India may be adversely affected by future
political and other events in the region.
Risks Related to our Traded Securities and
Consolidated Holdings
There is limited trading volume for our
ADSs and ordinary shares, which reduces liquidity for our shareholders, and may furthermore cause the stock price to be volatile, all
of which may lead to losses by investors.
There has historically been
limited trading volume for our ADSs and ordinary shares, respectively, both on the Nasdaq Global Select Market and the TASE, as well as
for our publicly traded investees Matrix (whose shares are traded on the TASE) and Sapiens and Magic Software (whose shares are both traded
on the Nasdaq Global Select Market and the TASE), such that trading has still not reached the level that enables shareholders to freely
sell their shares in substantial quantities on an ongoing basis and thereby readily achieve liquidity for their investment. As a further
result of the limited volume, our or our publicly traded investees ordinary or common shares have experienced significant market price
volatility in the past and may experience significant market price and volume fluctuations in the future, in response to factors such
as announcements of developments related to our investees businesses, announcements by competitors of our investees, quarterly fluctuations
in our financial results and general conditions in the industry in which we through our investees compete.
17
The market price of our ordinary shares
and ADSs may be volatile and you may not be able to resell your shares at or above the price you paid, or at all.
The stock market in general
has experienced during recent years extreme price and volume fluctuations. The market prices of securities of technology companies have
been extremely volatile and have experienced fluctuations that have often been unrelated or disproportionate to the operating performance
of those companies. These broad market fluctuations have affected and are expected to continue to affect the market price of our ordinary
shares and ADSs.
The high and low closing market
price of our ordinary shares traded on the TASE, under the symbol "FORTY," and the high and low closing market price of our
ADSs traded on the Nasdaq Global Select Market under the symbol "FORTY," during each of the last five years, plus the early
part of 2023, are summarized in the table below:
Nasdaq
Tel Aviv Stock Exchange*
In USD$
In NIS
In USD$
Year
High
Low
High
Low
High
Low
2023(**)
82.55
60.67
280.10
222.30
81.95
60.95
2022
121.8
70.89
380.60
250.00
123.05
70.94
2021
125.78
80.10
382.50
264.40
123.83
82.99
2020
89.00
36.75
310.00
148.90
89.16
39.79
2019
73.68
35.64
258.00
135.00
74.20
36.08
2018
44.95
32.57
156.40
117.70
43.65
33.72
(*)
The U.S. dollar price of our ordinary shares on the Tel Aviv Stock Exchange was determined by dividing the closing price of an ordinary share in NIS on the relevant date by the representative exchange rate of the NIS against the U.S. dollar as reported by the Bank of Israel on the same date.
(**)
From January 1, 2023 through April 30, 2023.
The market price of our ordinary
shares and ADSs may fluctuate substantially due to a variety of factors, including:
●
any actual or anticipated fluctuations in our or our competitors' quarterly revenues and operating results;
●
industry trends and changes;
●
changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
●
public announcements concerning us or our competitors;
●
results of integrating investments and acquisitions;
●
the introduction or market acceptance of new service offerings by us or our competitors;
●
changes in product pricing policies by us or our competitors;
●
public announcements concerning distribution of dividends and payment of dividends;
●
the public's response to our press releases, our other public announcements and our filings with the SEC and the Israeli Securities Authority;
●
changes in accounting principles;
●
sales of our shares by existing shareholders;
●
the loss of any of our key personnel;
●
other events or factors in any of the markets in which we operate, including those resulting from war, incidents of terrorism, natural disasters or responses to such events; and
●
general trends of the stock markets.
In addition, global and local
economic, political, market and industry conditions and military conflicts and in particular, those specifically related to the State
of Israel, may affect the market price of our ordinary shares and ADSs.
18
Significant fluctuations in our annual and
quarterly results, which make it difficult for investors to make reliable period-to-period comparisons, may also contribute to volatility
in the market price of our ordinary shares and American Depositary Shares.
Our quarterly and annual revenues,
gross profit, net income and results of operations have fluctuated significantly in the past, and we expect them to continue to fluctuate
significantly in the future. The following events may cause fluctuations:
●
general global economic conditions;
●
acquisitions and dispositions;
●
the size, time and recognition of revenue from significant contracts;
●
timing of product releases or enhancements;
●
timing of contracts;
●
timing of completion of specified milestones and delays in implementation;
●
changes in the proportion of service and license revenues;
●
price and product competition;
●
market acceptance of our new products, applications and services;
●
increases in selling and marketing expenses, as well as other operating expenses;
●
currency exchange rate fluctuations; and
●
consolidation of our customers.
A substantial portion of our
expenses, including most product development and selling and marketing expenses must be incurred in advance of when revenue is generated.
If our projected revenue does not meet our expectations, we are likely to experience an even larger shortfall in our operating profit
relative to our expectations. The gross margins of our individual subsidiaries vary both among themselves and over time. As a result,
changes in the revenue mix from these subsidiaries may affect our quarterly operating results. In addition, we may derive a significant
portion of our net income from the sale of our investments or the sale of our proprietary software technology. These events do not occur
on a regular basis and their timing is difficult to predict. As a result, we believe that period-to-period comparisons of our historical
results of operations are not necessarily meaningful and that you should not rely on them as an indication for future performance. Also,
it is possible that our quarterly and annual results of operations may be below the expectations of public market analysts and investors.
If this happens, the prices of our ordinary shares and ADSs will likely decrease.
The market prices of our ordinary shares
and ADSs may be adversely affected if the market prices of our publicly traded investees decrease.
A significant portion of our
assets is comprised of equity securities of directly held publicly traded companies. Our publicly traded investees are currently Matrix,
Sapiens and Magic Software. The share prices of these publicly traded companies have been extremely volatile and have been subject to
fluctuations due to market conditions and other factors which are often unrelated to operating results and which are beyond our control.
Fluctuations in the market price and valuations of our holdings in these companies may affect the market's valuation of the price
of our ordinary shares and ADSs and may also thereby impact our results of operations. If the value of our assets decreases significantly
as a result of a decrease in the value of our interest in our publicly traded investees, our business, operating results and financial
condition may be materially and adversely affected and the market price of our ordinary shares and ADSs may also fall as a result.
Our securities are traded on more than one
market and this may result in price variations.
Formula's ordinary shares
are traded on the TASE and its ADSs are traded on the Nasdaq Global Select Market. Trading in those ordinary shares and ADSs on those
markets takes place in different currencies (dollars on the Nasdaq Global Select Market and NIS on the TASE), and at different times (resulting
from different time zones, different weekly trading days and different public holidays in the United States and Israel). The trading prices
of our ordinary shares and ADSs on these two markets may differ due to these and other factors (see the risk factor titled "The
market price of our ordinary shares and ADSs may be volatile and you may not be able to resell your shares at or above the price you paid,
or at all" above for data related to the differences in trading prices on Nasdaq as compared to on the TASE). On the other hand,
any decrease in the trading price of our ordinary shares or ADSs, as applicable, on one of these markets could likely affect— and
cause a decrease in— the trading price on the other market.
19
Our largest shareholder, Asseco Poland S.A.,
can significantly influence the outcome of matters that require shareholder approval.
Asseco Poland S.A., or Asseco,
our largest shareholder, currently owns approximately 25.6% of our outstanding share capital and therefore has effective voting power
over in excess of one-quarter of our outstanding ordinary shares (which excludes shares that we have repurchased that lack voting rights
and shares subject to restrictions that are voted in proportion to the votes of our other shares). Therefore, Asseco can significantly
influence the outcome of those matters requiring shareholder approval, including the election of directors and approval of significant
corporate transactions. This voting power may have the effect of delaying or preventing a change in control which may otherwise be favorable
to our minority shareholders. In addition, potential conflicts of interest may arise in the event that we or any of our investees enters
into any agreements or transactions with affiliates of Asseco. Although Israeli law imposes certain procedures (including the requirement
to obtain shareholder approval, which in certain cases includes a "majority of the minority") for approval of certain related
party transactions, we cannot assure you that these procedures will eliminate the possible detrimental effects of these conflicts of interest.
If certain transactions are not approved in accordance with required procedures under applicable Israeli law, these transactions may be
void or voidable.
If we are unable to maintain effective internal
control over financial reporting in accordance with Sections 302 and 404(a) of the Sarbanes-Oxley Act of 2002, the reliability of our
financial statements may be questioned and our share price may suffer.
We are subject to a range
of requirements relating to internal controls over financial reporting. Despite our internal control measures, we may still be subject
to financial reporting errors or even fraud, which may not be detected. A control system, which is increasingly based on computerized
processes, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met.
In addition, the benefit of each control must be considered relative to its cost, and the design of a control system must reflect such
reasonable resource constraints. Implementation of changes or updates to our control systems, including implementation of our investees
enterprise resource planning (ERP) systems at additional sites, may encounter unexpected difficulties. These inherent limitations include
the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further,
controls can be circumvented by individual acts, by collusion of two or more persons or by management override of the controls. Over time,
a control may be inadequate because of changes in conditions or the degree of compliance with applicable policies or procedures may deteriorate.
Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities,
and could adversely affect our operating results, investor confidence in our reported financial information and the market price of our
ordinary shares and ADSs.
Further to that risk, as part of its assessment of the adequacy of
internal controls over financial reporting for the year ended December 31, 2022, the management of one of our subsidiaries, Magic Software,
identified a material weakness in its internal control over financial reporting, whereas, Magic Software management team determined that
Magic Software did not have adequate trained resources to retain sufficient and precise documentation as evidence for performing business
processes controls (including automated and IT-dependent manual), management review controls, and evidence to demonstrate completeness
and accuracy of information prepared by entity ("IPE"). As a result, Magic Software could not monitor and oversee the completion
of its assessment of the design and operating effectiveness of internal control over financial reporting in a timely manner. These inadequacies
led to the conclusion that Magic Software's disclosure controls and procedures were not effective, and that there was a material
weakness in Magic Software's internal control over financial reporting, as of December 31, 2022. In light of that conclusion, Magic
Software's management has expressed its commitment to the remediation of the foregoing material weakness, as well as the continued
improvement of Magic Software's internal control over financial reporting. The subject inadequacies did not rise to a sufficiently
material level to cause our consolidated internal controls over financial reporting to be deemed deficient, given Magic Software's
size relative to that of the consolidated Group. Nevertheless, if management of Magic Software or any of our other subsidiaries or investees
were to discover additional deficiencies in internal controls that would rise, individually or in the aggregate, above the threshold of
materiality for our consolidated Group, that could cause (i) a loss in the reliability of, or (ii) the potential required restatement
of, our financial statements, or (iii) investigation or sanctions by regulatory authorities, among other potential adverse consequences,
and could cause a decrease in the trading price of our ordinary shares and ADSs.
The enactment of legislation implementing
changes in taxation of international business activities, the adoption of other corporate tax reform policies, or changes in tax
legislation or policies could impact our future financial position and results of operations.
There can be no assurance
that our effective tax rate of 23% for the year ended December 31, 2022 will not change over time as a result of changes in corporate
income tax rates or other changes in the tax laws the jurisdictions in which we operate. Any changes in tax laws could have an adverse
impact on our financial results. Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many
tax jurisdictions where we have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions
are under heightened scrutiny and tax reform legislation is being proposed or enacted in a number of jurisdictions.
For example, there is growing
pressure in many jurisdictions and from multinational organizations such as the Organization for Economic Cooperation and Development
(OECD) and the EU to amend existing international taxation rules in order to align the tax regimes with current global business practices.
Specifically, in October 2015, the OECD published its final package of measures for reform of the international tax rules as a product
of its Base Erosion and Profit Shifting (BEPS) initiative, which was endorsed by the G20 finance ministers. Many of the initiatives in
the BEPS package required and resulted in specific amendments to the domestic tax legislation of various jurisdictions and to existing
tax treaties. We continuously monitor these developments. Although many of the BEPS measures have already been implemented or are currently
being implemented globally (including, in certain cases, through adoption of the OECD's "multilateral convention" (to
which Israel is also a party) to effect changes to tax treaties which entered into force on July 1, 2018 and through the European Union's
"Anti Tax Avoidance" Directives), it is still difficult in some cases to assess to what extent these changes our tax liabilities
in the jurisdictions in which we conduct our business or to what extent they may impact the way in which we conduct our business or our
effective tax rate due to the unpredictability and interdependency of these potential changes. In January 2019, the OECD announced further
work in continuation of the BEPS project, focusing on two "pillars." On October 8, 2021, 136 countries approved a statement
known as the OECD BEPS Inclusive Framework, which builds upon the OECD's continuation of the BEPS project. The first pillar is focused
on the allocation of taxing rights between countries for in-scope large multinational enterprises (with revenue in excess of Euro 20 Billion
and profitability of at least 10%) that sell goods and services into countries with little or no local physical presence. We do not expect
to be within the scope of the first Pillar. The second pillar is focused on developing a global minimum tax rate of at least 15 percent
applicable to in-scope multinational enterprises (with revenue in excess of Euro 750 million). Israel is one of the 136 jurisdictions
that has agreed in principle to the adoption of the global minimum tax rate. Given these developments, it is generally expected that tax
authorities in various jurisdictions in which we operate may increase their audit activity and may seek to challenge some of the tax positions
we have adopted. It is difficult to assess if and to what extent such challenges, if raised, might impact our effective tax rate.
Further, there are proposals
in the United States to introduce further amendments to the federal tax regime applicable to corporations. As of the date of filing, it
remains unclear what legislation, if any, would be enacted. If the draft legislation currently being discussed is enacted, it could create
the potential for added volatility in our provision for income taxes and might have an adverse impact on our future income tax provision
and tax rate.
20
Risks Related to Operations in Israel and Other
Specific Geographic Locations
Political, economic, and military conditions
in Israel could negatively impact our business.
We are incorporated under
the laws of, and our headquarters and principal research and development facilities are located in the State of Israel. Additionally,
the corporate headquarters of some of our subsidiaries, as well as directors, executives, and a portion of employees (including key employees),
are located in or residents of Israel. In 2021 and 2022, respectively, approximately 63% and 61% of our consolidated revenues were generated
from the Israeli market. As a result, political, economic and military conditions in Israel and the Middle East directly affect our operations.
Since the establishment of the State of Israel, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any
armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, harm our results
of operations and make it more difficult for us to raise capital.
Although the recent Abraham
Accords have enhanced Israel's relations with certain countries in the Middle East, an ongoing state of hostility, varying in degree
and intensity, has caused security and economic problems for Israel. In addition, several countries still restrict business with Israel
and with companies doing business in Israel. These political, economic and military conditions in Israel—if adverse— as well
as the foregoing business restrictions, could have a material adverse effect on our business, financial condition, results of operations
and future growth.
Conflicts in North Africa
and the Middle East, including in Syria, which borders Israel, have resulted in continued political uncertainty and violence
in the region. Efforts to improve Israel's relationship with the Palestinian Authority have failed to result in a permanent solution,
and there have been numerous periods of hostility in recent years during which Hamas, a terrorist group that controls the Gaza Strip,
has attacked Israel with rockets. In addition, Iran continues to take a hostile stance towards Israel, having proceeded with development
of a nuclear program and having promised the destruction of Israel periodically. Such instability may affect the economy, could negatively
affect business conditions and, therefore, could adversely affect our operations. To date, these matters have not had any material effect
on our business and results of operations; however, the regional security situation and worldwide perceptions of it are outside our control
and there can be no assurance that these matters will not negatively affect our business, financial condition and results of operations
in the future.
Many of our employees (including
executive officers) in Israel are obligated to perform military reserve duty, currently consisting of approximately 30 days of service
annually (or more for reserves officers or non-officers with certain expertise). Additionally, these employees are subject to being called
to active duty at any time upon the outbreak of hostilities. While we have operated effectively under these requirements, no assessment
can be made as to the full impact of these requirements on our business or work force and no prediction can be made as to the effect on
us of any expansion of these obligations.
In addition to security
concerns, the Israeli government is currently pursuing certain changes to Israel's judicial system and legislation. In response to the
foregoing proposed changes, some individuals, organizations and institutions, both within and outside of Israel, have commented that the
proposed changes may negatively impact the business environment in Israel, including due to increased currency fluctuations and downgrades
in credit rating. On April 14, 2023, Moody's downgraded Israel's credit outlook from positive to stable, however it maintained
an A1 rating on Israel's overall credit rating. Such negative developments may have an adverse effect on our business and results
of operations.
As some of our revenues are derived
from the Israeli government sector, a reduction of government spending in Israel on IT services may reduce our revenues and profitability;
and any delay in the annual budget approval process may negatively impact our cash flows.
Our Matrix and Magic Software
subsidiaries perform work for a wide range of Israeli governmental agencies and related subcontractors. Any reduction or elimination for
political or economic reasons (such as in the case of COVID-19) of total Israeli government spending may reduce our revenues and profitability.
In addition, the Government of Israel has experienced significant delays in the approval of its annual budget in recent years. Such delays
in the future could negatively affect our cash flows by delaying the receipt of payments from the government of Israel for services performed.
21
Political relations could limit our ability
to sell or buy internationally
We could be adversely affected
by the interruption or reduction of trade between Israel and its trading partners. Some countries, companies and organizations continue
to participate in a boycott of Israeli firms, other firms doing business with Israel as well as Israeli-owned companies operating in other
countries. There can be no assurance that restrictive laws, policies or practices directed towards Israel or Israeli businesses will not
have an adverse impact on our business.
Israel's economy may become unstable.
From time to time Israel's
economy may experience inflation or deflation, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts,
civil and political unrest and budgetary constraints. For these and other reasons, in the past the government of Israel has intervened
in the economy employing fiscal and monetary policies, import duties, foreign currency restrictions, controls of wages, prices and foreign
currency exchange rates and regulations regarding the lending limits of Israeli banks to companies considered to be in an affiliated group.
The Israeli government has periodically changed its policies in these areas. Recurrence of previous destabilizing factors could make it
more difficult for us to operate our business as we have in the past and could adversely affect our business.
Our business may be materially affected
by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding
their potential effects, could adversely affect our results of operations and share price.
As a multinational Group,
we are subject to income taxes, withholding taxes and indirect taxes in numerous jurisdictions worldwide. Significant judgment and management
attention and resources are required in evaluating our tax positions and our worldwide provision for taxes. In the ordinary course of
business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations
and effective tax rates could be adversely affected by changes in the relevant tax, accounting, and other laws, regulations, principles
and interpretations. This may include recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory
rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, changes in foreign currency exchange
rates, or changes in the valuation of our deferred tax assets and liabilities.
We may be audited in various
jurisdictions, and such jurisdictions may assess additional taxes against us. If we experience unfavorable results from one or more such
tax audits, there could be an adverse effect on our tax rate and therefore on our net income. Although we believe our tax estimates are
reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and
accruals, which could have a material adverse effect on our operating results or cash flows in the period or periods for which a determination
is made. Additionally, we and our subsidiaries are subject to transfer pricing rules and regulations, including those relating to the
flow of funds between each of us and our respective affiliates, which are designed to ensure that appropriate levels of income are reported
in each jurisdiction in which we operate.
The tax benefits that will be available
to certain of our Israeli subsidiaries and our Israeli affiliate will require us to continue to meet various conditions and may be terminated
or reduced in the future, which could increase our costs and taxes.
Some of our Israeli subsidiaries
derive and expect to continue to derive significant benefits from various programs, including Israeli tax benefits relating to our "Preferred
Technological Enterprise", or PTE, and our "Special Preferred Technological Enterprise," or SPTE, programs. To be eligible
for tax benefits as a PTE or SPTE, these Israeli subsidiaries must continue to meet certain conditions including, with respect to Sapiens,
consolidated group revenue at the level of Asseco (its and our controlling shareholder) of at least NIS 10 billion. If they do not meet
the conditions stipulated in the Israeli Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law and the regulations
promulgated thereunder, as amended, for the PTE, any of the associated tax benefits may be cancelled and they would be required to repay
the amount of such benefits, in whole or in part, including interest and consumer price index, or CPI, linkage (or other monetary penalties).
Further, in the future these tax benefits may be reduced or discontinued. While we believe that certain of our Israeli subsidiaries have
met and continue to meet the conditions that entitle then to previously-obtained Israeli tax benefits, there can be no assurance that
the Israeli Tax Authority will agree (for example, with respect to Sapiens, in case the overall revenue at the Asseco group level is lower
than NIS 10 billion, or if Asseco no longer controls Sapiens).
The Israeli government grants that Sapiens,
one of our subsidiaries, has received require it to meet several conditions and restrict its ability to manufacture products and transfer
know-how developed using such grants outside of Israel and require it to satisfy specified conditions.
One of our Israeli subsidiaries
(an Israeli subsidiary of Sapiens) received grants in the past from the government of Israel through the Israeli National Authority for
Technological Innovation, or the Innovation Authority (formerly operating as Office of the Chief Scientist of the Ministry of Economy
of the State of Israel, or the OCS), for the financing of a portion of its research and development expenditures in Israel with respect
to Sapiens legacy technology. In consideration for receiving grants from the Innovation Authority, that subsidiary is obligated to pay
the Innovation Authority royalties from the revenues generated from the sale of products (and related services) developed (in whole or
in part) using the Innovation Authority funds, in an amount that is up to 100% to 150% of the aggregate amount of the total grants that
it received from the Innovation Authority, plus annual interest for grants received after January 1, 1999. The subsidiary must fully and
originally own any intellectual property developed using the Innovation Authority grants and any right derived therefrom unless transfer
thereof is approved in accordance with the provisions of the Israeli Encouragement of Research, Development and Technological Innovation
Law, 5744-1984, or the Innovation Law (formerly known as the Encouragement of Industrial Research and Development Law, 5744-1984, or the
Research Law), and related regulations.
22
When a company develops know-how,
technology or products using grants provided by the Innovation Authority, the terms of these grants and the Innovation Law restrict the
transfer of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside
of Israel. Even after the repayment of such grants in full, our subsidiary will remain subject to the restrictions set forth under the
Innovation Law, including:
●
Transfer of know-how outside of Israel
. Any transfer of the know-how that was developed with the funding of the Innovation Authority, outside of Israel, requires prior approval of the Innovation Authority, and the payment of a redemption fee.
●
Local manufacturing obligation
. The terms of the grants under the Innovation Law require that the manufacturing of products resulting from Innovation Authority-funded programs be carried out in Israel, unless a prior written approval of the Innovation Authority is obtained (except for a transfer of up to 10% of the production rights, for which a notification to the Innovation Authority is sufficient).
●
Certain reporting obligations
. Sapiens, as any recipient of a grant or a benefit under the Innovation Law, is required to file reports on the progress of activities for which the grant was provided as well as on its revenues from know-how and products funded by the Innovation Authority. In addition, our subsidiary is required to notify the Innovation Authority of certain events detailed in the Innovation Law.
Therefore, if aspects of our
subsidiary's technologies are deemed to have been developed with Innovation Authority funding, the discretionary approval of an
Innovation Authority committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing
rights related to those aspects of such technologies. Our subsidiary may not receive those approvals. Furthermore, the Innovation Authority
may impose certain conditions on any arrangement under which it permits our subsidiary to transfer technology or development out of Israel.
The transfer of Innovation
Authority-supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value
of the transferred technology or know-how, the amount of Innovation Authority support, the time of completion of the Innovation Authority-supported
research project and other factors. Furthermore, the consideration available to shareholders in a transaction involving the transfer outside
of Israel of technology or know-how developed with the Innovation Authority's funding (such as a merger or similar transaction)
may be reduced by any amounts that are required to be paid to the Innovation Authority.
Our Israeli subsidiary received
grants from the Innovation Authority prior to an extensive amendment to the Research Law that came into effect as of January 1, 2016,
or the Amendment, which may also affect the terms of existing grants. The Amendment provides for an interim transition period (which has
not yet expired), after which time our subsidiary's grants will be subject to terms of the Amendment. Under the Research Law, as
amended by the Amendment, the Innovation Authority is provided with a power to modify the terms of existing grants. Such changes, if introduced
by the Innovation Authority in the future, may impact the terms governing our subsidiary's grants.
As we continue to expand our business in
emerging markets, such as India, we face increasing challenges that could adversely impact our results of operations, reputation and business.
Approximately
forty-six percent (46%) of Sapiens' employees and approximately 4% of Magic Software employees are currently located in India. Our
significant presence in India, in particular Sapiens' Research & Development personnel and its personnel for the delivery of
its professional services, poses a number of challenges. Those challenges are related to more volatile economic conditions, poor protection
of intellectual property, inadequate protection against crime (including counterfeiting, corruption and fraud), lack of due process, and
inadvertent breaches of local laws or regulations. In addition, local business practices may be inconsistent with international regulatory
requirements, such as anti-corruption and anti-bribery laws and regulations (including the U.S. Foreign Corrupt Practices Act and the
U.K. Bribery Act) to which we are subject. It is possible that some of Sapiens' employees, subcontractors, agents or partners may
violate such legal and regulatory requirements, which may expose it to criminal or civil enforcement actions, including penalties and
suspension or disqualification from U.S. federal procurement contracting. If Sapiens fails to comply with such legal and regulatory requirements,
our business and reputation may be harmed.
Conducting
business in India involves unique challenges, including potential political instability; threats of terrorism; the transparency, consistency
and effectiveness of business regulation; corruption; the protection of intellectual property; and the availability of sufficient qualified
local personnel. Any of these or other challenges associated with operating in India may adversely affect our business or operations.
Terrorist activity in India and Pakistan has contributed to tensions between those countries and our operations in India may be adversely
affected by future political and other events in the region.
23
It may be difficult to serve process and
enforce judgments against our directors and officers in the United States or in Israel.
We are organized under the
laws of the State of Israel. All of our executive officers and directors are nonresidents of the United States, and a substantial portion
of our assets and the assets of these persons are located outside of the United States. Therefore, it may be difficult to:
●
effect service of process within the United States on us or any of our executive officers or directors;
●
enforce court judgments obtained in the United States including those predicated upon the civil liability provisions of the United States federal securities laws, against us or against any of our executive officers or directors, in the United States or Israel; and
●
bring an original action in an Israeli court against us or against any of our executive officers or directors to enforce liabilities based upon the United States federal securities laws.
Israeli courts may refuse
to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which
to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law
is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert
witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There
is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing
a judgment against us in Israel, an investor may not be able to collect any damages awarded by either a U.S. or foreign court.
Provisions of Israeli law may delay, prevent
or make difficult an acquisition of us, which could prevent a change of control and therefore depress the price of our shares.
The Companies Law regulates
mergers and requires that tender offers for acquisitions of shares above specified thresholds be approved via special shareholder approvals.
The Companies Law furthermore requires shareholder approvals for transactions involving directors, officers or significant shareholders
and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential
transactions unappealing to us or to some of our shareholders. These provisions of Israeli corporate and tax law may have the effect of
delaying, preventing or complicating a merger with, or other acquisition of, us. This could cause our ordinary shares to trade at prices
below the price for which third parties might be willing to pay to gain control of us. Third parties who are otherwise willing to pay
a premium over prevailing market prices to gain control of us may be unable or unwilling to do so because of these provisions of Israeli
law. Asseco's control of a significant percentage of our outstanding ordinary shares may also discourage potential acquirers from
paying a premium to our shareholders pursuant to a change of control transaction. Please see the risk factor above titled "Our largest
shareholder, Asseco Poland S.A., can significantly influence the outcome of matters that require shareholder approval."
Your rights and responsibilities as a shareholder
are governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.
We are incorporated under
Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our memorandum of association, amended
and restated articles of association, which we sometimes refer to as our articles, and Israeli law. These rights and responsibilities
differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder
of an Israeli company has a duty to act in good faith in exercising the rights thereof and fulfilling the obligations thereof toward the
company and other shareholders and to refrain from abusing the power thereof in the company, including, among other things, in voting
at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable in shareholder votes
at the general meeting with respect to, among other things, amendments to a company's articles of association, increases in a company's
authorized share capital, mergers and acquisitions and transactions involving interests of officers, directors or other interested parties
which require the shareholders' approval. In addition, a controlling shareholder of an Israeli company or a shareholder who knows
that he or she possesses the power to determine the outcome of a vote at a meeting of our shareholders, or who has, by virtue of the company's
articles of association, the power to appoint or prevent the appointment of an office holder in the company, or any other power with respect
to the company, has a duty of fairness toward the company. The Companies Law does not establish criteria for determining whether or not
a shareholder has acted in good faith.
As a foreign private issuer whose ADSs are
listed on the Nasdaq Global Select Market, we may follow certain home country corporate governance practices instead of certain Nasdaq
requirements.
As a foreign private issuer
whose ADSs are listed on the Nasdaq Global Select Market, we are permitted to follow certain home country corporate governance practices
instead of certain requirements of the Listing Rules of the Nasdaq Stock Market. A foreign private issuer that elects to follow a home
country practice instead of such requirements must submit to Nasdaq in advance a written statement from independent counsel in such issuer's
home country certifying that the issuer's practices are not prohibited by the home country's laws. In addition, a foreign
private issuer must disclose in its annual reports filed with the SEC or on its website, each such requirement that it does not follow
and describe the home country practice followed by the issuer in lieu of any such requirement. In keeping with these leniencies, we have
elected to follow home country practice with regard to, among other things, composition of our board of directors, director nomination
procedure, compensation of officers, quorum at shareholders' meetings and timing of our annual shareholders' meetings. We
have furthermore elected to follow our home country law, in lieu of those rules of the Nasdaq Stock Market that require that we obtain
shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans,
an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances
of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. Accordingly, our shareholders
and ADS holders may not be afforded the same protection as provided under Nasdaq's corporate governance rules.
24
Our U.S. shareholders may suffer adverse
tax consequences if we are classified as a passive foreign investment company or as a "controlled foreign corporation".
Generally, if for any taxable
year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be measured
in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income,
we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes under the Code. Based
on our gross income and gross assets, and the nature of our business, we believe that we were not classified as a PFIC for the taxable
year ended December 31, 2022. Because PFIC status is determined annually based on our income, assets and activities for the entire taxable
year, it is not possible to determine whether we will be characterized as a PFIC for the taxable year ending December 31, 2023, or for
any subsequent year, until we finalize our financial statements for that year. Furthermore, because the value of our gross assets is likely
to be determined in large part by reference to our market capitalization, a decline in the value of our ordinary shares may result in
our becoming a PFIC. Accordingly, there can be no assurance that we will not be considered a PFIC for any taxable year. Our characterization
as a PFIC could result in material adverse tax consequences for you if you are a U.S. investor, including having gains realized on the
sale of our ordinary shares treated as ordinary income, rather than a capital gain, the loss of the preferential rate applicable to dividends
received on our ordinary shares by individuals who are U.S. holders, and having interest charges apply to distributions by us and the
proceeds of share sales. Certain elections exist that may alleviate some of the adverse consequences of PFIC status and would result in
an alternative treatment (such as mark-to-market treatment) of our ordinary shares. Prospective U.S. investors should consult their own
tax advisers regarding the potential application of the PFIC rules to them. Prospective U.S. investors should refer to "Item 10.E.
Taxation—U.S. Federal Income Tax Considerations" for discussion of additional U.S. income tax considerations applicable to
them based on our treatment as a PFIC.
Certain U.S. holders of our
ordinary shares may suffer adverse tax consequences if we or any of our non-U.S. subsidiaries are characterized as a "controlled
foreign corporation", or a CFC, under Section 957(a) of the Code. A non-U.S. corporation is considered a CFC if more than fifty
percent of the voting power or the total value of the shares is owned, or is considered to be owned, by U.S. shareholders who each own
shares representing ten percent or more of the voting or total value of the shares of such non-U.S. corporation, who refer to as 10% U.S.
Shareholders. Generally, 10% U.S. Shareholders of a CFC are currently required to include in their gross income their pro-rata share of
the CFC's "Subpart F income", a portion of the CFC's earnings, to the extent the CFC holds certain U.S. property,
and certain other new items under H.R. 1, originally known as the 2017 Tax Cuts and Jobs Act, or the TCJA. Such 10% U.S. Shareholders
are subject to current U.S. federal income tax with respect to such items, even if the CFC has not made an actual distribution to such
shareholders. "Subpart F income" includes, among other things, certain passive income (such as income from dividends, interests,
royalties, rents and annuities or gain from the sale of property that produces such types of income) and certain sales and services income
arising in connection with transactions between the CFC and a person related to the CFC. Certain changes to the CFC constructive ownership
rules introduced by the TCJA may cause one or more of our non-U.S. subsidiaries to be treated as CFCs and may also impact our CFC status.
This may result in negative U.S. federal income tax consequences for 10% U.S. Shareholders of our ordinary shares. The CFC rules are complex
and therefore no assurances can be given that we are not or will not become a CFC. Certain changes to the CFC constructive ownership rules
introduced by recent U.S. tax legislation could, under certain circumstances, cause us to be classified as a CFC. Current or prospective
10% U.S. Shareholders should consult their tax advisors regarding the U.S. tax consequences of acquiring, owning, or disposing our ordinary
shares and the impact of the TCJA, especially the changes to the rules relating to CFCs.
We may have difficulty protecting our interests
as a shareholder of Sapiens, which is a Cayman Islands company.
Following the completion of
the migration of its legal jurisdiction to the Cayman Islands in August 2018, Sapiens' corporate affairs are governed by its memorandum
of association, or the Memorandum, its articles of association, or the Articles, the Companies Act (as revised) of the Cayman Islands,
or the Companies Act and the common law of the Cayman Islands. The rights of Sapiens' shareholders— such as Formula—
and the fiduciary responsibilities of Sapiens' directors under the laws of the Cayman Islands are, in some respects, not as clearly
established under statutes or judicial precedent in the Cayman Islands as in jurisdictions in the United States. Therefore, we may
have more difficulty in protecting our interests than would shareholders of a corporation incorporated in a jurisdiction in the United
States, due to the comparatively less developed nature of Cayman Islands law in this area.
The Companies Act permits
mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. Dissenting
shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by
the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a
merger or consolidation which is effected in compliance with these statutory procedures.
In addition, there are statutory
provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in
number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths
in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy
at a meeting convened for that purpose. The convening of the meeting and subsequently the arrangement must be sanctioned by the Grand
Court of the Cayman Islands. A dissenting shareholder has the right to express to the court the view that the transaction ought not to
be approved.
When a takeover offer is made
and accepted by holders of 90.0% of the affected shares within four months, the offeror may, within a two-month period, notify the holders
of the remaining shares that it requires them to transfer such shares on the terms of the offer. An objection can be made to the Grand
Court of the Cayman Islands within one month of the notice, but this is unlikely to succeed unless there is evidence of fraud, bad faith
or collusion.
If the arrangement and reconstruction
is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be
available to dissenting shareholders of a corporation incorporated in a jurisdiction in the United States, providing rights to receive
payment in cash for the judicially determined value of the shares. This may make it more difficult for you to assess the value of any
consideration you may receive in a merger or consolidation or to require that the offeror give you additional consideration if you believe
the consideration offered is insufficient.
25
Shareholders of Cayman Islands
exempted companies have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists
of shareholders. Sapiens' directors have discretion under the Company's Memorandum and Articles to determine whether or not,
and under what conditions, its corporate records may be inspected by its shareholders, but are not obliged to make them available to its
shareholders (other than annual accounts, which are available for inspection prior to annual general meetings, and each shareholder's
right to view the share register in respect of shares registered in its name). This may make it more difficult for a shareholder to obtain
the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection
with a proxy contest.
Subject to limited exceptions,
under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors.
Copies of Sapiens' Memorandum
and Articles, which serve as exhibits to its 2021 annual report, were annexed as Appendix A to the proxy statement for Sapiens'
2017 annual general meeting of shareholders, which was appended as Exhibit 99.1 to Sapiens' Report of Foreign Private Issuer on
Form 6-K furnished to the SEC on October 26, 2017. A table comparing certain Curacao law provisions to Cayman Islands law provisions was
annexed as Appendix B to that same proxy statement.
ITEM 4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
Both our legal name and our
commercial name are Formula Systems (1985) Ltd. We were incorporated under the laws of the State of Israel on April 2, 1985 and are subject
to the Israeli Companies Law, 5759-1999. We maintain our principal executive offices at 1 Yahadut Canada Street, Or Yehuda 6037501, Israel
and our telephone number is +972-3-5389389. Our agent in the United States is Corporation Service Company and its address is 2711 Centerville
Road, Suite 400, Wilmington, DE 19808. Our Internet address is www.formulasystems.com. The information contained on that site is not a
part of this annual report and is not incorporated by reference herein. The SEC maintains an Internet site, http://www.sec.gov, which
contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The
information on that website is not part of this annual report and is not incorporated by reference herein. Except as described elsewhere
in this annual report, we have not had any important events in the development of our business since January 1, 2022.
Capital Expenditures and Divestitures
Since our inception, we have
acquired effective controlling interests, and have invested, in companies that are engaged in the IT solutions and services business.
We, together with our investees, are known as the Formula Systems Group.
We have adopted a strategy
of seeking to create positive economic impact and long-term value for our shareholders and the companies we invest in. We believe that
this strategy provides us with capital to support the growth of our interest in our remaining subsidiaries, as well as provide us the
opportunity to pursue new acquisitions of, and investments in, other businesses, particularly businesses offering products, technologies
and services that are complementary to ours and are suitable for integration into our business, thereby increasing value for our shareholders
(and ADS holders). We expect to continue to develop and enhance the products, services and solutions of our investees, and to continue
to pursue additional acquisitions of, or investments in, companies that provide IT services and proprietary software solutions.
Our principal investment and
divestiture activities since the start of our 2020 fiscal year are described below. For additional information concerning our related
financing activities since the start of our 2020 fiscal year, see "Item 5. Operating and Financial Review and Prospects— B.
Liquidity and Capital Resources— Sources of Financing."
Investments by Formula in Existing Subsidiaries:
Changes in our percentage
ownership of Sapiens
. As of January 1, 2020, our percentage interest in Sapiens was approximately 47.8%. During the last three years,
mainly due to exercises of options by employees of Sapiens, but also due to Sapiens' follow-on public offering completed in October
2020, our direct interest in Sapiens' outstanding common shares was diluted to 44.0% and 43.64%, as of December 31, 2020 and 2021,
respectively. As a result of our acquisition of 285,672 of Sapiens common shares on February 2022, March 2022 and August 2022 for a total
consideration of $7.0 million (there were no such purchases in 2020 or 2021) our percentage ownership of Sapiens rose to 44.1% as of December
31, 2022. The source of funds for our purchase of Sapiens common shares in 2022 was our working capital. Our interest in Sapiens'
common shares as of March 31, 2023, stands at 44.1%.
Changes in our
percentage ownership of Magic Software
. As of January 1, 2020, our percentage interest in Magic Software was 45.3%. Pursuant to
our acquisition of Magic Software ordinary shares, we invested an aggregate of $1.2 million in 2020, $1.1 million in 2021, and $5.8
million in 2022. Our interest in Magic Software's ordinary shares as of December 31, 2022, stands at 46.3%. The source of
funds for those acquisitions has been our working capital. Our interest in Magic Software's ordinary shares as of March 31,
2023 remains at 46.3%.
26
Changes in our percentage
ownership of Matrix
. As of January 1, 2020, our percentage interest in Matrix was 48.9%. During the last three years, mainly due
to exercises of options by employees of Matrix, our direct interest in Matrix's outstanding share capital was diluted to 49.3%,
48.9%, and 48.7% as of December 31, 2020, 2021, and 2022, respectively. Our interest in Matrix's ordinary shares as of March 31,
2023 stands at 48.2% following exercise of options by employees of Matrix during the first three-month period of 2023. We invested an
aggregate of $5.0 million in 2020 pursuant to our acquisitions of Matrix shares. There were no such purchases in 2021 or 2022. The source
of such funds has been our working capital.
Acquisition by Formula:
Acquisition of Shamrad
Electronic (1997) Ltd.
On October 2, 2022, we acquired all of the share capital of Shamrad, an Israeli private company, engaged in
the supply, integration and installation of computer communication infrastructures, announcement and alarm systems and electronic security
systems. Shamrad represents several companies in the field of security: ATI systems – sirens, Garrett – Metal detectors, Kopp
– Ferro Magnetic detectors for MRI rooms. The total consideration to be paid for the acquisition amounted to approximately NIS 9.4
million (approximately $2.7 million), with NIS 7.1 million (approximately $2.0 million) paid in Cash, or approximately NIS 8.6 million
(approximately $2.4 million) net of acquired cash. Acquisition-related costs were immaterial. For further information, please see Note
3(i)(a) to our consolidated financial statements included in Item 18 of this annual report.
Acquisition of Zap Group
.
In April 2021, Formula acquired all of the issued and outstanding share capital of Zap Group from Apax Partners for consideration of approximately
NIS 244.2 million in cash, with up to an additional NIS 60 million of consideration (for a total maximum purchase price of approximately
NIS 304.2 million) contingent upon Zap Group meeting certain EBITDA targets during the first two years following the acquisition. As of
December 31, 2022 we do not believe Apax Partners would be entitled to such any amount out of the contingent amount. Zap Group is Israel's
largest group of consumer websites which manages more than 20 leading consumer websites from diverse content worlds with a total of more
than 17 million visits per month, including Zap Price Comparison website, Zap Yellow Pages (the largest business index in Israel) and
Zap Rest (Israel's restaurants index). The websites managed and offered by Zap Group provide small and medium-sized businesses in
Israel with a broad and rich advertising platform and offer consumers a user-friendly search experience with a variety of advanced tools,
which enable them to make rational purchase decisions in the best and most effective way. For further information, please see Note 3(i)(b)
to our consolidated financial statements included in Item 18 of this annual report.
Acquisition of Ofek Aerial
Photography.
On March 13, 2020, Formula completed the acquisition of an 80% share interest in Ofek Aerial Photography, or Ofek, and
also received an option to acquire the remaining 20% of the equity in the future, for total consideration of approximately NIS 27.7
million (or NIS 14.3 million, net of acquired cash). Ofek is one of the leading companies in Israel in the fields of aerial and satellite
mapping, geographic data collection and processing, and provides services in numerous geographic applications. Ofek employs approximately
100 employees, all situated at Ofek's headquarters in Netanya, Israel. We and the minority shareholder of Ofek hold mutual call
and put options, respectively, for the remaining 20% interest in Ofek, exercisable for 36 months following the third year anniversary
of the transaction (April 30, 2020 is considered the date of the transaction for purposes of that provision). For further information,
please see Note 3(i)(b) to our consolidated financial statements included in Item 18 of this annual report.
Acquisitions by Sapiens:
Acquisition of I.T. Cognitive
Ltd.
In May 2022 Sapiens acquired
the entire share capital of I.T. Cognitive Ltd. (today: Sapiens Cognitive Ltd.) for a purchase price of $3.5 million. For further information,
please see Note 3(ii) to our consolidated financial statements included in Item 18 of this annual report.
In 2021, Sapiens did not effect
any material acquisitions of businesses or technologies.
Acquisition of Tia
Technology
. On November 30, 2020, Sapiens acquired Tia Technology, now known as Sapiens Denmark, a vendor of digital
software solutions, from the global investment organization EQT Mid Market, for total consideration of $75.3 million in cash
(or $73.0 million net of acquired cash). During 2021, Sapiens and the sellers of Sapiens Denmark agreed on final working
capital adjustments related to the purchase price for this acquisition, which resulted in the payment of $0.8 million from those
sellers to Sapiens. Sapiens Denmark is headquartered in Denmark and has nearly 70 customers globally, primarily in Denmark,
Norway, Sweden, Finland, South Africa and the Baltics. It offers comprehensive software solutions, primarily for Property &
Casualty insurers as well as Life and Pension, Health, and several innovative extension modules.
27
Acquisition of Sapiens
Japan Co.
In the fourth quarter of 2020, Sapiens acquired the remaining 10% of Sapiens Japan Co, for a total consideration of approximately
15 million Japanese Yen (approximately $147,000). Following that acquisition, Sapiens owns all of the share capital of Sapiens
Japan Co.
Acquisition of Digital
License.
In the fourth quarter of 2020, Sapiens purchased from Cognitive Ltd. a source code license which provides it the ability
to pursue the acceleration of its digital offering. The total consideration was $2.8 million.
Acquisition of Delphi.
On July 27, 2020, Sapiens acquired Delphi, a leading vendor of software solutions for P&C carriers, with a focus on the medical
professional liability (MPL)/healthcare professional liability (HCPL) markets (sometimes referred to as "medical malpractice").
Delphi is headquartered in Boston, Massachusetts, and offers core products for MPL, including policy administration, claims management,
and financial and risk management. The consideration in the transaction was approximately $19.6 million in cash (or $13.3 million net
of acquired cash). Acquisition-related costs amounted to $0.3 million. On January 1, 2023, we merged Delphi into Sapiens Americas Corporation.
Acquisition of Tiful Gemel
.
On June 1, 2020, Sapiens acquired 75% of the outstanding shares of Tiful Gemel Ltd., an Israeli company which provides software solutions
and managed services related to pension and provident funds in the Israeli market, for total cash consideration of $1.3 million. In addition,
under the share purchase agreement for this acquisition, Sapiens is committed to acquire the remainder of Tiful Gemel's outstanding
shares on June 1, 2023 for $0.45 million. On July 8, 2021, Sapiens completed the acquisition of an additional 20% of the outstanding shares
of Tiful Gemel for a total amount of $0.4 million.
Acquisition of sum.cumo.
On February 6, 2020, Sapiens acquired sum.cumo (to be renamed Sapiens Germany), a German-based technology provider that offers digital,
consumer-centric solutions mainly to the insurance sector, for a purchase price of $22.5 million in cash. An additional $1.8 million was
paid to sum.cumo's senior executives as part of an existing agreement between sum.cumo and its former shareholders. In addition,
Sapiens issued 173,005 restricted shares units worth approximately $4.4 million to sum.cumo's senior management, for which vesting
is subject to performance criteria. Sum.cumo's senior executives may be entitled to future payments of up to $2.8 million that are
subject to both earn out-based and retention-specific criteria over the four years following the acquisition.
Acquisitions and Divestitures by Matrix:
Acquisition of Zebra AGR
Technologies Ltd.
On January 1, 2023, Matrix acquired 70% of the share capital of Zebra AGR Technologies Ltd. ("Zebra"),
which is engaged in the distribution of software products for about 20 international software manufacturers in the fields of information
security and communication. Zebra will be consolidated in the financial statements of Matrix starting from the first quarter of 2023.
Zebra provides distribution services, including consulting, logistics, financing, marketing, and professional services, with an authorized
support and training center. Matrix paid NIS 53 million (approximately $15.1 million) for this acquisition.
Acquisition of RDT
Equipment and Systems (1993) Ltd.
On June 19, 2022, Matrix IT, through Matrix Integration and Infrastructure Ltd., Matrix
IT's wholly owned subsidiary, acquired all of the share capital of RDT for cash consideration of NIS 44 million (approximately
$12.7 million), or NIS 41 million (approximately $11.9 million) net of acquired cash. As part of the purchase agreement, the
sellers may be entitled to additional future consideration contingent upon RDT meeting certain future operating profit targets. As
of the acquisition date, Matrix IT estimates the future value of the contingent consideration at NIS 14.8 million (approximately
$4.3 million). RDT provides services in the field of multimedia systems. RDT markets software solutions and systems for a wide range
of technologies, including control and automation solutions, test and measurement equipment, advanced technological solutions for
testing data communication, EMC products, radio frequency (RF) and microwaves components, and serves, among other things, as a
representative in Israel for dozens of international software and hardware vendors. For further information, please see Note
3(iv)(b) to our consolidated financial statements included in Item 18 of this annual report.
Divestiture of Infinity
Labs R&D Ltd
. On April 24, 2022, Matrix IT concluded the sale of 45.2% of the issued and share capital of Infinity Labs R. &
D. Ltd. ("Infinity") for a total consideration of NIS 154.5 million (approximately $46.2 million). Following the transaction
Matrix IT remaining interest in Infinity's outstanding share capital amounts to 4.9% of Infinity's outstanding share capital.
As a result of the transaction, we recognized a capital gain (before tax), in the amount of approximately NIS 148.1 million (approximately
$44.3 million), including NIS 16.7 million (approximately $5.0 million) recorded with respect to the revaluation of the Matrix IT remaining
share interest in Infinity. In accordance, as of the second quarter of 2022, Infinity's financial results of operations were not
consolidated in our financial statements and the remaining share interest of 4.9% in Infinity's outstanding share capital was measured
at fair value with subsequent changes in the fair value of the investment recognized in profit or loss. Matrix distributed the capital
gain (net of tax) to its shareholders as a dividend. For further information, please see Note 3(iv)(a) to our consolidated financial
statements included in Item 18 of this annual report.
28
Acquisition of AVB Technologies
Ltd.
On October 5, 2021, Matrix, through Matrix Integration and Infrastructure Ltd., Matrix's wholly owned subsidiary, acquired
60% of the share capital of AVB Technologies Ltd. for NIS 4.6 million (approximately $1.4 million). As part of the purchase agreement,
additional consideration will be paid, subject to the achievement of certain operating profit targets, to be based on Matrix's calculation.
According to our calculation, the value of the additional consideration for the business acquisition is estimated at NIS 2.1 million (approximately
$0.6 million). AVB Technologies Ltd. provides services in the field of multimedia systems. AVB Technologies Ltd.'s services vary
and include constructing multimedia systems for meeting rooms and video conference rooms, state of the art digital display solutions,
video walls, command and control management rooms, advanced audio solutions and advanced display solutions. For further information, please
see Note 3(iv)(c) to our consolidated financial statements included in Item 18 of this annual report.
Acquisition of I.T.D.
Group Ltd
. On April 29, 2021, Matrix acquired 75% of the share capital of the I.T.D. Group Ltd., or I.T.D. Group, for NIS 5.75 million
(approximately $1.8 million). As part of the purchase agreement, additional consideration was agreed to, subject to I.T.D. Group achieving
certain operating profit targets. According to our calculation, the value of the additional consideration for the business acquisition
is NIS 0.2 million. Matrix also holds a future call option to purchase the additional 25% of I.T.D. Group's share capital. I. T.D.
Group is a leading provider of software development, regulation and cybersecurity services for the healthcare industry in Israel, assisting
companies to design and develop innovative solutions, services, and desktop, mobile, and cloud-based apps; ensure rock-solid cybersecurity
and privacy in compliance with HIPAA/GDPR standards; and manage FDA/CE submissions. For further information, please see Note 3(iv)(d)
to our consolidated financial statements included in Item 18 of this annual report.
Acquisition of SQ Service
Quality Ltd
. On April 5, 2021, Babcom Centers Ltd., a subsidiary of Matrix, acquired 60% of the share capital of S.Q. Service Quality
Ltd. for NIS 4 million (approximately $1.2 million). As part of the purchase agreement, additional consideration was agreed to, subject
to the achievement of operating profit targets, to be based upon Matrix's estimate.. We and the minority shareholder of SQ Service
Quality Ltd. hold mutual call and put options for the remaining 40% interest in SQ Service Quality Ltd.. SQ Service Quality Ltd. has been
active for more than a decade; it accompanies organizations and companies in service quality improvement processes. For further information,
please see Note 3(iv)(e) to our consolidated financial statements included in Item 18 of this annual report.
Acquisition of A. A. Engineering
Ltd
. On April 5, 2021, Dana Engineering Ltd. (a subsidiary of Matrix) acquired 75% of the share capital of A.A Engineering Ltd., or
A.A. Engineering, for NIS 10.5 million (approximately $3.2 million). As part of the purchase agreement, the sellers may be entitled to
future additional consideration, contingent upon A.A Engineering achieving certain future operating profit targets. As of the acquisition
date, Matrix estimated the future value of the contingent consideration at NIS 0.5 million (approximately $0.1 million). Matrix holds
a call option for the remaining 25% share interest in A.A Engineering. Since 1973, A.A Engineering specializes in planning, management,
coordination and supervision work in civil engineering projects serving a wide range of customers, both from institutions and public bodies
and from leading companies in the Israeli economy. For further information, please see Note 3(iv)(f) to our consolidated financial statements
included in Item 18 of this annual report.
Acquisition of RightStar
Inc.
On November 16, 2020, Matrix acquired all of the share capital of RightStar Inc., or RightStar, a U.S.-based company and a seller
and an integrator of BMC and Atlassian Jira solutions, for total consideration of approximately NIS 12.2 million (approximately $3.6 million),
of which $3.0 million was paid in cash and $0.5 million was paid on January 15, 2021. The sellers may also be entitled to contingent consideration,
estimated as of the acquisition date at $1.0 million, upon RightStar meeting various operating profit targets.
Acquisition of Gestetnertec
Ltd.
On July 9, 2020, Matrix I.T. Integration and Infrastructure, Matrix's wholly owned subsidiary company, acquired 51% of
the share capital of Gestetnertec Ltd., or Gestetnertec, for NIS 49.8 million in cash (approximately $14.5 million). Gecstetnertec provides
various solutions in the printing and documents generation field, and provides different solutions, including 3D printing solutions. We
and the minority shareholder hold mutual call and put options, respectively, for the remaining 49% interest in Gestetnertec.
Acquisition of the Remainder
of Network Infrastructure Technologies (NIT).
In January 2020, Matrix acquired the remaining 40% of the share capital of Network Infrastructure
Technologies (NIT), increasing its share capital interest in NIT from 60% to 100%, for total cash consideration of $4.5 million (approximately
NIS 15.3 million), which was paid upon closing.
29
Acquisitions by Magic Software:
Acquisition of Appush
Ltd (formerly known as Vidstart Ltd.)
. On January 27, 2022 (the "Appush Acquisition Date"), Magic Software acquired 50.1%
of Appush Ltd. (formerly known as Vidstart Ltd.) ("Appush"), a provider of a video advertising platform that offers personalized
automated methods and real-time smart optimization, helping its clients achieve high yields in the competitive digital ecosystem. According
to the share purchase agreement, Magic software is committed to purchase the remainder of Appush's shares in two tranches: 30%
on April 1, 2022 and 19.9% on April 1, 2023. Magic Software's commitment to purchase all of the outstanding share capital of Appush
as of the closing date was accounted for as a financial liability measured at fair value in the amount of $10.5 million. As of the closing
date the estimated total consideration for the acquisition of all of the outstanding share capital of Appush amounted to $21.5 million,
or approximately $19.9 million, net of acquired cash (of which $11.0 million was paid in cash at closing, or approximately $9.5 million
net of acquired cash). The fair value of the financial liability referring to the purchase of the remaining 49.9% interest in Appush
amounted as of December 31, 2022 to approximately $8.6 million. For further information, please see Note 3(iii)(a) to our consolidated
financial statements included in Item 18 of this annual report.
Acquisition of The Goodkind
Group, LLC.
On August 23, 2022, Magic Software acquired 100% of TGG outstanding share capital for a total consideration of $11.6 milliom
or approximately $11.5 million net of acquired cash (of which approximately $8 million was paid upon closing, or approximately $7.9 million).
TGG provides permanent and temporary staffing services in various sectors including: Information Technology, Accounting & Finance,
Digital Media, Marketing, Human Resource, Financial Services. With On-Site programs and sourcing models TGG solutions includes functions
which differs from standard staffing companies. TGG provides assistance in the areas of compensation design and development, employee
opinion surveys, employment policies and practices, performance management, regulatory and compliance issues and succession planning.
The remainder constitutes a deferred payment payable in 2023 (approximately $2.8 million) and 2024 (approximately $0.9 million). For further
information, please see Note 3(iii)(b) to our consolidated financial statements included in Item 18 of this annual report.
Acquisition of Intrabases SAS.
On July
1, 2022, Magic Software acquired Intrabases SAS, a provider of IT professional services based in Nantes, France. The consideration of
the transaction is comprised solely from a cash consideration in an amount of approximately $3.4 million, or approximately $3.0 million
net of acquired cash. For further information, please see Note 3(iii)(c ) to our consolidated financial statements included in Item
18 of this annual report.
During 2022 Magic Software concluded additional two separate asset
purchase agreements. The total consideration paid for these acquisitions amounted to approximately $1.8 million. For further information,
please see Note 3(iii)(d) to our consolidated financial statements included in Item 18 of this annual report.
Acquisition of EnableIT.
On April 1, 2021, Magic Software acquired the entire share capital of EnableIT, LLC, or EnableIT, a U.S.-based services company that
specializes in IT staffing and recruiting, for total consideration of $6.0 million, of which $4.0 million was paid upon closing and the
remaining $2.0 million was to be paid in two equal installments— on April 1, 2022 and 2023. On April 1, 2022, Magic Software paid
the first $1.0 million payment. For further information, please see Note 3(iii)(e) to our consolidated financial statements included in
Item 18 of this annual report.
Acquisition of Menarva.
On April 1, 2021, Magic Software acquired the entire share capital of Menarva Ltd., or Menarva, an Israeli-based services company
which specializes in software solutions for non-profit organizations for a total estimated consideration of up to $5.6 million, of which,
$3.0 million was paid upon closing, and the remaining $2.6 million was to be due in two equal installments, on April 1, 2022 and 2023,
depending on the operational results of Menarva in 2021 and 2022. On April 1, 2022, Magic Software paid an additional amount of $1.055
million in respect of the purchase price. For further information, please see Note 3(iii)(f) to our consolidated financial statements
included in Item 18 of this annual report.
Acquisition of Y.G. Soft
IT Ltd.
On January 1, 2021, Magic Software, through one of its Israeli subsidiaries, acquired 60% of the shares of 9540 Y.G. Soft
IT Ltd., or Soft IT, an Israel-based services company which specializes in outsourcing of software development services for a total consideration
of up to $1.2 million. $0.4 million was paid upon closing, $0.3 million and $0.3 million were paid in July 2021 and April 2022, respectively,
and with the remaining amount constitutes a contingent payment that is contingent upon the future operating results of IT Soft. The estimated
fair value of the contingent consideration amounted to $0.6 million as of the acquisition date. We and Soft IT's minority shareholder
hold mutual call and put options for the remaining 40% interest. For further information, please see Note 3(iii)(g) to our consolidated
financial statements included in Item 18 of this annual report.
Acquisition of Stockell
Inc.
On September 2, 2020, Magic Software acquired all of the share capital of Stockell, a U.S.-based services company, specializing
in IT staffing and recruiting, for total consideration of $7.7 million, of which $6.3 million was paid upon closing and the remaining
$1.5 million was due 12 months following the closing date. In December 2021 and following a few discrepancies in the sellers' disclosures,
we paid as final consideration and amount of $0.76 million to settle the remainder of the purchase price.
Acquisition of Aptonet
Inc.
On May 7, 2020, Magic Software acquired all of the share capital of Aptonet, a U.S.-based services company that specializes in
IT staffing and recruiting, for a total consideration of $4.7 million, of which $3.7 million was paid upon closing and the remaining $ 1.0
million will be paid in two installments, six and twelve months following the closing date. During 2020 and 2021, we paid the remainder
of the consideration in two equal installments of $0.5 million each. For further information, please see Note 3(iii)(d) to our consolidated
financial statements included in Item 18 of this annual report.
30
Acquisition
of Mobisoft Ltd and Magic Hands B.V.
On July 1, 2020 and in June 2020 Magic Software acquired 70% of the outstanding share capital
of Mobisoft and all of the outstanding share capital of Magic Hands, respectively. The acquisition of each of Mobisoft and Magic Hands
individually, and both of them in the aggregate, was not material. These entities have been consolidated in our financial results since
their respective acquisition dates. The aggregate consideration paid for the acquisition of both Mobisoft and Magic Hands was $11.3 million.
Magic Software and the seller of Mobisoft both hold mutual options to purchase and sell (respectively) the remaining 30% interest in
Mobisoft, which may be exercised during the three-year period beginning following the third-year anniversary of the acquisition. Mobisoft's
and Magic Hands' results of operations have been included in our consolidated financial statements since their respective acquisition
dates.
Acquisition
of Additional Stake in Comblack
. On April 15, 2020, Magic Software acquired an additional stake of 10.17% in its subsidiary Comblack
IT Ltd., or Comblack, an Israeli-based company that specializes in software professional and outsource management services for mainframes
and complex large-scale environments, for total cash consideration of approximately $3.6 million, of which $3 million was paid upon closing
and the remaining is being paid over a period of up to 18 months. In addition to the cash consideration, we have in place a contingent
consideration mechanism according to which an additional amount may be paid in the event Comblack meets certain income thresholds. In
April 2022, based on Comblack's operating results in 2020 and 2021, we paid an additional $1.7 million as final consideration with
respect to the contingent consideration. Magic Software currently holds an 80.2% stake in Comblack. Comblack holds a put option in respect
of its remaining 19.8% holding.
Acquisitions
by Michpal Micro Computers (1983) Ltd:
Acquisition
of Formally Smart Form System Ltd., or Formally.
On February 16, 2022, Michpal acquired 70% of the share capital of Formally, for
a total consideration of NIS 44.8 million (approximately $14.4 million) or NIS 43.8 million (approximately $14.1 million) net of acquired
cash. Michpal and the seller hold mutual call and put options, respectively, for the remaining 30% share interest in Formally. The options
can be exercised during every year starting from January 1, 2023 in 3 equal portions of 10% each and for a period of 3 years thereafter
(i.e. 10% of Formally outstanding share capital as of 1.1.23 and for a period of 3 years thereafter; 10% as of 1.1.24 and for a period
of 3 years thereafter and 10% as of 1.1.24 and for a period of 3 years thereafter). Formally is an Israeli-based company and the creator
of Formally Smart Form platform – a central server platform for managing knowledge and work processes, and for producing digital
forms combined with a legally-binding eSignature technology allowing customers to create impressive documents in minutes and get them
signed in a snap. Formally offers a variety of proprietary computerized and advanced tools for managing business processes trusted by
Israel's largest financial, banking, and insurance enterprises. Its "no-code" platform, allows to convert outdated
forms into a digital process for any company freeing IT teams from ongoing maintenance issues and enables employees across the organization
to deliver new digital products quickly and efficiently. For further information, please see Note 3(iii)(a) to our consolidated financial
statements included in Item 18 of this annual report.
Acquisition
of Liram Financial Software Ltd.
On May 17, 2020, Michpal acquired 70% of the share capital of Liram Financial Software Ltd., or
Liram, an Israeli provider of proprietary integrated specialized management systems in the field of financial accounting, taxation and
compliance, for accounting professionals (accountants and tax consultants), bookkeepers, controllers, and CFOs. Liram's solutions
include specialized financial software solutions for preparation and reporting of financial statements, tax declarations, single-entry
and double-entry bookkeeping, fixed asset management and depreciation calculations (under the brand name Ram-Nihul) etc. Total cash consideration
amounted to NIS 15.3 million (approximately $4.3 million). In addition, Michpal and the minority shareholder of Liram hold mutual call
and put options, respectively, for the remaining 30% interest in Liram. Acquisition related costs were immaterial.
Acquisition
by Zap Group:
In February 2022, Zap Group completed the acquisition of 49.9% of the
entire minority rights in its controlled partnership, Winhelp Ofran, a provider of digital advertising solutions for domestic travel businesses
in Israel, for consideration of NIS 11.0 million (or approximately $3.5 million).
31
In
December 2022 Zap Group concluded the acquisition of 51% of the outstanding share capital of N.C Marketing and Advertising Ltd. (also
known as "Safra digital marketing") and 51% of the outstanding share capital of Marcomit Ltd. ("Marcomit"). Safra
digital marketing is an Israeli company specializing in social media services including Facebook, Instagram and Tik-tok. Marcomit is
an Israeli company specializing in digital branding for large enterprises including advanced branding materials for media and digital
advertising. The total consideration paid for these acquisitions amounted to approximately $3.5 million, or $2.8 million net of acquired
cash. As part of the purchase agreements, the sellers of Safra digital marketing and Marcomit may be entitled to additional future consideration
contingent upon meeting certain future operating profit targets. The fair value of such contingent considerations, as of the acquisition
dates amounted to $0.7 million. In addition, Zap and the minority shareholders of Safra digital marketing and Marcomit hold mutual call
and put options for the remaining 49% interest. The fair value of the put options measured on the acquisition date amounted to approximately
$4.0 million. For further information, please see Note 3(vi) to our consolidated financial statements included in Item 18 of this annual
report.
Acquisition
by Insync Staffing:
Acquisition
of Bear Staffing Services Corporation
. On December 12, 2022, Insync Staffing acquired all of the outstanding share capital of Bear
Staffing, a corporation duly organized under the laws of the State of Florida for a total consideration of $7.7 million (excluding $8.6
million of acquired cash) with $5.3 million paid in cash at closing with $0.6 million paid in March 2023 and deferred payments of $1.0
million and $0.9 million, respectively due on the first and second anniversary of the closing date. Bear Staffing Corporation is a staffing
agency providing talent for industries such as manufacturing, distribution, and call centers. Since its inception, Bear Staffing Corporation
has provided more than 50,000 employees to over 2,000 employers across the United States. Leveraging leading-edge recruiting technology
and their recruiting model, Bear Staffing has been able to find, attract, place, and retain talent for their clients nationwide. As a
staffing agency that specializes in high-volume industries and skill sets, Bear Staffing's objective is to provide targeted and
efficient staffing solutions to meet the specific needs of their clients. For further information, please see Note 3(vii) to our consolidated
financial statements included in Item 18 of this annual report.
B.
Business
    Overview
General
We
are a global information technology company that is principally engaged through our directly held investees in providing software consulting
services and computer-based business solutions, and in developing proprietary software products. We deliver our solutions in numerous
countries worldwide to customers with complex IT services needs, including a number of "Fortune 1000" companies.
We
provide our investees with our management, technical expertise and marketing experience to help them create a consecutive positive economic
impact and long-term value, and direct their overall strategy through our active involvement. We carry out those activities at the level
of our investees rather than at our parent company level. Following our transition to IFRS during 2016, we consolidate the results of
all of the entities in which Formula holds an equity interest, other than our equity investee TSG.
We
operate through our subsidiaries— Matrix, Sapiens, Magic Software, Michpal, Zap Group, InSync and Ofek Aerial Photography—
and through our equity investee TSG. We describe below the areas of our business activity:
IT
Services
We
design and implement IT solutions and software systems which improve the productivity of our customers' existing IT assets, enable
them to effectively manage their operations and reduce their business risks in the face of changing business environments. In delivering
our IT services, we at times use proprietary software developed by members of the Formula Group. We provide our IT services across the
full system development life cycle, including definition of business requirements, developing customized software, implementing software
and modifying it based on the customer's needs, system analysis, technical specifications, coding, testing, training, implementation
and maintenance. We perform our projects on-site or at our own facilities.
32
Proprietary
Software Solutions
We
design, develop and market proprietary software solutions for sale in selected niche markets worldwide. We regularly seek opportunities
to invest in or acquire companies with attractive proprietary software solutions under development which we believe to have market potential.
All of our investments and acquisitions in this area have been in companies with products beyond the prototype stage. In addition, from
time to time, we selectively invest in companies with proven technology where we believe we can leverage our experience to enhance product
positioning and increase market penetration. We provide our management and technical and financial expertise, marketing experience and
financial resources to help bring these products to market. We also assist the members of our group to form teaming agreements with strategic
partners to develop a presence in international markets and to raise debt and capital.
The
Formula Group
Formula
is the parent company of investees, which, as noted above, we refer to collectively (together with Formula) as the Formula Group. As
of December 31, 2022, we held 90.1% of the shares of InSync, an 80% interest in Ofek Aerial Photography, a 48.7% interest in Matrix,
a 44.1% interest in Sapiens, a 46.3% interest in Magic Software, a 50% interest in TSG through our equity holdings, and the entire share
capital of Michpal, Zap Group and Shamrad (acquired in 2022). We have effective control of each of the companies in the Formula Group
other than TSG for purposes of consolidation under IFRS 10. We provide to all of our investees our management, technical and financial
expertise, and our marketing experience, thereby asserting a positive economic impact upon, and creating long-term value for, our investees.
We
direct the overall strategy of our investees. While our investees each have independent management, we monitor their growth through our
active involvement in the following matters:
●
strategic
    planning;
●
marketing policies;
●
senior management recruitment;
●
investment and budget policy;
●
financing policies; and
●
support for the process
    of raising debt and capital.
We
promote the synergy and cooperation among our investees by encouraging the following:
●
transfer of technology
    and expertise;
●
leveling of human resources
    demand;
●
combining skills for specific
    projects;
●
formation of critical mass
    for large projects; and
●
marketing and selling the
    Formula Group's products and services to its collective customer base.
We,
through our investees, offer a wide range of integrated software solutions and IT professional services, such as implementation and integration
projects of computing and software, outsourcing, software project management, software development, IT managed services, operating a
network of high-tech training and instruction centers, providing software testing and QA, depending on specific needs of the customer
and depending on the subject expertise necessary on a case by case basis, and design, develop and market proprietary software solutions
for sale in selected niche markets, both in Israel and worldwide. Formula's Chief Executive Officer and Chief Financial Officer
serve as the Chief Executive Officer and Chief Financial Officer, respectively, of Magic Software as well, and Formula's Chief
Executive Officer also serves as Chairman of the Board of each of Sapiens and Matrix.
33
Our
Subsidiaries
Matrix
Matrix
IT Ltd. is Israel's leading IT services company as demonstrated in recent research reports of the Israeli IT market, published
by the research companies IDC and STKI. Matrix employs approximately 11,200 software, hardware, integration, engineering and training
personnel, which provide advanced IT services to hundreds of customers in the Israeli and the U.S markets. Matrix executes some
of the largest IT projects in Israel. It develops and implements leading technologies, software solutions and products. Matrix provides
infrastructure and consulting services, outsourcing, offshore, near-shore, training and assimilation services. Matrix represents and
markets leading software vendors. Among its customers are most of the leading Israeli organizations and companies in the industry, retail,
banking and finances, education and academe, Hi-tech and ISVs, telecom, defense, health and the government/public sectors. Matrix is
traded on the Tel Aviv Stock Exchange.
The
solutions, services and products supplied by Matrix are designed to improve Matrix's customers' competitive capabilities,
by providing a response to their unique IT needs in all levels of their operations.
Areas
of Operation
Matrix
operates through its directly and indirectly held subsidiaries in the following principal areas:
-
Information Technologies
    (IT) Software solutions and services, Consulting & Management in Israel.
-
Information Technologies
    (IT) Software solutions and services in the United States.
-
Computer and cloud infrastructure
    and integration solutions.
-
Software product marketing
    and support.
-
Training and integration.
Information
Technologies (IT) Software solutions and services, Consulting & Management in Israel
The
software solutions and services in Israel provided by Matrix IT consist mainly of providing tailored software solutions and upgrading
and expanding mainly existing large-scale software systems. These services include, among others, developing customized software, adapting
software to the customer's specific needs, implementing software and modifying it based on the customer's needs, outsourcing,
software project management, software testing and QA and integrating all or part of the above elements. Furthermore, the activity in
this segment includes project management consulting services and multi-disciplinary operational and engineering consulting services,
including supervision of complex engineering projects, all according to client specific needs as the scope of work invested in each element
varies from one customer to the other.
In 2022, under this line of
business Matrix recorded revenues of approximately NIS 2.435 billion (approximately $725.9 million) compared to NIS 2.361 billion (approximately
$731.4 million) in 2021, an increase of approximately 3.15% when measured in NIS. Operating income in 2022 was approximately NIS 179.1
million (approximately $53.4 million) compared to approximately NIS186.7 million (approximately $57.9 million) in 2021, a decrease of
approximately 4.1% when measured in NIS. In 2022, activity in software solutions and value-added services in Israel accounted for approximately
52% of Matrix's revenues and approximately 51% of its operating income. The increase in revenues alongside the decrease in operating
income were primarily attributable to the sale and deconsolidation of Infinity Labs R. & D. Ltd. concluded in April, 2022, which operations
were characterized by high operating margins relative to other operations included under this business segment and by organic growth recorded
across most all other revenue streams under this business segment which experienced increase in operating expenses that were managed to
be saved in 2021 during the COVID term (such as fuel and travel). Moreover, in 2022, Matrix completed through its subsidiaries Aviv, Dana
Engineering, and Programa a series of large projects, including projects in the fields of transportation, environment, logistics and logistics
warehouses, supply chains. Some of these projects should continue to produce additional revenues in the coming years. Excluding the negative
impact resulted from the deconsolidation of Infinity Labs, Matrix software solutions and services in Israel recorded organic growth of
approximately 7.8% in revenues (when measured in NIS) and approximately 7.4% in operating income (when measured in NIS).
34
Information
Technologies (IT) Software solutions and services in the United States
Matrix
IT's activities in this segment are performed by two lines of business – Matrix US Holdings and Xtivia. The two line of business
primarily provide software solutions and services of Governance Risk and Compliance ("GRC") experts, including activities
on the following topics: risk management, management and prevention of fraud, anti-money laundering, trade surveillance as well as, specialized
advisory services in the area of compliance with financial regulation and operational services, as well as solutions and specialized
technological services in areas such as: portals, BI (Business Intelligence) DBA (Data Base Administration), CRM (Customer Relation Management)
and EIM (Enterprise Information Management). Furthermore, the activity in this segment includes dedicated solutions for the GovCon Government
contracting market, IT help desk services specializing in healthcare and software product distribution services particularly IBM, BMC
and Atlassian products to customers in the public-government sector in the U.S.
In 2022, under this line of
business, Matrix recorded revenues of approximately NIS 434.3 million (approximately $129.4 million) compared to NIS 355.9 million (approximately
$110.3 million) in 2021, an increase of approximately 17% when measured in U.S dollar. Operating income in 2022 was approximately 60.2
million (approximately $17.9 million), compared to approximately NIS 37.7 million (approximately $11.7 million) in 2021, an increase of
approximately 54% when measured in U.S dollars. In 2022, the activity in the U.S. accounted for approximately 9% of Matrix IT's
revenues and approximately 17% of its operating income. In 2022, Matrix's operation in the United States showed significant growth,
with an increase of about 17% in revenues and a growth of over 54% in operating profit, which substantially improved Matrix's overall
operating margin. Matrix continued to collaborate in the United States with NICE Actimize in the field of providing artificial intelligence-based
solutions to prevent money laundering and financial fraud. Likewise, it expanded its customer base in the U.S. including through the additions
of Brinks and the Metropolitan Transportation Authority in New York as customers.
Computer
and cloud infrastructure and integration solutions
Matrix
IT's activities in this segment, is primarily providing computer solutions to computer and communications infrastructures, marketing
and sale of computers and peripheral equipment to business customers, providing related services, and cloud computing solutions (through
the business specializing unit of the Company - Cloud Zone) and a myriad of services and products regarding office automation and printing
solutions, representation of global leading manufacturers of test and measurement equipment, communication and cyber and RF solutions,
projects and integration in the field of automation, calibration services in advanced technologies, provision of industrial video and
image processing solutions as well as Database services and Big data services (through the specialized business unit Data zone).. Matrix
infrastructure and integration solutions include solutions of IBM, Oracle Red Hat, Dell-Boomi and others. In 2022, under this line of
business, Matrix recorded revenues of approximately NIS 1,346 million (approximately $401.1 million), compared to approximately NIS 1,210
million (approximately $374.9 million) in 2021, an increase of approximately 11% when measured in NIS. Operating income in 2022 was approximately
NIS 76.6 million (approximately $22.8 million), compared to approximately NIS 61.7 million (approximately $19.1 million), an increase
of approximately 24% when measured in NIS and in line with the increase in revenues. In 2022, activity in computer and cloud infrastructure
and integration solutions accounted for approximately 29% of Matrix's revenues and for approximately 22% of its operating income.
The increase in both revenues and operating income is mainly attributable to Matrix's continued cultivation of cloud computing
annual recurring revenues (ARR) and to the first-time consolidation of RDT Equipment and Systems (1993) Ltd., completed In June 2022.
Furthermore, in 2022, the Nimbus project was launched, designed to accelerate the adoption of cloud computing in the public sector in
Israel. The base tender of this project was won by Amazon and Google and in the follow-up tender for the implementation of the project,
Matrix was chosen among other service providers.
Software
product marketing and support
Matrix
IT's activities in this segment include marketing, distributing and support for various software products, web world content management,
database and data warehouse mining, application integration, database and systems, data management and software development tools. In
2022, under this line of business, Matrix recorded revenues of approximately NIS 249.9 million (approximately $74.5 million) compared
to approximately NIS 258 million (approximately $79.9 million) in 2021, a decrease of approximately 3% when measured in NIS. Operating
income in 2022 was approximately NIS 15.7 million (approximately $4.7 million), compared to approximately NIS 25.3 million (approximately
$7.8 million) in 2021. In 2022, activity in software product marketing and support accounted for approximately 5% of Matrix's revenues
and approximately 5% of its operating income. The decrease in both revenues and operating income were primarily attributable to the decrease
in margins which characterized the trend in this business segment and to the transition to subscription based selling model.
35
Training
and integration
Matrix's
activities in this area consist of operating a network of training centers which provide advances courses for high-tech professionals,
courses for developers and professional training, and soft skills and management training, and providing training and instructions with
respect to computer systems. In recent years Matrix has also started outsourcing IT services based on graduates from its courses. In
2022, under this line of business, Matrix recorded revenues of approximately NIS 207.6 million (approximately $61.9 million), compared
to approximately NIS 174.9 million (approximately $54.2 million) in 2021, an increase of approximately 19% year over year when measured
in NIS. Operating income in 2022 was approximately NIS 18.9 million (approximately $5.6 million), compared to approximately NIS 17.9
million (approximately $5.5 million) in 2021, an increase of approximately 6% year over year, in line with the increase in revenues.
In 2022, activity in training and integration accounted for approximately 5% of Matrix's revenues and for approximately 5% of its
operating income.
Matrix
provides solutions, services and products primarily to the following market sectors (or verticals): banking and finance, high-tech and
startups, industry and retail, government and the public sector, defense, transportation, healthcare, and education and academia.
Matrix
offers to each market sector a broad range of solutions and services, customized for the specific needs of that sector. Matrix operates
dedicated departments, each of which specializes in a particular sector. Each such department supplies customers in that sector with
a products and services offering providing a response to most of its IT requirements, based on an in-depth business understanding of
the challenges which are typical to that sector. Matrix established a separate division for each particular market sector, which manages
the operations relating to that sector.
Specialization
in the various sectors is reflected in the applications, professional and marketing aspects of each sector. Accordingly, the professional
and marketing infrastructure required to support each market sector is developed to address such sector's specific needs.
In
addition to the five sector-based areas of operations, Matrix operates three horizontal divisions providing specialist services for all
of the different sectors of operations as follows:
●
Expertise centers –
    Matrix operates approximately 20 "expertise centers" ("Centers of Excellence"), in areas such as: Cloud Computing,
    Internet of Things (IOT), Digital, User Experience, Mobility (Mobile Technology), Analytical BI and Big Data, DevOps, Service Oriented
    Architecture (SOA), Customer Relations Management (CRM), Enterprise Resource Planning (ERP), eXtended Relationship Management (XRM),
    Open Source, Security & Cyber, Machine Learning and Artificial Intelligence. These expertise centers are based on business vertical
    concept, which is targeted to yield significant added value to the company's customers, including: group of professionals that
    are focused and have expertise in the related technologies, hands-on experience and expertise in the related technologies, methodologies,
    and best practices; and strategic management consulting center that provides customers with diverse consultation services on topics
    such as organization, strategy, complex project management in areas such as environmental planning, transportation and chain of supply,
    business development and technological development.
●
Matrix Global - Quality
    assurance and related professional services under an offshore/"nearshore" model.
●
Management/engineering
    consulting services - Comprehensive management and engineering consulting services, from the stage of adoption of strategy through
    the stages of implementation and effecting of changes, including project management of complex projects, including engineering projects,
    engineering supervisory projects of a wide scope, and projects in the fields of planning and environmental, and transportation, as
    well as multiple-field engineering advisory services and advisory and implementation in the field of management of supply chain and
    management of operational logistics.
36
In
the context of its offshore/"nearshore" activities, Matrix conducts IT-related activities, including content development,
quality assurance, maintenance, customer call center services indexing and related activities that are performed in a specific region
or country where such activities can be conducted most inexpensively. Matrix offers its enterprise customers these types of solutions,
whether via its "nearshore" Talpiot project, via its offshore solutions that are based on its development centers in Bulgaria
and Macedonia or via back-office and call center services through Babcom Centers Ltd. (a company located in the Galilee, housing thousands
of educated and skillful men and women interested in developing a career near their homes). Periods of economic cautiousness (such as
the present time) provide an added incentive for these types of inexpensive economic solutions. This trend is likely to expand Matrix's
operations in these areas in the context of its "Matrix Global" activities.
Matrix's
customers include large and medium size enterprises in Israel, including commercial banks, loan and mortgage banks, telecommunications
services providers, cellular operators, credit card companies, leasing companies, insurance companies, security agencies, hi-tech companies
and startups, the Israeli Defense Forces and government ministries and public agencies and media and publishing entities. The majority
of Matrix's customers in the software solutions and value-added services business segment in Israel have a business relationship
with it for more than ten years. The COVID-19 pandemic, its extended duration and its economic impact, have adversely affected the Israeli
and global economy and consequently also negatively impacted the demand for IT services. However, recovery from the pandemic (due primarily
to the proliferation of vaccines in the last year) led, in 2021, to a restored and even increased level of demand compared to pre-pandemic
levels in most of our operations. In addition, while based on statistics cited by Gartner, a leading global research and advisory company,
global IT spending was expected to grow by 5%-6% in 2021, it actually grew by over 9%, and was expected to continue and grow by 5.1%
in 2022 (see https://www.gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five- point-1-percent-in-2022,
which is not incorporated by reference into this annual report). In practice, due to global events, including the war in Ukraine, the
closures in China and their effect on global economy, IT global activity in 2022 was weaker than the forecasts and in practice 2022 ended
(at the global level, according to Gartner's estimate) with a decrease of about 0.2% (see https://www.gartner.com/en/newsroom/press-releases/2023-01-18-gartner-forecasts-worldwide-it-spending-to-grow-2-percent-in-2023,
which is not incorporated by reference into this annual report). Neutralizing exchange rate fluctuations impact, 2022 ended with a slight
increase of about 0.8%, and the year 2023 is expected to benefit from an increase of only 2.4%. In the analysis of the market according
to Gartner, a significant part of the decrease in growth compared to prior years is due to a very sharp decrease in investments in end
point devices (workstations, cellular devices), which reached a decrease of about 10.6% compared to 2021. When you neutralize the decrease
of the end points devices then it is an increase of about 2.3%, that is: less than half of the forecast. According to Forrester (see
https://www.forrester.com/report/european-tech-market-outlook-by-country-2021-to-2022/RES176894?ref_search=1051634_1645482187974, which
is not incorporated by reference into this annual report), global IT expenses increased in 2022 by approximately 0.3% (compared to a
forecast of approximately 6.7%) and are expected to increase in 2023 by approximately 4.7%.
With
the exception of the Software product marketing and support , all other operating segments of Matrix showed significant improvement in
2022 compared to 2021. This included activities such as cloud services, information security, as well as projects in the fields of health,
digital, cyber and command and control. Over the course of 2022, Matrix launched several large projects, including the transfer of Discount
Bank to a smart campus, and a project to establish an innovative database for the Israel Central Bureau of Statistics. Matrix also assumed
the responsibility for the management of the technology and infrastructure of the National Police College, including the upgrade and
replacement of most of the ICT and cyber systems, while also providing advanced technology services to all departments of the college.
The
training and implementation sector, which was directly and materially affected by COVID-19 government restrictions in 2020, benefited
from the transition to a hybrid training model in 2021 and in 2022, which allowed it to improve its productivity and offer flexibility
via videotaped courses. The hybrid learning model developed by Matrix opened up many possibilities for growth with the ability to transfer
courses to participants from all over the country, and also in the future, transfer courses abroad. In addition, Matrix developed self-learning
training systems in the technological field that are sold to private and corporate customers.
Currently,
almost all of Matrix's 11,200 employees work in a usual manner, including in an hybrid work model which combines work from home
with work at the office, while at the same time Matrix is working to reduce real estate occupancy and save on operating costs.
37
The
market activity, the economic atmosphere both in Israel and worldwide, the unemployment level, government actions and the concern related
to global and/or local recession may all still adverse impact the Matrix results pf operations to the extent that they materialize, in
whole or in part.
Matrix
management regularly and closely continue to monitor the economic developments in Matrix business levels and act accordingly. Matrix
management estimate that these processes may have a mixed impact over Matrix operations, the exact scope of which cannot be estimated
at this date.
Sapiens
Overview
Sapiens
is a leading global provider of software solutions for the insurance industry. Sapiens' extensive expertise is reflected in its
innovative software, solutions and professional services for property & casualty (P&C); reinsurance; life, pension & annuity
(L&A); workers' compensation (WC); medical professional liability (MPL); financial& compliance (F&C); and decision
modelling for both insurance and financial markets. Sapiens offers an end to end solutions for insurers core, data & analytics and
digital operations, as well as stand-alone solutions which help them optimize and maximize their current investment. Importantly Sapiens'
wide array of professional services ensures that it not only makes a sale but accompany and guide its customers on their path to digital
transformation.
In
2022, Sapiens continued the trend of growth, albeit at a more moderate pace than in 2021, as it continued to build upon its existing
business, including the three main acquisitions that it had carried out in 2020, and focused upon investing significantly in its solutions
over the course of the year.
Sapiens
supplies decision management solutions tailored to a variety of financial services providers, so that business users across verticals
can quickly deploy business logic and comply with policies and regulations throughout their organizations.
Sapiens'
platforms possess modern, modular architecture and are digital-driven, providing full coverage for all business aspects of policy management,
digital engagement and data analysis. They empower customers to respond to the rapidly changing insurance market and frequent regulatory
changes, while improving the efficiency of their core operations. These process enhancements increase revenue and reduce costs.
Overview
of Sapiens Software Solutions
Sapiens'
software portfolio is comprised of:
●
Property & Casualty
– a comprehensive software platform and solutions supporting a broad range of business lines, including personal, commercial,
    MPL and specialty lines, as well as reinsurance and workers' compensation (see below). Our core solutions are pre-integrated
    with our DigitalSuite, analytics and decision modeling solutions, all of which are also available stand-alone. Sapiens' portfolio
    includes Sapiens Cloud-first Platform for Property & Casualty, which is comprised of a commonly shared Data and Digital solutions
    and two core suites: Sapiens CoreSuite for Property & Casualty (for North America) and Sapiens IDITSuite for Property & Casualty
    (for EMEA and APAC). We provide a flexible proposition where Insurers can choose between deploying our full core suite or one or
    more of our standalone components: policy, billing and claims.
●
Life, Pension &
    Annuities
– a comprehensive, cloud-based, digital software platform, suite and complementary solutions for the management
    of a diversified range of products for life, pension & annuities. Our core solutions are pre-integrated with our DigitalSuite,
    analytics and decision modeling solutions, all of which are also available stand alone. Our portfolio includes Sapiens Platform for
    Life, Pension & Annuities, Sapiens CoreSuite for Life, Pension & Annuities; Sapiens UnderwritingPro for Life & Annuities;
    Sapiens ApplicationPro for Life & Annuities; Sapiens IllustrationPro for Life & Annuities; and Sapiens ConsolidationMaster
    for Life & Pension.
38
Digital
– Sapiens Cloud-based DigitalSuite enables insurers to incorporate a fully digital experience for customers, agents and
    employers, enhancing insurers' engagement with customers, enhancing their end-consumers' experience and fostering a rapid
    time to market for new digital initiatives. Sapiens Digital Suite is pre-integrated as part of Sapiens' comprehensive platforms
    or can be deployed stand-alone on top of any 3
rd
party core solution already in place. Comprised of innovative digital
    modules and content libraries to facilitate diverse customer journeys, DigitalSuite includes: low-code/no code Journey Composer,
    insurance-driven API Layer, and portal solutions for customers, agents and employers. Sapiens have also added an AI driven chat-bot
    solution (BotConnect) which knows to hand off to a live agent (LiveConnect) to facilitate omnichannel communications.
Cloud-based
– Sapiens' solutions are running and deployed in public clouds of the leading global cloud vendors, providing our
    customers with them inherent benefits of a modern cloud-based application.
●
Data and Analytics
– together with Sapiens' digital offering, Sapiens offers an advanced data and analytics platform, which includes: an
    analytics platform that drives analytics adoption across the organization with compelling, insightful dashboards and apps; a comprehensive
    BI solution with pre-configured reports, dashboards and scorecards; predictive analytics, which uses AI and Machine Learning to generate
    actionable insights based on different models across the insurance value chain.
●
Reinsurance –
a market-leading complete reinsurance software solutions for full financial control and auditing support. Sapiens' portfolio
    includes: Sapiens ReinsuranceMaster, Sapiens ReinsurancePro and Sapiens Reinsurance GO, providing solutions to various sizes of insurance
    companies.
●
Workers' Compensation
    –
Sapiens workers' compensation offerings handle comprehensive policy/billing and claims needs. Sapiens solution
    portfolio Sapiens CoreSuite for Workers' Compensation and Sapiens GO for Workers' Compensation, that can be deployed
    as a full suite or in a modular manner (policy / billing / claims), and is pre-integrated with Sapiens' DigitalSuite and its
    Analytics solutions.
●
Medical
    Professional Liability
("MPL") – Sapiens MPL offering provides a complete end-to-end solution for managing
    the insurance processes for the medical malpractice market, including policy management, billing and claims, all adjusted to the
    unique characteristics of this specific market. The Sapiens Digital and Data platforms are also pre-integrated to the MPL core solution
    and thus providing additional value add and benefits to Sapiens MPL customer base.
●
Financial & Compliance
– Sapiens offers financial & compliance solutions comprised of both annual statement and insurance accounting software.
    This software includes Sapiens FinancialPro, Sapiens Financial GO, Sapiens StatementPro, Sapiens CheckPro and Sapiens Reporting Tools.
●
Decision Management
– Sapiens Decision is an enterprise-scale platform that enables institutions and "citizen developers" across
    verticals to centrally author, store and manage all organizational business logic. Organizations use it to track, verify and ensure
    that every decision is based on the most up-to-date rules and policies. Our Decision management products are offered across verticals
    (including commercial banking, investment banking, mortgage banking, insurance – for both P&C and life, government, etc.).
●
Technology-Based
–
    tailor-made solutions (unrelated to the insurance or financial services market) based on Sapiens eMerge platform, which provides
    end-to-end, modular business solutions, ensuring rapid time to market.
39
Sapiens'
Marketplace and its Needs
Sapiens'
Target Markets
Sapiens
operates in a large market undergoing significant transformation.
According
to the Gartner report, "Forecast: Enterprise IT Spending for the Insurance Market, Worldwide, 2019-2025, 2Q21Update" (a market
statistics research report by Gartner, a research and consulting firm, written by Rajesh Narayan, James Ingham, Inna Agamirzian, Rika
Narisawa and Gregor Petri that was published on July 2021 , and includes internal services, IT services, software, telecom services,
devices, and data centers systems, which we refer to herein as the "Gartner report"), Gartner forecasted global insurance
market IT spending to grow by 7.3% in 2022 and to reach nearly $250 billion in U.S. dollars. This industry is predicted to reach $311
billion by 2025, growing at a 7.5% compound annual growth rate (CAGR) from 2020 through 2025. This growth will be driven by an increase
in IT services spending and software spending at CAGRs of 9.2% and 12.3%, respectively, according to the Gartner Report. Gartner forecasts
total insurance IT spending on software in 2022 will be $63.8 billion (software includes application software (analytics and business
intelligence; back office/ERP and supply chain; front office/CRM; collaboration), infrastructure software (application development and
middleware; information management; storage management software; and system and network management), and vertical industry-specific applications.
Gartner forecasts global IT spending in insurance will increase by 7.8% in 2023 to reach $207.7 billion in constant U.S. dollars. From
2021 to 2026, the spending is forecast to grow at a CAGR of 8.1%, driven by the growth in IT services and software at a CAGR of 9.7%
and 12.4%, respectively. Total insurance IT spending on software in 2023 will be $52.9 billion.
Sapiens
estimates that its current total addressable market for core insurance software solutions and the accompanied point solutions and the
corresponding part of IT services is approximately $40 billion, which it expects will grow as a result of insurance carriers' and
financial institutions' need to better address customers needs, via moderning software solutions from external providers, to overcome
operational challenges presented by the inefficiency of their legacy core.
The
insurance market is a large, complex and highly regulated environment. Insurance carriers operate in a super-competitive and quickly
evolving ecosystem, which necessitates differentiating their value propositions. Additionally, providers operate under a rigid regulatory
regime that demands fast compliance. The insurance market is going through a rapid evolution process, driven by needs and demands of
their customers, complex and evolving ecosystems, digital distribution channels and new business models, all enabled by new technologies.
To
efficiently manage their operations, insurance carriers require IT platforms that enable rapid introduction of changes via configurable,
user-driven activities, integration with internal and external systems, control and auditing of employees' work, support for omni-channel
distribution and clear visibility into the carrier's business operations, through streamlining and intelligent usage of data.
To
compete in the rapidly changing environment, and win the competition for end customers, insurance carriers require a coherent digital
proposition, allowing them to better interact with their customers in a digital and omni-channel manner. They are increasingly using
robotics, predictive analytics, AI and machine learning to automate processes and obtain stronger business insights. The cloud can also
be utilized for improved operations and scale.
Insurance
carriers are experiencing substantial operational challenges due to the inefficiency of their legacy policy administration systems and
their lack of digitalization. These legacy systems, which include both technical and functional limitations, acutely impact carriers'
ability to cope with growing challenges, such as the need for innovation, the shift of power to the consumer, and the dynamic and constantly
changing regulatory environment.
40
Property
& Casualty Market
Property
& casualty insurance protects policyholders against a range of losses on items of value. P&C insurance includes the
personal
segment
, which is insurance coverage for individuals, with products such as motor, home, personal property and travel; the
commercial
segment
, covering aspects of commercial activity, such as commercial property, car fleets, cyber and professional liability; and
specialty lines
, covering unique domains, such as marine, art and credit insurance. This market also includes workers' compensation
for market carriers, administrators and state funds, and Medical Professional Liability for health care professionals.
During
the past few years, the P&C market has been characterized by a fast rate of digital adoption. New business and technology models
are adopted rapidly, to launch innovative business offerings. This requires advanced software solutions, both on the core layer, which
needs to be flexible and open, and with the variety of digital tools addressing customer experience needs.
Life,
Pension & Annuity Markets
Life,
pension & annuity providers offer their customers a wide range of products for long-term savings, protection, pension and insurance.
They assist policyholders with financial planning through life insurance, medical and investment products. Their products can be classified
into several areas, primarily investment and savings, risk and protection, pension and health-related products. These products can be
targeted to individuals, as well as group- and employee-benefit types of products.
The
products in this field are long-term in nature. When insurance providers consider purchasing new platforms from Sapiens, the decision
is typically slower and involves multiple decision-makers throughout the organization.
Reinsurance
Market
Reinsurance
is insurance that is purchased by an insurance company (ceded reinsurance) from another insurance company (assumed reinsurance) as a
means of risk management. The reinsurer and the insurer enter into a reinsurance agreement, which details the conditions upon which the
reinsurer would pay the insurer's losses. The reinsurer is paid a reinsurance premium by the insurer and the insurer issues insurance
policies to its own policyholders. The insurer must maintain an accurate system of records to track its reinsurance contracts and treaties,
to avoid claims leakage.
Workers'
Compensation
Workers'
compensation is one of the largest lines of business in the P&C industry in North America. But future profitability is getting harder
to maintain, with medical and indemnity costs per lost time claim increasing at rates greater than inflation. Insurance organizations
require technology solutions that can adapt quickly to business and market conditions, offering high levels of accuracy and efficiency.
Financial
& Compliance Market
Financial
professionals face overwhelming challenges as they struggle to satisfy ever-changing regulatory requirements, while meeting the demands
of managerial reporting. The move towards globalization has introduced new currencies, and CEOs need more performance data for strategic
decision-making. Organizations require one partner to optimize efficiencies with solutions that can be implemented quickly.
41
Decision
Management Market
Increasing
competition, regulatory burden, customer experience expectations and the proliferation of digital and product innovation requirements
have necessitated a shift in thinking and approach among organizations across verticals. By replacing conventional policy and process
management with the discipline known as "decision management," financial institutions are bridging the gap between business
and IT, by enabling business users to rapidly frame requirements in formal business models that can be easily understood by all stakeholders.
The
decision management processes affect overall corporate performance, including its impact on customers and competitors. Decision management
systems are a key performance component of every financial services organization, as they help the organization define, avoid and hedge
financial risk.
Sapiens'
Market Drivers
Large
insurance and financial organizations must constantly invest in their IT systems to respond to key market drivers. They require the ability
to:
●
Satisfy today's sophisticated,
    tech-savvy and demanding end-customers – who demand the type of instant, personalized service they enjoy from Netflix or Amazon
    – via digitalization and innovative initiatives, providing a stronger customer experience and engagement.
●
Facilitate, improve and
    automate traditional insurance processes to make them easier for end-customers, by utilizing advanced technologies, such as digital
    engagement, mobile, artificial intelligence (AI) machine learning, and cloud computing.
●
Provide innovative business
    models, based on technology capabilities and digital operation (such as portals, web-based acquisition processes, advanced analytics,
    customer engagement platforms and data sources – including wearables, the Internet of Things and robo-advice).
●
Respond to complex and
    evolving regulatory standards (past and current standards include Solvency II, IFRS 17, Dodd-Frank legislation, GDPR, etc.)
●
Support internal customers'
    growth and operations. This includes reducing the time to market of new products, expanding into new geographies, reducing costs
    and streamlining operations.
●
Rapidly
    launch new products and propositions to the market, within a short timeframe and using existing, pre-defined capabilities.
●
Improve operational efficiency
    and focus on reducing operating costs and improving the total cost of ownership, focusing on automation, AI and data-driven processes
    to achieve that.
Sapiens'
Market Requirements
As
a result of the above, we believe the following are key considerations for insurance carriers that are considering upgrading their legacy
systems:
●
Dynamic business environment
    with constantly changing regulations
– insurance carriers still use outdated legacy systems that are costly and time-consuming
    to modify or upgrade. This has prevented them from innovating and growing. Carriers who use legacy systems may find it difficult
    to modify existing products, introduce new products and reach untapped market segments. Frequently changing global regulatory requirements
    necessitate specialized data and business rules, which makes change implementation particularly challenging.
●
Change in end-consumers'
    behavior and the shift of power to consumers
– insurance carriers must rapidly adapt to the shifting needs and behaviors
    of consumers, including the types and terms of insurance products offered, and how consumers access information. Insurance providers
    require systems with integration capability and support for multi-channel distribution, so they can reach their clients' customers
    and partners using multiple methods, including social media, across devices.
42
●
A need to improve operational
    efficiency and reduce total cost of ownership
– Sapiens believes that a significant percentage of insurance carriers are
    still using inefficient and outdated processes that do not automate operations and workflows, and thus do not offer efficient process
    management. Many of these processes likely have high error rates. Additionally, the ongoing maintenance of legacy systems is expensive
    and technically difficult. A specialized IT staff with the requisite skills and experience needed to maintain these systems is difficult
    to find and then eventually replace. Insurers seek systems that are modern, digital, automated, efficient and easy to maintain, and
    can lower costs over the long term.
●
Increasing global and
    multi-national operation
– a rising number of insurers are accelerating their growth initiatives through global acquisitions.
    These insurers seek a single provider who can deliver solutions that will be used across markets, combining the support of local
    regulatory requirements and specific customer needs, while driving a generic corporate business approach and strategy across the
    globe, reducing costs and overhead.
●
Exploring new business
    models and innovative propositions
– carriers are increasingly looking to: join innovative ecosystems; adopt and use new
    technologies, and partner with insurtechs; bring modern and differentiating propositions to the market; reduce cost; enhance and
    speed customer engagement; and improve their business parameters and KPIs.
●
Going digital and shifting
    to Cloud
– digitalization holds significant potential for insurers, but only if they manage to efficiently digitalize their
    operations, support multi-channel distribution and ensure that agents and customers are able to access real-time, accurate data at
    any time and from anywhere – across devices. Same is true for Cloud transition, where more insurers are moving their IT systems
    to be managed in the Cloud.
Business
Decision Management Market Needs
Many
large organizations, particularly in the financial services market, must comply with complex regulations. They operate in highly competitive
markets that require quick responses. Business logic drives most of the financial services transactions and is the backbone of an organization's
policies and strategies, and its ability to successfully operate.
To
achieve efficiency, business owners must assume ownership of the business logic and possess the ability to define, modify, standardize
and reuse it across the organization. Business logic is defined today by business owners and compliance officers, but IT departments
translate the requirements into code. This process raises several key challenges: 1) the result does not always accurately reflect the
business requirements; 2) the new requirements might conflict with, or override, previous requirements; 3) the changes can take a long
time and, 4) the entire process is not fully audited. These gaps often create an inefficient and risk-exposed organization.
Sapiens'
Software Offerings
Sapiens'
offerings not only enable our customers to effectively manage their core business functions – including policy administration,
claims and billing – they support insurers on their path to digital transformation. Sapiens' portfolio also provides a variety
of complimentary solutions for critical requirements such as reinsurance management, underwriting management, illustration software,
electronic applications and financial compliance tools. The latest versions of Sapiens' platforms possess modern, modular cloud-first
architecture and are digital-driven, providing full coverage for all business aspects of policy management, digital engagement and data
analysis. They empower customers to respond to the rapidly changing insurance market and frequent regulatory changes, while improving
the efficiency of their core operations. These enhancements increase revenue and reduce costs.
Sapiens
provides a comprehensive digital & analytics suite, which is pre-integrated in Sapiens core solutions, across P&C, L&A and
WC business, but also available stand-alone to insurers whether they utilize our core solutions or not. Sapiens DigitalSuite provides
a strong customer engagement and experience capabilities through a wide range of connectivity tools such as portals, chatbots, live-chats
and low-code/no-code digital business processes builders, are allowing insurance companies to rapidly go to mart with new propositions,
and to manage a data-driven operation.
43
Sapiens
offers its insurance customers a range of packaged software solutions that are:
●
Digital-led
–
    revealing their history and anticipating their future needs, while facilitating easy engagement across preferred interaction channels
    and multiple devices.
●
Cloud-based -
our
    solutions are running and deployed in public clouds of the leading global cloud vendors, providing our customers with the inherent
    benefits of a modern cloud-based application
.
●
Data-driven
–
    based on set of data analysis tools, from data-warehouse and reporting, through business intelligence and analytics, to predictive
    and advanced analytics – so our customers can become a data-driven operation.
●
Highly automated
–
    by using various technologies, from decision to robotics, we improve efficiency and offer agile customer engagement.
●
Comprehensive and proven
–
    support for insurance standards, regulations and processes, by providing field-proven functionality and best practices.
●
Configurable and rich
    functionality
–easily matches our customers' specific business requirements. Our flexible architecture and configurable
    structure allow quick functionality augmentation that permits our platform to be used across different markets, unique business requirements
    and regulatory regimes. We utilize our knowledge and extensive insurance best practices and feature business-led configuration, thus
    enabling a rapid adaptation of our solutions using smart configuration tools and no-code/low-code approach.
●
Open architecture and
    insurtech ecosystem
– provides easy integration to any external application under any technology, allowing streamlined
    connectivity to all satellite applications. This enhances the digital experience and omni-channel distribution, while maintaining
    total platform independence and system reliability. Easy interaction with various insurtech companies providing point-solutions that
    can be consumed by our platforms is enabled.
●
Component-based and
    scalable
– allows our customers to deploy platforms and solutions in a phased and modular approach, reducing risk and harm
    to the business, while supporting the growth plans and cost efficiency of the organization.
Sapiens'
packaged software solutions enable:
●
Rapid deployment of
    new insurance products
– via configurable software and using pre-defined templates, which create a competitive advantage
    in all the insurance markets we serve.
●
Improvement of operational
    efficiency and reduction of risk
– full insurance process automation, with configurable workflows, audit and control, streamlined
    insurance practices, and simple integration and maintenance.
●
Reduction of overhead
    for IT maintenance
– easy-to-integrate and simple-to-configure solutions with flexible and modern architecture, resulting
    in lower costs for ongoing maintenance, modifications, additions and integration.
●
Enhanced omni-channel
    distribution, communication and focus on the customers
– event-driven architecture, a proactive client management approach,
    rapid access to all levels of data, and a holistic view of clients and distributors.
●
Cloud-first as a preferred
    deployment model
– with the flexibility to also provide an on-premise deployment.
44
●
Support for digitalization
–insurers and financial services institutions who manage to efficiently digitalize their operations, support omni-channel
    distribution and ensure that agents and customers are able to access real-time, accurate data at any time and from anywhere –
    including tablets and mobile devices – will unlock massive potential.
●
Cloud services
–
    offering our customers access to a long-term engagement by providing comprehensive support for their daily IT operations, while allowing
    them to focus on their business KPIs.
Sapiens
Property & Casualty Solutions
Sapiens
Platform for Property & Casualty
The
Sapiens Platform for Property & Casualty is an end-to-end, cloud-based platform with advanced digital and analytics capabilities.
It can be implemented as a pre-integrated platform, or as standalone modules. The platform addresses all P&C carrier needs across
all lines of business and distribution channels, offering a wealth of digital features. It is comprised of core (policy, billing and
claims), data (advanced analytics) and digital (a full suite) solutions.
The
cloud-based Sapiens DigitalSuite offers an end-to-end, holistic and seamless digital experience for P&C customers, agents, brokers,
customer groups and third-party service providers. The suite is pre-integrated with Sapiens' P&C core and is comprised of digital
engagement and digital enablement components.
Sapiens
Suites for Property and Casualty are tailored by region: North America versus EMEA & Rest of World.
North
America
Sapiens
CoreSuite for Property & Casualty
Sapiens
CoreSuite for Property & Casualty is comprised of three fully integrated, core components that can also be deployed stand-alone:
Sapiens PolicyPro, Sapiens BillingPro and Sapiens ClaimsPro. CoreSuite is pre-integrated with additional components that can be selected,
including business intelligence, reinsurance and digital solutions, as well as various interfaces. This modular, automated, highly customizable
suite offers a single platform for personal, commercial and specialty lines of business (LoBs). This increases organizational efficiency by
reducing manual effort, generates competitive advantages and saves costs.
Sapiens
PolicyPro
The
Sapiens' PolicyPro solutions for property & casualty come pre-integrated with the core system. They are easily integrated with
existing and external systems and applications. The solutions manage the end-to-end policy administration lifecycle of an insurance contract,
from initial quote, through rating and policy issuance. They also feature a complete range of policy issuance and amendment capabilities.
Agents, underwriters and customers use the solutions to quote, issue and administer policies. The offerings provide comprehensive policy
lifecycle support for all P&C lines of business.
Sapiens
BillingPro
The
Sapiens' billingPro solution for P&C enables carriers, MGAs and brokers to manage the full lifecycle of premium services, taxes
and fees, along with commission billing, collection and disbursements. P&C carriers can integrate with third-party systems and data
repositories, enjoy best-in-class usability and automate processes throughout the billing lifecycle.
45
Sapiens
ClaimsPro
Sapiens'
claims solutions for property & casualty provide simplified management and automated control of claims management handling and the
settlement process. They offer intelligent, rules-driven workflow with effective claim assignment, ensuring faster cycle times, as well
as rules-driven automatic claims payment.
EMEA
and Rest of World
Sapiens
IDITSuite for Non-life/General/Short Term Insurance
The
Sapiens IDITSuite for Property & Casualty is a cloud-based, component-based, standalone software solution suite that offers policy,
billing and claims and forms the core of the Sapiens Platform for Property & Casualty. IDITSuite supports all end-to-end core operations
and processes for the non-life P&C market from inception, to renewal and claims. This pre-integrated, fully digital suite offers
customer and agent portals, business intelligence and more. IDITSuite enables insurers to expand their offerings by testing new lines
of business, products and services using our flexible product factory.
The
suite is modular and can integrate with your ecosystem's components. Sapiens IDITSuite for Property & Casualty includes multiple
lines of business in one policy for multiple insured objects and assets. It can support corporate agreements and master policy structures.
IDITSuite is designed with growth and change in mind, with extensive multi-company, multi-branding, multi-country, multi-currency and
multi-lingual capabilities. The IDITSuite management system is built on open technology and can be used across devices.
Also
available in different parts of the world:
Diana
Solution for Property & Casualty (Spain)
The
Diana solution for Property & Casualty tailored for the Iberian market, empowers insurance companies with a product engine, as well
as policy, billing, claims and reinsurance capabilities. A fourth-generation solution Diana supports all core operations and processes
for the P&C market, and supports bank assurance, brokers and direct insurance. The suite is modular, flexible and customizable through
module workshops. Diana ecosystem is being enhanced through new features in micro services technology, like group policy management and
injury agreements. In 2022, Sapiens signed an agreement with Toyota Insurance Management Spain (Toyota Seguros) with the aim of transforming
and modernizing its business. As such, Toyota's insurer will be implementing Sapiens DianaSuite to manage the core of its insurance
offering.
Fully
digital SCIP Core (DACH)
SCIP
CORE is a flexible, high-performance, cloud-capable and easily extensible inventory management platform. It offers all essential processes
for efficient contract and claims processing and can be flexibly configured and extended in a few weeks. SCIP CORE digitally enables
end customers, agents, claim handlers by using extensive self-services in different interfaces and portals.
Tia
Enterprise (Nordics)
46
Tia
Enterprise (which we have or will rename Sapiens Denmark) is a component-based, software solution suite that offers policy, billing and
claims. Tia Enterprise can be hosted on-prem or in the cloud and can be extended through an API layer to incorporate ecosystem solutions
as well as a digital communications and enablement layer and advanced analytics/BI. Tia Enterprise supports all end-to-end core operations
and processes for the non-life market from inception, to renewal and claims.
OASIS
for MPL
OASIS
is a fully integrated collection of components designed to embed core functionalities required in the MPL sector, including: underwriting,
policy management, claims management, financial management, BI and predictive analytics. The component-based platform delivers maximum
out of the box functionality and stationing which ensures OASIS can easily integrate within a legacy environment.
Sapiens
Life, Pension & Annuity Solutions
Sapiens
Platform for Life, Pension & Annuities
The
Sapiens Platform for Life, Pension & Annuities is a modern, digital insurance platform that includes core, data and digital solutions.
With the ability to deploy its offerings as a complete platform, or as standalone modules, Sapiens can address life providers'
needs across all their lines of business and distribution channels. Our mature platform is cloud and API-based, and features a strong
core and advanced analytics, as well as data enablement and full digital engagement capabilities.
Sapiens
CoreSuite for Life, Pension & Annuities
Sapiens
CoreSuite for Life, Pension & Annuities is designed to provide excellence in the administration of insurance business, facilitate
digital transformation and fast time-to-value for digital strategies, and create greater efficiency via legacy consolidation. It offers
insurers:
●
A single platform for individual
    and group business
●
Transformation, enablement
    and execution for digital strategies
●
Greater efficiency via
    improved automation, user experience and system consolidation
Sapiens
CoreSuite for Life, Pension & Annuities suite supports the end-to-end administration of group and individual life, annuities, pension
and investment business ‒ in a single system. The suite offers a 360-degree view of the customer from their policy administration
system, across all distribution channels and communication streams.
Many
insurers still use systems developed decades ago that cannot support today's regulatory changes, digital marketplace and demanding
customers. Too many manual processes can lead to errors that impact customer experience. Our unique conversion approach reduces the risks
involved in migrating from existing legacy systems.
Complimentary
modules are available in North America:
Sapiens
UnderwritingPro for Life & Annuities
Sapiens
UnderwritingPro for Life, Pension & Annuities is a web-based solution for automated underwriting and new business case management
that is part of Sapiens' solution set for life insurers. It speeds new business processes for insurance carriers and their
channels, offering an intuitive user interface with critical updates and task assignments provided on a real-time dashboard. Sapiens
UnderwritingPro enables underwriters and case managers to work on multiple cases simultaneously.
47
Sapiens
ApplicationPro for Life & Annuities
Sapiens
ApplicationPro for Life & Annuities is a digital insurance application software that helps carriers address critical business drivers,
such as decreasing time-to-issue and reducing policy acquisition costs, all in an extremely intuitive and easy-to-use package. Carriers
have a choice of a standalone eApplication system, or a more comprehensive solution that seamlessly integrates with Sapiens IllustrationPro
for Life & Annuities and Sapiens UnderwritingPro for Life & Annuities.
Sapiens
IllustrationPro for Life & Annuities
Sapiens
IllustrationPro for Life & Annuities is a point-of-sale solution, offering responsive product illustrations from any device. ACORD
®
-compliant,
it offers straight-through processing, from point-of-sale to application e-submission, supported by a needs analysis suite. IllustrationPro
explains complex products in a compelling way. Its powerful calculation engines handle the most complex product illustrations, including
the appropriate historical and hypothetical references.
Sapiens
ConsolidationMaster for Life & Pension
Sapiens
ConsolidationMaster is a purpose-built, end-to-end, legacy, portfolio-focused system with a unique migration methodology that deals with
"dirty" data. The solution has over 500 product templates capable of supporting the compliant administration of legacy products
in any language and regulatory jurisdiction. ConsolidationMaster is designed to significantly cut the costs that are commonly associated
with legacy platforms.
Sapiens
Digital Offerings
Sapiens
DigitalSuite offers an end-to-end, holistic and seamless digital experience for customers, agents, brokers, risk managers, customer groups
and third-party service providers. The suite is pre-integrated with Sapiens' core solutions. The DigitalSuite is also available
stand-alone, and can be easily integrated with 3
rd
party core and ecosystem solutions through an advanced API layer. This
facilitates digital transformation and fast time-to-value for digital strategies. It enables life carriers to become engaged, agile organizations
with increased sales opportunities.
Sapiens
DigitalSuite was designed to enable our carrier customers to deliver on the future of user and customer expectations. DigitalSuite is
an offering that can react to market changes, support flexible interaction with dynamic APIs and offer a modern user experience. Our
DigitalSuite features component-based architecture, built on modern technologies and customer-centric design.
Sapiens
DigitalSuite is comprised of innovative digital modules, which can be used together or stand-alone, and content libraries to facilitate
diverse customer journeys, omnichannel communications and include rich portal content: Sapiens AgentConnect, EmployerConnect and CustomerConnect.
All
digital offerings are entirely supported in the cloud.
Sapiens
Digital API Layer and Conductor
This
highly scalable layer facilitates an open-communication, API-based platform that enables carriers to interact with insurtech companies,
ecosystem technology providers and business partners. By enabling seamless interaction with any service under any technology, Sapiens'
open architecture ensures that providers will easily choose the building blocks they need. They'll be able to easily define new
APIs on the fly and seamlessly integrate all elements within their insurance ecosystem, to succeed today and prepare for the future.
48
Sapiens
Customer Journey and Form Builder
Features
journey and form builders, journey analytics and deployment management capabilities – enables business users to easily create and
maintain digital journeys, using a low-code/no-code approach. This component empowers insurers with agility and fast time to market,
based on its "one click to deploy" functionality. Also available are full versioning capabilities and an extendable UI components
library.
Sapiens
AgentConnect,and CustomerConnect
These
are dynamic portals built to deliver the optimal experiences expected by customers, brokers, agents, employers, alike, providing a high
level of personalization to meet the diversified, individual needs of customers.
Sapiens
BotConnect and LiveConnect
Sapiens
brings conversational messaging to the next level, making it highly efficient in engaging customers. Sapiens BotConnect (AI-based chatbot)
and LiveConnect (Omni-channel live chat) are designed to cultivate and enhance conversational messaging by ensuring perfect handoffs
between different channels and personas, which translates into one unified customer-centric and smooth experience for both customers
and the reps that cater to their needs. Together, this duo of components greatly improves the operational efficiency, providing a better
service level to end-customers, based on their channel of choice.
Sapiens
PartnerHub and Partner Ecosystem
Sapiens
is a global organization with over three decades of extensive experience in insurance innovation and technology. Sapiens seek out and
identify the most relevant, advanced and innovative technology solutions for the insurance market. Sapiens connect third-party technology
and insurtech solutions to our Sapiens PartnerHub, from where we make their offerings available to insurers for their own use, and for
the use of their customers.
Sapiens
Analytics and Data Platform
Sapiens
offers its analytics solutions, across both Life and P&C businesses, which include: insightful dashboards, reporting and apps; and
predictive analytics which utilize AI and machine learning, generates actionable insights based on different models across the insurance
value chain. By integrating with our advanced analytics solution and data warehouse, we can quickly generate actionable insights, self-service
business intelligence and data discovery capabilities.
Sapiens
Reinsurance Solutions
Sapiens
reinsurance solutions are comprehensive business and accounting systems, providing a superior management for all types of reinsurance
contracts – treaty and facultative, and proportional and non-proportional. It enables insurers of all sizes to manage their entire
range of reinsurance contracts and activities for all lines of business, including rich accounting functionality and reporting capabilities.
Sapiens'
reinsurance solution enables full and flexible control of reinsurance processes, with built-in automation of contracts, calculations
and processes. By incorporating fully automated functions adapted conveniently for your business procedures, Sapiens Reinsurance provides
flexible and total financial control of your reinsurance processes, including complete support for all auditing requirements and statutory
compliance.
The
solutions are available in three flavors:
ReinsuranceMaster
(in EMEA, APAC and for global insurers),
ReinsurancePro
(in N. America) which also produces schedule F automatically, and
Reinsurance GO
(N. America) which is designed to meet the ceded reinsurance processing needs of property & casualty providers,
from calculating premium and claim cessions, to producing the data required for Schedule F.
49
Sapiens
Workers' Compensation Offerings
Sapiens
Platform for Workers' Compensation
Sapiens
Platform for Workers' Compensation includes the Sapiens CoreSuite for Workers' Compensation, and comes pre-integrated with
Sapiens DigitalSuite, including: Sapiens EmployerConnect a digital portal for employers and Sapiens Analytics and Data platform.''
Sapiens
CoreSuite for Workers' Compensation
Sapiens
CoreSuite for Workers' Compensation offers larger carriers, administrators and state funds the technology solutions that enable
them to adapt quickly to business and market conditions, offering high levels of accuracy and efficiency. The suite provides broad functionality
throughout the entire insurance lifecycle for workers' compensation, via a core suite, as well as policy, claims and intelligence
modules that can be deployed individually, or as an integrated solution. This suite can be purchased as an integrated offering, or standalone
components: Sapiens PolicyPro and Sapiens ClaimsPro. ''
Sapiens
GO for Workers' Compensation
Sapiens
GO for Workers' Compensation was developed specifically for carriers, managing general agents (MGAs), self-insurance funds and
third-party administrators. Sapiens GO can deliver a turnkey solution in just 120 days. With its streamlined user interface and advanced
business features, the suite addresses critical objectives. This suite can be purchased as an integrated offering, or standalone components:
Sapiens PolicyGO and Sapiens ClaimsGO for Workers' Compensation.
Sapiens
Financial & Compliance Solutions
Sapiens'
set of financial & compliance solutions comprised of both annual statement and insurance accounting software includes:
●
Sapiens FinancialPro - accounting
    software designed for insurers to meet their unique requirements for cash, statutory and GAAP reporting, well as unique allocation
    and consolidation needs. It handles multi-basis accounting and inter-company transactions and facilitates the speed and accuracy
    of financial reporting.
●
Sapiens Financial GO - offers
    small- and mid-sized insurers a solution for cash, statutory and GAAP reporting, as well as unique allocation and consolidation needs.
    Sapiens Financial GO manages and presents data to help insurance managers make informed decisions.
●
Sapiens StatementPro - makes
    statement preparation faster and simpler by offering one-click navigation between statements, pages and form validations (cross-checks)
    to the pages they reference and offering one-step filing.
●
Additionally, Sapiens offers Sapiens
    CheckPro and Sapiens reporting tools.
Sapiens
Business Decision Management Solutions
Sapiens
Decision is a complete decision management platform that places software development in the hands of the business domain, creating "citizen
developers," and enforces business logic across all enterprise applications. Decision effectively addresses the complexity of determining
and then translating business logic – data, business rules and machine learning used to make business decisions – into operational
code. The business side of the organization can model, validate, test and simulate the business logic required for all new processes
using Sapiens Decision. The process takes days or weeks, instead of months or years. A rigorous, structured approach ensures accuracy,
efficiency and consistency during modeling. The models may then be automatically generated and deployed as code into automated DevOps
environments, ensuring that the software is fully aligned with the organization's business needs.
50
Sapiens
is currently focusing on the development and marketing of Sapiens Decision in the financial services market in North America and Western
Europe, and we are building best practices where the scale and complexity of operations requires enterprise-grade technology that can
easily be adapted as policies and business strategies rapidly evolve. Sapiens developed and market Sapiens Decision for several verticals,
including the insurance industry, and leverage our industry knowledge and close relationships with our existing customers and partners.
Decision targets multiple markets:
Sapiens
Decision for Financial Institutions (including Consumer & Commercial Banking, Investment Banking, & Mortgage Banking)
Tailored
to meet the needs of Consumer & Commercial Banking, Investment Banking and Mortgage Banking institutions addresses the cost
of change. It enables banks to efficiently adapt their operations to the demands of digital transformation, changing regulations, customer
demands and increasing competition, using model-driven development (MDD). The MDD approach, enables businesspeople to define business
logic in easily understood models. The process takes days or weeks, instead of months or years. It enforces business logic across all
enterprise applications.
Sapiens
Decision for Insurance
Sapiens
Decision for Insurance enables insurers to efficiently adapt their business operations to the demands of digital transformation, changing
regulations, customer demands and increasing competition. It is currently used by a top-tier, P&C insurance company to implement
process automation and effect digital transformation.
Sapiens
Decision for Government
Sapiens
Decision for Government provides the capability to automate manual processes, alleviates gaps coming from different roles and interpretations,
and creates fully validated policy artifacts in a format that other roles in the organization can understand.
Sapiens
Technology-Based Solutions
Sapiens
eMerge
Sapiens
eMerge is a rules-based, model-driven architecture that enables the creation of tailor-made, mission-critical core enterprise applications
with little or no coding. Our technology is intended to allow customers to meet complex and unique requirements using a robust development
platform. For example, we perform proxy porting for our customers in an efficient, cost effective manner with Sapiens eMerge.
Sapiens
Services
Sapiens'
services modernize and automate processes for insurance providers and financial institutions around the globe, helping to create greater
organizational efficiencies, reduce costs and provide a better end user experience. They can be divided into three main categories:
program
delivery
,
value added services
and
cloud services
.
Sapiens
has partnered with both Microsoft Azure and AWS to offer its solutions over private and public (single tenant) clouds. Sapiens'
cloud deployment includes full infrastructure for operations, plus the option of choosing cloud-related cloud services delivered by Sapiens'
experienced professional services team.
Sapiens
delivery methodologies are typically based on Agile approach or a hybrid agile-waterfall approach that fits best some segments of our
market. Sapiens also provides delivery tools and delivery performance indicators. Built on a solid foundation of insurance domain expertise,
proven technology and a history of successful deployments, our organization assists clients in identifying and eliminating IT barriers
to achieve business objectives.
Sapiens'
services modernize and automate processes for insurance providers and financial institutions around the globe, helping to create greater
organizational efficiencies, reduce costs and provide a better end-user experience. Built on a solid foundation of insurance domain expertise,
proven technology and a heritage of successful deployments, we assist clients in identifying and eliminating IT barriers to achieve business
objectives.
51
Benefits
include:
●
Project delivery experience
– more than 35 years of field-proven project delivery of its core system solutions, based on best practices and accumulated
    experience.
●
System integration
–
    Sapiens helps its customers deploy modern solutions, while expertly integrating these solutions with their legacy environments that
    must be supported.
●
Global presence –
insurance and technology domain experts are located close to our customers to provide professional services
.
Sapiens'
implementation teams assist customers in building implementation plans, integrating Sapiens software solutions with their existing systems,
and deploying specific requirements unique to each customer and installation. Sapiens' business services include API integration
management and business intelligence (BI) and advanced analytics consolidation. Sapiens' cloud services offer ongoing production
support and a 24/7 help desk.
Sapiens'
service teams possess strong technology skills and industry expertise. The level of service and business understanding they provide contributes
to the long-term success of our customers. This helps Sapiens develop strategic relationships with Sapiens' customers, enhances
information exchange and deepens our understanding of the needs of companies within the industry.
Through
Sapiens' service teams, Sapiens provides a wide scope of services and consultancy around Sapiens' solutions, both in the
initial project implementation stage, as well as ongoing additional services. Many of Sapiens' customers also use Sapiens'
services and expertise to assist them with various aspects of daily maintenance, ongoing system administration and the addition of new
solution enhancements.
Sapiens
sometimes partners with several system integration and consulting firms to achieve scalable, cost-effective implementations for our customers.
Sapiens has developed an efficient, repeatable methodology that is closely aligned with the unique capabilities of our solutions.
The
services offered by Sapiens (and its partners') teams include:
●
Adding new lines of business
    and functional coverage to existing solutions running in production.
●
Ongoing support services
    for managing and administering the solutions.
●
Creating new functionalities,
    per specific requirements of our customers.
●
Assisting with compliance
    for new regulations and legal requirements.
In
addition, many of Sapiens' clients choose to enter into an ongoing maintenance and support contract with Sapiens. The terms of
such a contract are usually twelve months and are renewed every year. A maintenance contract entitles the customer to technology upgrades
(when made generally available) and technical support. Sapiens also offers introductory and advanced classes and training programs available
at our offices and customer sites.
52
Some
of Sapiens' offerings include:
Program
delivery includes:
●
Project and program
    management
- Overall program planning, governance, PMO services and risk management
●
Training
- Training
    needs analysis and consulting, train-the-trainer, user training, and application configuration training.
●
Testing
- Test strategy
    consulting, design and planning, SIT / Functional UAT / Business UAT, migration testing, performance / scalability and load testing,
    security testing and testing automation.
●
Migration consulting
-
    Migration strategy consulting and planning, data extract and load, data cleansing and data reconciliation.
●
Development, implementation
    and integration
- Technical Solution Architecture (TOM), Analysis and Design, Development and Configuration, core system integration
    and project management.
Value
added services are comprised of:
●
User acceptance testing
(UAT) - is different than system testing. UAT is a complementary stage which focuses on business processes, user's journeys,
    and acceptance criteria as outlined in the specifications.
●
Migration Services
–
    full ownership of the migration of systems from one system to another.
●
Analytics Services
–
    let Sapiens' experts help you build predictive models which are aligned and integrated into your insurance practices.
Cloud
services include:
●
Hosting Infrastructure
    Services
: Virtual machines selection based on the applications architecture and performance requirement to ensure a value-for-money
    approach. Cloud services including, among others, network, business continuity and security.
●
Hosting IT Services
:
    continuous services that obviate the need for local IT involvement to maintain the infrastructure and includes: Operation Control
    Center (OCC) as a service, Security Operation Center (SOC) as a Service, Backup as a service, DBA as a service, DevOps as a service,
    Disaster Recovery (DR) as a service.
●
Applications Cloud Services
:
    extends the standard maintenance agreement to provide additional services for Sapiens' solutions based on specific customer
    needs, and may include any of the following: Extended maintenance and support - Customer layer/components defect handling and extended
    SLA, Application changes – setup / config / workflow / templates, Application operation – batches / release deployment
    / performance monitoring, Sapiens+ – support for non-Sapiens products (optional).
Sapiens'
Competitive Landscape
Sapiens
is focused on serving insurers. The market for core software solutions for the insurance industry is highly competitive and characterized
by rapidly changing technologies, evolving industry standards and customer requirements, and frequent innovation. In addition, we offer
a business decision management platform, mainly to financial services organizations.
53
Competitive
Landscape for Sapiens Insurance Software Solutions
Sapiens'
competitors in the insurance software solutions market differ from us based on size, geography and lines of business. Some of our competitors
offer a full suite, while others offer only one module; some operate in specific (domestic) geographies, while others operate on a global
basis. And delivery models vary, with some competitors keeping delivery in-house, using IT outsourcing (ITO), or business process outsourcing
(BPO).
The
insurance software solutions market is highly competitive and demanding. Maintaining a leading position is challenging because it requires:
●
Development of new core
    insurance solutions, which necessitates a heavy R&D investment and in-depth knowledge of complex insurance environments
●
Technology innovation to
    attract new customers, with rapid, technology-driven changes in the insurance business model and new propositions coming
●
A global presence and the
    ability to support global insurance operations
●
Ability to manage multiple
    partnerships, due to the changing landscape of insurers' ecosystems
●
Extensive knowledge of
    regulatory requirements and how to fulfill them (they can be burdensome and require specific IT solutions)
●
Continued support and development
    of the solutions entails a critical mass of customers that support an ongoing R&D investment
●
Know-how of insurance system
    requirements and an ability to bridge between new systems and legacy technologies
●
Enabling mission-critical
    operations that require experience, domain expertise and proven delivery capabilities to ensure success
The
complex requirements of this market create a high barrier to entry for new players. As for existing players, these requirements have
led to a marked increase in M&A transactions in the insurance software solutions sector, since small, local vendors have not been
able to sustain growth without continuing to fund their R&D departments and following the globalization trend of their customers.
Sapiens believes that it is
well-positioned to leverage its modern solutions, customer base and global presence to compete in this market and meet its challenges.
In addition, our accumulated experience and expert teams allow us to provide a comprehensive response to the IT challenges of this market.
Different
types of competitors include:
●
Global software providers
    with their own IP
●
Local/domestic software
    vendors with their own IP, operating in a designated geographic market and/or within a designated segment of the insurance industry
●
BPO providers who offer
    end-to-end outsourcing of insurance carriers' business, including core software administration (although BPO providers want
    to buy comprehensive software platforms to serve as part of the BPO proposition from vendors and may seek to purchase our solutions
    for this purpose)
●
Internal IT departments,
    who often prefer to develop solutions in-house
●
New insurtech companies
    with niche solutions
54
Sapiens
differentiates itself from its competitors via the following key factors:
●
Sapiens offers cloud-based
    innovative and modern software solutions, with rich functionality and advanced, intuitive user interfaces, based on deep domain expertise
    and insurance know how
●
Sapiens uses model-driven
    architecture that allows rapid deployment of the system, while reducing total cost of ownership
●
Sapiens' solutions
    are built using an architecture that allows customers to implement the full solution or components, and readily integrate the solution
    or individual components into their existing IT landscape
●
Strong and global partnership
    program, with established IT players and new insurtech companies, to ensure linkage to innovative technologies and new business models,
    as well as ongoing work to embed innovation into Sapiens platforms
●
Sapiens identifies technology
    trends and invest in adjusting our solutions to keep pace with today's frenetic evolutions
●
Sapiens financial stability,
    and its large and growing global customer base, enables it to fund R&D investment and maintain the competitive advantage of its
    products Sapiens is able to fund R&D investment and maintain the competitive advantage of its products, due to its large and
    growing customer base and financial stability
●
Sapiens delivery methodology
    is based on extensive insurance industry experience and cooperation with large insurance companies globally. Sapiens track record
    over the past few years in developing a strong offshore development center is also a significant parameter in differentiating our
    abilities in the services space
Competitive
Landscape for Business Decision Management Solutions
Sapiens
Decision is a pioneer in this disruptive market landscape. Since the introduction of our innovative approach to enterprise architecture
to the market, we have identified only a small number of potential competitors.
Sapiens
differentiates itself from its potential competitors through the following key factors:
●
Sapiens believes that Sapiens
    Decision is the only solution (that is currently generally available and already in production) that offers a true separation of
    the business logic in a decision management system for large enterprises
●
Sapiens Decision is unique
    in its proven ability to support complex environments, with a full audit trail and governance that is crucial for large financial
    services organizations
●
Sapiens understands complex
    environments where Decision is deployed, due to its experience delivering complex, mission-critical solutions
Sapiens
Sales and Marketing
Sapiens'
main sales channel is direct sales, with a small portion of partner sales. Sapiens' sales team is spread across its regional offices
in North America, the United Kingdom, Israel, India, Poland, the Nordics, Spain, Singapore, South Africa, Canada, Latvia and Germany.
The direct sales force is geared to large organizations within the insurance and financial services industry.
Sapiens
believes that its sales teams are sufficiently large to service its target regions – North America, the UK, Europe and South Africa
– and to execute sales, while also being assisted by our presales, domain experts and marketing teams. We anticipate that Sapiens'
sales team will leverage its proximity to customers and prospective clients to drive more business, and offer its services across its
target markets.
55
Sapiens'
customer success teams were focused on building ongoing relationships with existing customers during the past year, to maintain a high
level of customer satisfaction and identify up-selling opportunities within these organizations. Sapiens believes that a high level of
post-contract customer support is important to its continued success.
As
part of its sales process, Sapiens typically sell a package that includes a license, implementation, customization and integration services,
and training services. All of Sapiens' clients for whom it has deployed its solutions elect to enter into an ongoing maintenance
and support contract with Sapiens. Sapiens aims to expand its distribution model to include more channel partners and system integrators,
but it intends to maintain the direct sales model as its prime distribution channel.
Sapiens
attends major industry trade shows (both physical and virtual) to improve its visibility and its market recognition. Additionally, Sapiens
hosts client conferences– such as its annual Sapiens Summit/Client Conference, which went virtual in 2020 and 2021, and was in-person
in North America in 2022. In 2023, Sapiens plans to host two client conferences in Barcelona, Spain, and Tuscon, Arizona. Sapiens
continues
investing in its web presence and digital marketing activities to generate leads and enhance our brand recognition.
Sapiens
maintains a blog channel and also invests in its working relationships and advisory services within the global industry-analyst community.
Sapiens
works together with standards providers– such as ACORD– to further enrich its offerings and provide its customers with comprehensive
and innovative solutions that address the entire breadth of their business needs.
Magic
Software
Magic
Software is a global provider of: (i) software services and Information Technologies ("IT") outsourcing software services;
(ii) proprietary application development and business process integration platforms; (iii) selected packaged vertical software solutions;
as well as (iv) cloud based services for end to end digital transformation.
Magic
Software's software technology is used by customers to develop, deploy and integrate on-premise, mobile and cloud-based business
applications quickly and cost effectively. In addition, its technology enables enterprises to accelerate the process of delivering business
solutions that meet current and future needs and allow customers to dramatically improve their business performance and return on investment.
Magic Software also provides selected verticals with a complete software solution and return on investment.
Based
on its technological capabilities and its specialists, Magic Software enables its clients to respond to rapidly evolving market needs
and regulatory changes, while improving the efficiency of their core operations. Magic Software has approximately 4,161 employees, who
serve its clients at any given time and whose skills and specialization are a significant source of competitive differentiation. Magic
Software operates through a network of over 3,000 independent software vendors, or ISVs, who we refer to as Magic Software Providers,
or MSPs, and hundreds of system integrators, distributors, resellers, and consulting and OEM partners. Thousands of enterprises in approximately
50 countries use Magic Software's products and services.
Magic
Software's Software Technology Platforms
Organizations
across all industries are digitally transforming by leveraging software to automate and optimize mission critical operations, enhance
customer experiences, and drive competitive differentiation. Historically, organizations have principally relied on off-the-shelf packaged
software and custom software solutions to operationalize and automate their businesses. Packaged software often fails to address unique
use cases or to enable differentiation. It also requires organizations to adapt their business (processes, systems of record, etc.) to
the software package, as opposed to adapting the software to their unique business needs. While traditional custom software solutions
can be differentiated and tailored to meet strategic objectives, development requires a long, iterative, and cumbersome process, as well
as costly integration that relies on scarce developer talent. We enable organizations to differentiate themselves from their competition
through software-enabled digital transformation.
56
Throughout
our history, we have traditionally maintained two major lines of products, one is our application development platform, which today is
known as Magic xpa Application Platform, an evolution of our original metadata-based development platform; and the second is our application
integration platform, Magic xpi Integration Platform, originally introduced in 2003 under the name iBOLT. In December 2011, we acquired
the AppBuilder development platform of BluePhoenix Solutions Ltd., a leading provider of value-driven legacy IT modernization solutions.
AppBuilder is a comprehensive application development infrastructure used by many Fortune 1000 enterprises around the world. This enterprise
application development environment is a powerful, model-driven tool that enables development teams to build, deploy, and maintain large-scale,
custom-built business applications. On April 2019, we acquired the SmartUX development platform of PowWow Inc., a leading Low-Code enterprise
mobile development application platform for citizen to professional developers to rapidly design, build, analyze, and run cross-platform
mobile business applications.
Our
low-code platforms employ an intuitive, visual interface and pre-built development modules that reduce the time required to build powerful
and unique applications. Our platform automates the creation of forms, workflows, data structures, reports, user interfaces, and other
software elements that would otherwise need to be manually coded. This functionality greatly reduces the iterative development process,
allowing for real-time optimization and ultimately shortening the time it takes to design, build, and deploy applications.
Our
customers leverage our technologies to apply the right automation approach for their specific use case. We believe our unified low-code
platforms are a differentiator in the marketplace. We strive to deeply integrate our capabilities so that they are all interoperable
and low-code making it easier and faster for our clients to address complex use cases, particularly those that involve multiple departments
within an organization.
Magic
Software's software technology platforms consist of:
o
Magic
xpa Application Platform
– a proprietary low-code application platform for developing and deploying Client Server/Mobile/Web
business applications.
o
AppBuilder
Application Platform
– a proprietary low-code application platform for building, deploying, and maintaining high-end, mainframe-grade
business applications.
o
Magic
xpi Integration Platform
– a proprietary low-code platform for application integration
o
Magic xpi cloud native
–an environment configurations platform based on Kubernetes focuses on scalability, security and resilience.
o
Magic SmartUX
–
    a proprietary low-code enterprise mobile development application platform for citizen to professional developers to rapidly design,
    build, analyze, and run cross-platform mobile business applications.
o
FactoryEye
–
    a cloud-based platform pre-packaged but flexible end-to-end data management for manufacturers enabling smooth migration to Industry
    4.0 smart factories. Real-time factory floor visibility and optimization is provided as part of the end-to-end visibility to maximize
    production performance.
o
Magic Data Management
    and Analytics Platform –
a cloud-based pre-packaged but flexible end-to-end data management platform for all verticals
    enabling smooth digital transformation and full organizational business intelligence
Magic Software's Vertical Software Packages
Magic
Software's vertical packaged software solutions include:
o
Clicks™
–
    offered by its Roshtov subsidiary, Clicks is a proprietary comprehensive core software solution for medical record information management
    systems, used in the design and management of patient-file for managed care and large-scale healthcare providers. The platform is
    connected to each provider clinical, administrative and financial data base system, residing at the provider's central computer,
    and allows immediate analysis of complex data with potentially real-time feedback to meet the specific needs of physicians, nurses,
    laboratory technicians, pharmacists, front- and back-office professionals and consumers.
57
o
Leap™
–
    offered by its FTS subsidiary, Leap is a proprietary comprehensive core software solution for BSS, including convergent charging,
    billing, customer management, policy control, mobile money and payment software solutions for the telecommunications, content, Machine
    to Machine/Internet of Things or M2M/IoT, payment and other industries.
o
Hermes Cargo
–
    offered by its Hermes Logistics Technologies Ltd. subsidiary, the Hermes Air Cargo Management System is a proprietary, state-of-the-art,
    packaged software solution for managing air cargo ground handling. Our Hermes Solution covers all aspects of cargo handling, from
    physical handling and cargo documentation through customs, seamless EDI communications, dangerous goods and special handling, tracking
    and tracing, security and billing. Customers benefit through faster processing and more accurate billing, reporting and ultimately
    enhanced revenue. The Hermes Solution is delivered on a licensed or fully hosted basis. Hermes recently supplemented its offering
    with the Hermes Business Intelligence (HBI) solution, adding unprecedented data analysis capabilities and management-decision support
    tools.
o
HR Pulse –
offered
    by its Pilat NAI, Inc. and Pilat Europe Ltd. subsidiaries, Pulse (now in its 10
th
release) is a proprietary tool for the
    creation of customizable HCM solutions quickly and affordably. It has been used by Pilat to create products, such as Pilat Frist
    and Pilat Professional, that provide "out of the box" SaaS solutions for organizations that implement Continuous Performance
    and/or Talent Management.
o
MBS Solution
–
    offered by its Complete Business Solutions Ltd. subsidiary, MBS Solution is a proprietary comprehensive core system for managing
    TV broadcast channels.
o
Nativ –
offered
    by its Menarva Ltd. subsidiary, Nativ is a proprietary comprehensive core system for management of rehabilitation centers.
o
Mobisale –
offered
    by its Mobisoft Ltd. subsidiary, Mobisale is a proprietary comprehensive core system for sales and distribution field activities
    for consumer goods manufacturers and wholesalers.
Magic
Software's Professional Software and IT Services
Magic
Software's software professional services offerings include a vast portfolio of professional services in the areas of infrastructure
design and delivery, application development, technology consulting planning and implementation services, support services, DevOps (Development
& Operations), Mobile, Big Data and Analytical BI, M/F, cloud computing for deployment of highly available and massively-scalable
applications and APIs and supplemental IT outsourcing services to a wide variety of companies, including Fortune 1000 companies, all
in accordance with the professional expertise required, in each case allowing us to create significant value for our clients in managing,
streamlining, accelerating and making their businesses thrive. The talents we provide generally supplement in-house capabilities of our
customers. We have extensive and proven experience with virtually all types of telecom infrastructure technologies in wireless and wire-line
as well as in the areas of infrastructure design and delivery, application development, project management, technology planning and implementation
services.
We have
substantial experience in end-to-end development of high-end software solutions, beginning with collection and analysis of system requirements,
continuing with architecture specifications and setup, to software implementation, component integration and testing. From concept to
implementation, from application of the ideas of startups requiring the early development of an application or a device, to somewhat
larger, more established enterprises, vendors or system houses who need our team of experts to take full responsibility for the development
of their systems and products. With our ability to draw on our pool of resources, comprised of hundreds of highly trained, skilled, educated
and flexible engineers, we adhere to timelines and budget and work in full transparency with our customers every step of the way to create
a tailor-made and cost-effective solution to answer all of our customers' unique needs.
Our
IT services subsidiaries consist of:
●
Coretech Consulting Group
    LLC
●
Fusion Solutions LLC
●
Xsell Resources Inc.
58
●
AllStates Consulting Services
    LLC
●
Futurewave Systems, Inc.
●
NetEffects, Inc.
●
The GoodKind Group LLC.
●
CommIT Group
●
Comblack Ltd
●
Infinigy Solutions
●
Shavit Software Ltd.
●
OnTarget Group Inc
●
Aptonet Inc
●
Stockell information systems
●
EnableIT LLC
●
Appush Ltd (formerly Vidstart Ltd)
Magic
Software's Partnerships and Alliances
Magic
Software continues to build on its existing strategic partnerships that include partnerships with Oracle, JD Edwards, SAP, Salesforce.com,
Microsoft, IBM and SugarCRM to enhance its mobile, integration and cloud offerings.
In
March 2018, following an extension of its partnership with Salesforce, Magic Software included new features in its Magic xpi 4.7
to make the integration between Salesforce and other systems even easier. By collaborating with Salesforce, we are significantly expanding
our partners' network and maximizing our service offering to customers around the world, enabling them to better serve their customers
via all channels by connecting to back-office ERP and finance applications, and streamlining business processes across numerous applications.
We have reached the status of Salesforce Premier ISV partner, showing our high competence expert level, ensuring that all of our customers
enterprise software is faultlessly integrated.
Magic
Software is an Oracle Platinum Partner holding an Oracle Validated Integration status, a SAP Channel Gold Partner holding SAP Certified
Integration status, an IBM Server Proven, and a SYSPRO business partner, among others. It appears on the Salesforce AppExchange and are
a featured partner on SugarCRM's Sugar Exchange, marketplaces for apps provided by partners. We continue to update and strengthen
our relationships with these major IT partners by attending partner events and by updating and certifying our Magic xpi connectors for
each specific ecosystem.
In
December 2018, Magic Software achieved Microsoft Gold Competency and has maintained this elite status since then. Gold Competency is
Microsoft's highest level of partner certification reserved for the top one percent of Microsoft elite partners worldwide who have
demonstrated expertise and proven skills with a particular Microsoft technology or service. In addition to that, we earned the Co-Sell
Ready Status as a member in the Microsoft One Commercial Partner (OCP) Program. Magic xpi, which maps data, automates business processes
and connects apps, databases, APIs with built-in Microsoft connectors, and Magic FactoryEye, a 100% cloud-native, microservices-based
integration platform are available on the Microsoft AppSource app store and are listed on the Microsoft Azure Marketplace.
59
In
May 2020, Magic Software's CommIT Group achieved AmazonAWS SaaS Competency status. AWS SaaS Competency is designated to help customers
find top AWS consulting partners with deep specialization and experience in designing and building software-as-a-service solutions on
AWS. Organizations are interested in software that is easy to use, implement, and operate. They are looking to reduce time-to-value and
obtain access to innovative product features and flexible software procurement on a consumption or contractual basis. AWS SaaS Competency
Partners follow Amazon Web Services (AWS) best practices for designing and building SaaS solutions through their professional services
practices. To qualify for the AWS SaaS Competency designation, organizations have undergone rigorous technical validation by AWS Partner
Solutions Architects and demonstrated proven customer success. In recent years, CommIT Group has successfully led, developed and produced
many SaaS solutions on AWS for companies across many business sectors, including high-tech and startups, industrial and retail, and insurance
and finance. CommIT Group 's unique, flexible R&D model, which provides complete flexibility in determining the mix of experts,
allows for full control of budgets and schedules throughout the development project. In this framework, We accompany our clients in their
digital journey and in their entry into the SaaS world, providing design and build services for application environments or migration
services for applications from existing models to cloud SaaS models. These processes require software architecture, construction, and
software development from both Digital and SaaS, all of which take into account performance aspects, information security, scalability,
infrastructure monitoring, customer experience and billing. Achieving AWS SaaS Competency status allows us to expand our business offering
and even accompany the organizational change for customers who are in the process of transitioning to SaaS.
Magic
Software's Industry Overview
In
recent years, the number of available enterprise applications has grown significantly which has led information system complexity within
many organizations to a level that has obstructed business progress and evolution, reduced business agility and led to significantly
higher costs. We believe this complexity will continue to increase in the future. Although it is not unusual for organizations to operate
multiple applications, systems and platforms that were created utilizing disparate programming languages, the complexity of these environments
typically reduces an organization's operating flexibility, hinders decision-making processes and leads to costly inefficiencies
and redundancies. When organizations seek to swiftly change, update and upgrade IT assets to support new business processes or to cope
with changes in business and regulatory environments, they often find that the introduction and integration of new or upgraded business
applications is more complex than expected, requires significant implementation resources, takes a long time to implement and is costly.
The proliferation of smartphones and mobile platforms necessitates device-independent and future-proof business solutions for fast, simple,
and cost-effective mobile deployment. In addition, new cloud computing technologies present enterprises with an opportunity to realize
greater agility and meaningful cost savings to businesses, creating a growing need for further changes to enterprises' IT applications
and systems.
The
pace of digital transformation is also accelerating at companies all around the world. Customers are increasingly demanding an all-digital
experience from the companies they do business with. They seek instant gratification through real-time updates or instant customer service
without having to talk to or wait for other human beings. Employees are also pushing for a more digital experience in their workplaces.
The confluence of these internal and external forces is causing companies of all sizes to put digital transformation goals at the top
of the agenda. It is becoming clearer that companies will need to embrace and prioritize the creation of a digital operating environment
to gain a competitive edge and be able to recruit and maintain a talented employee base.
Manual
coding and application development is a complex and time-consuming process with an end result that is not guaranteed. The process requires
constant iteration as bugs are discovered and new features are integrated. In addition, the communication gap and general disconnect
between developers and end-users are critical shortcomings of manual coding that results in business applications that are less than
ideally designed. Many of these problems can be addressed by low-code and no-code development platforms. The enterprise application development
software market consists of several application development sub-segments and includes large dominant players such as IBM, Microsoft,
Oracle, Salesforce, HP, CA Technologies and Compuware as well as a large number of highly specialized vendors, with focused capabilities
for specific vertical markets. Huge backlogs of enterprise app development work and growing demand for apps coupled with shortage and
expense of skilled programmers, is increasingly leading enterprises to turn to low-code/no-code application development platforms that
democratize the development process and give business users the ability to develop applications themselves with minimal or no assistance
from IT. Through the adoption of business applications, these business users are increasingly looking for ways to automate manual workflows
and become more efficient and effective by reallocating their time to solving more complex business problems. Even IT resources and developers
are using low-code development tools to increase their development speed and reduce backlog. a growing market for low-code/no-code development
platforms.
60
Although
the market for low-code development platforms is not new by any means, it has certainly started to gain more traction over the past couple
of years and is expected to continue its strong growth due to continued demand for applications and a shortage of skilled developers.
Low-code development is a natural evolution of rising abstraction levels in application development, which will eventually lead to viable
cross-enterprise, highly scalable citizen development and composition of applications. According to market analysts spending on low-code
development technologies (excluding RPA) is expected to grow from $9.6 billion in 2020 to $24.7 billion by 2025, at a CAGR of 21%. Based
on Gartner's, Magic Quadrant for Enterprise Low Code Application Platforms, 8 August 2019, by 2024 low-code application platforms
will be responsible for more than 65 percent of all application development activity and three-quarters of large enterprises will be
using at least four low-code development tools for both IT application development and citizen development initiatives. The increasing
need of digitalization and maturity of agile DevOps practices are expected to enhance the use of low-code development platform market
across the globe. Web application is considered as a face of an organization and by using the low-code development platform organizations
can roll out user-defined web-based applications quickly. Instead of writing the programming language for the development of web-based
applications, employees with less development experience can also create sophisticated applications. For those who has relevant experience,
this platform can ease out the daily work chores and can even help them create more custom web-based applications by integrating already
existing digital ecosystems. North America has the presence of several prominent market players delivering low-code development platform
and services to all end users in the region. The US and Canada both have strong economic conditions and are expected to be major contributors
to the growth of the low-code development platform market. The geographical presence, significant research and development (R&D)
activities, partnerships, and acquisitions and mergers are the major factors for the deployment of low-code development platform and
services.
The
IT services segment of the market is comprised of a broad array of specific segments such as infrastructure design and delivery, application
development, technology consulting planning and implementation services, support services and supplemental outsourcing services. In addition,
IT professional services include quality assurance, product engineering services and process consulting. The IT services segment is also
undergoing a profound transition, with some key trends that have accelerated recently. Growing demand for mobile and cloud-based applications
as well as Big Data solutions also entails more complex IT development and integration projects which management and implementation require
a higher level of expertise, In addition, the typical software-based projects of IT consulting have been gradually shifting towards software
and technology-driven solutions that can be embedded into clients' systems, providing ongoing engagement services. This transition
has been accentuated by an underlying change in IT services sourcing processes: the need for a faster go-to-market process as well as
constrained resources in IT departments is resulting in greater influence by specific business units on the purchasing decision as opposed
to the traditional sourcing process. The traditional outsourcing business model of capacity on demand is also transitioning towards a
model of capability on demand. Information technology service buyers are increasingly looking at outcome-driven managed services with
a tighter integration between software, service and infrastructure.
We
have identified the following trends that are relevant to the markets Magic Software operates in:
●
Increasingly complex
    business integration
: In recent years, enterprises operate multiple applications and platforms, using various programming languages,
    resulting in complex enterprise information systems. Such systems and the ability to swiftly change, update, and upgrade them to
    support new business processes are crucial to the enterprise's ability to cope with changes in the business, economic and regulatory
    environment. However, the introduction and integration of new business applications is complex, requires significant time and human
    resources and entails significant and often unpredicted costs. Therefore, enterprises are in need of solutions that will facilitate
    the rapid and seamless deployment of business applications.
61
●
Reusing IT assets/enterprise
    applications
: In an increasingly dynamic technology, business and economic environment, organizations face mounting pressure
    to continue to leverage their large IT investments in enterprise applications, such as ERP and CRM, while increasing their ability
    to change business processes and support new ones. Tools to support lightweight yet rapid, iterative and modular development methodologies,
    reusable architectures and application life-cycle management are primary drivers for spending on application development worldwide.
●
Enterprise mobility
:
    With the proliferation of smartphones and mobile platforms that support enterprise mobility, enterprise users now expect instant
    access to real-time information, a rich user experience, seamless integration with various enterprise systems and support to multiple
    mobile devices. As such, enterprises need to be able to develop device-independent and robust business solutions for fast and cost-effective
    mobile deployment.
●
Cloud, Platform-as-a-Service
    and Software-as-a-Service
: Cloud, Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) are each becoming a well-established
    phenomenon in some areas of enterprise IT. Cloud-hosted applications continue to grow as alternatives to internally managed systems
    as they deliver greater agility and meaningful cost savings to businesses. In addition, fast time-to-deployment, low cost-of-entry,
    and adoption of pay-as-you-go models drive growing adoption of SaaS applications. In turn, SaaS applications enable the rapid construction,
    deployment and management of some custom-built applications accessed as a service in the cloud. With more SaaS deployments, the need
    for integration tools that bridge the cloud apps with on-premise application increases.
●
Big Data:
The amount
    of digital information that is being generated by enterprises each year, across a number of diverse data sources and formats, is
    growing rapidly. Enterprises are required to retain, process and analyze data to attain meaningful insights and gain competitive
    advantages, and therefore require versatile and flexible tools in order to quickly and reliably process these increasingly large
    amounts of data.
●
IT Consulting:
The
    typical software-based projects of IT consulting have been gradually shifting towards software and technology-driven solutions that
    can be embedded into clients' systems, providing ongoing engagement services.
●
Sourcing processes:
The need for a faster go-to-market process as well as constrained resources in IT departments is resulting in greater influence
    by specific business units on the purchasing decision as opposed to the traditional sourcing process. The traditional outsourcing
    business model of capacity on demand is also transitioning towards a model of capability on demand. Information technology service
    buyers are increasingly looking at outcome-driven managed services with a tighter integration between software, service and infrastructure.
●
Mobility & IT skills
    shortage:
Growth in mobility skills demand is outpacing organizations' ability to keep up, resulting in mobile strategists
    facing a skills shortage across the entire mobility ecosystem, with mobile application development skills in greatest demand. Poor
    availability of skilled staff is driving mobile strategists to outsource many functions across the mobility ecosystem, including
    application development and testing services. The increasing mobility skills gap will force mobile strategists to use a multifaceted
    application development and delivery approach.
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Magic
Software's Software Solutions
Magic
Software's software solutions enable enterprises to accelerate the planning, development, deployment and integration of on-premise,
mobile and cloud business applications that can be rapidly customized to meet current and future needs. Its software solutions and complementary
professional services empower customers to dramatically improve their business performance and return on investment by enabling the cost-effective
and rapid delivery, integration and mobilization of business applications, systems and databases. Its technology and solutions are especially
in demand when time-to-market considerations are critical, budgets are tight, and integration is required with multiple platforms or
applications, databases or existing systems and business processes, as well as for RIA and SaaS applications. Its technology also provides
the option to deploy our software capabilities in the cloud, hosted in a web services cloud computing environment. We believe these capabilities
provide organizations with a faster deployment path and lower total cost of ownership. Magic Software's technology also allows
developers to stage multiple applications before going live in production.
Development
communities are facing high complexity, cost and extended pay-back periods in order to deliver cloud, RIAs, mobile and SaaS applications.
Magic xpa, AppBuilder, Magic SmartUX, Magic xpi, Magic FactoryEye, and Magic's Data Management and Analytics platformall provide
MSPs with the ability to rapidly build integrated applications in a more productive manner, deploy them in multiple modes and architectures
as needed, lower IT maintenance costs and speed time-to-market. Magic Software's solutions are comprehensive and industry proven.
These technologies can be applied to the entire software development market, from the implementation of micro-vertical solutions, through
tactical application modernization and process automation solutions, to enterprise spanning service-oriented architecture, or SOA, migrations
and composite applications initiatives. Unlike most competing platforms, Magic Software offers a coherent and unified toolset based on
the same proven metadata driven and rules-based declarative technology. Its low-code, metadata platforms consist of pre-compiled and
pre-written technical and administrative functions, which are essentially ready-made business application coding that enables developers
to bypass the intensive technical code-writing stage of application development and integration, concentrate on building the correct
logic for their apps and move quickly and efficiently to deployment. Through the use of metadata-driven platforms such as Magic xpa,
AppBuilder, Magic SmartUX, Magic xpi, Magic's Data Management and Analytics platformand Magic FactoryEye, software vendors and
enterprise customers can experience unprecedented cost savings through fast and easy implementation and reduced project risk.
Magic
Software's software technology solutions include application platforms for developing and deploying specialized and high-end large-scale
business applications and integration platforms that allow the integration and interoperability of diverse solutions, applications and
systems in a quick and efficient manner. These solutions enable our customers to improve their business performance and return on investment
by supporting the affordable and rapid delivery and integration of business applications, systems and databases. Using our software solutions,
enterprises and ISVs can accelerate time-to-market by rapidly building integrated solutions, deploying them in multiple environments
while leveraging existing IT resources. In addition, our solutions are scalable and platform-agnostic, enabling our customers to build
solutions by specifying their business logic requirements in a commonly used language rather than in computer code, and to benefit from
seamless platform upgrades and cross-platform functionality without the need to re-write applications. its technology also enables future-proof
protection and supports current market trends such as the development of mobile applications that can be deployed on a variety of smartphones
and tablets, and cloud environments. In addition, we also offer a variety of vertical-targeted products that are focused on the needs
and requirements of specific growing markets. Certain of these products were developed utilizing our application development platform.
Magic
Software sells its solutions globally through its own direct sales representatives and offices and through a broad sales distribution
network, including independent country distributors, independent service vendors that use our technology to develop and sell solutions
to their customers, and system integrators. Magic Software also offers software maintenance, support, training, and consulting services
in connection with our products, thus aiding the successful implementation of projects and assuring successful operation of the platforms
once installed. We sell our integration solutions to customers using specific popular software applications, such as SAP, Salesforce.com,
IBM i (AS/400), Oracle JD Edwards, Microsoft SharePoint, Microsoft Dynamics, SugarCRM and other eco-systems. As such, we enjoy a well-diversified
client base across geographies and industries including oil & gas companies, telecommunications groups, financial institutions, healthcare
providers, industrial companies, public institutions and international agencies.
63
The
underlying principles and purpose of our technology are to provide:
●
Simplicity
–
    the use of code-free/low code development tools instead of hard coding and multiple programming languages to solve critical and complex
    challenges;
●
Business focus
–
    the use of pre-compiled business logic and components eliminates repetitive, low level technical and coding tasks;
●
Comprehensiveness
–
    the use of a comprehensive development and deployment platform offers a full end-to-end development, deployment and integration capability;
●
Automation of mundane
    tasks
– to accelerate development and maintenance and reduce risk; and
●
Interoperability
–
    to support business logic across multiple hardware and software platforms, operating systems and geographies.
Magic
Software offers three complementary application platforms that address the wide spectrum of composite applications, Magic xpa, Magic
SmartUX and AppBuilder. Our Magic xpi integration platform, Magic FactoryEye and Magic's Data Management and Analytics platform
deliver fast and simple integration and orchestration of business processes and applications. Our customers operate in a wide variety
of industries, including financial services, life sciences, government, telecommunications, energy and manufacturing.
Magic
xpa Application Platform
Magic
xpa Application Platform, our metadata driven application platform, provides a simple, low code and cost-effective development and deployment
environment that lets organizations and MSPs quickly create user-friendly, enterprise-grade, multi-channel mobile and desktop business
app that employ the latest advanced functionalities and technologies. The Magic xpa Application Platform, formerly named uniPaaS, was
first released in 2008 and is an evolution of our original eDeveloper product, a graphical, rules-based and event-driven framework that
offered a pre-compiled engine for database business tasks and a wide variety of generic runtime services and functions which was released
in 2001.
Magic
Software has continually enhanced our Magic xpa application platform to respond to major market trends such as the growing demand for
cloud-based offerings including Rich Internet Applications (RIA), mobile applications and SaaS. Accordingly, we have added new functionalities
and extensions to our application platform, with the objective of enabling the development of RIA, SaaS, mobile and cloud-enabled applications.
SaaS is a business and technical model for delivering software applications, similar to a phone or cable TV model, in which the software
applications are installed and hosted in dedicated data centers and users subscribe to these centers and use the applications over an
internet connection. This model requires the ability to deliver RIA. Magic xpa is a comprehensive RIA platform. It uses a single development
paradigm that handles all ends of the application development and deployment process including client and server partitioning and the
inter-communicating layers.
Magic
xpa offers customers the power to choose how they deploy their applications, whether full client or web; on-premise or on-demand; in
the cloud or behind the corporate firewall; software or mobile or SaaS; global or local. Our Magic xpa Application Platform complies
with event driven and service oriented architectural principles. By offering technology transparency, this product allows customers to
focus on their business requirements rather than technological means. The Magic xpa single development paradigm significantly reduces
the time and costs associated with the development and deployment of cloud-based applications, including RIAs, mobile and SaaS. In addition,
application owners can leverage their initial investment when moving from full client mode to cloud mode, and modify these choices as
the situation requires. Enterprises can use cloud-based Magic xpa applications in a SaaS model and still maintain their databases in
the privacy of their own data centers. It also supports most hardware and operating system environments such as Windows, Unix, Linux
and AS/400, as well as multiple databases and is interoperable with. NET and Java technologies.
64
Magic
xpa can be applied to the full range of software development, from the implementation of micro-vertical solutions, through tactical application
modernization and process automation solutions, to enterprise spanning SOA migrations and composite applications initiatives. Unlike
most competing platforms, we offer a coherent and unified toolset based on the same proven metadata driven and rules based declarative
technology, resulting in increased cost savings through fast and easy implementation and reduced project risk.
Magic xpa enables organizations
to differentiate themselves from their competition through software-enabled digital transformation. With our platform, organizations
can rapidly and easily design, build and implement powerful, enterprise-grade custom applications through our intuitive, visual interface,
with little or no coding required. Our Solution ensures that applications developed on our platform can be immediately and natively deployed
across a full range of mobile and desktop devices with no additional customization, including desktop web browsers, tablets and mobile
phones. We also enable organizations to easily modify and enhance applications and automatically disseminate these updates across device
types to ensure that all users benefit from the most up-to-date functionality.
Key
benefits of our platform include:
●
Powerful applications
    to solve critical and complex challenges
. At the core of our platform is an advanced engine that enables the modeling, modification
    and management of complex processes and business rules. Our heritage provides us with this differentiated understanding of complex
    processes, and we have incorporated that expertise into our platform to enable the development of powerful applications. Organizations
    have used our platform to launch new business lines, build large procurement systems, manage retail store layouts, conduct predictive
    maintenance on field equipment and manage trading platforms, among a range of other use cases.
●
Rapid and simple innovation
    through our powerful platform
. Our platform employs a low-code, intuitive, visual interface and pre-built development modules
    that reduce the time required to build powerful and unique applications. Our platform automates the creation of forms, data flows,
    records, reports and other software elements that would otherwise need to be manually coded or configured. This functionality greatly
    reduces the iterative development process, allowing for real-time application optimization and ultimately shortening the time from
    idea to deployment. In turn, organizations can better leverage scarce and costly developer talent to accomplish more digital transformation
    objectives.
●
Build once, deploy everywhere
.
    Our technology allows developers to build an application once and use it everywhere with the consistency of experience and optimal
    performance levels that users expect. Applications developed on our platform can be immediately and natively deployed across a full
    range of mobile and desktop devices with no additional customization, including desktop web browsers, tablets and mobile phones.
    We also enable organizations to easily modify and enhance applications and automatically disseminate these updates across device
    types to ensure all users benefit from the most up-to-date functionality.
●
Deployment flexibility
    to serve customer needs
. Our platform can be installed in any cloud or on-premises, with organizations able to access the same
    functionality and data sources in all cases. Our flexible deployment model also preserves a seamless path to future cloud deployments
    for organizations initially choosing on-premises for their most sensitive workloads.
Magic
Software's approach to digital transformation goes beyond simply enabling organizations to build custom applications fast. We empower
decision makers to reimagine their products, services, processes and customer interactions with software by removing much of the complexity
and many of the challenges associated with traditional approaches to software development. Because we make application development easy,
organizations can build specific and competitively differentiated functionality into applications to deliver enhanced user experiences
and streamlined business operations.
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In
February 2018, Magic Software released Magic xpa 3.3 with a more seamless and easier integration with Java, similar to the already existing
integration with. NET, making the Magic xpa platform even more robust. Along with that, Magic Software provided a new WS provider mechanism,
built on Apache Axis2, enhancing our current WCF based capabilities.
In
April 2018 and for the third consecutive year, Magic Software's Magic xpa application development platform gained top market share
in license sales in the Japanese market. According to the "Market Research for Next Generation Extra-Rapid Development Tools in
2018" published by MIC Research Institute Ltd., the Magic xpa Application Platform grew 2% achieving a 41% share of the Japanese
market.
In
August 2018, Magic Software released Magic xpa 4.0 with its new Angular-based Web application framework that provides developers and
Angular developers with the power to develop device-agnostic and feature-packed Web applications. Magic xpa 4.0 decouples the business
logic from the presentation of the apps providing developers with the flexibility to use the Angular open-source platform with industry-standard
state-of-the-art technologies, including HTML5, CSS, and JavaScript for designer-quality screens, while benefiting from the productivity,
security, and scalability capabilities provided by our low-code development platform.
In
addition, Magic Software further modernized its Integrated Development Environment (IDE) by moving toward a full-fledged Visual Studio-based
studio, offering our users an even more intuitive and user-friendly experience.
During
2018, Magic xpa was listed in Gartner's Market Guide for Application Platforms report. In addition, Magic xpa was listed in the
Forrester Wave™ for Mobile Low-Code Development Platforms.
Magic
Software 2019 roadmap includes the release of a 64-bit edition of Magic xpa, featuring a full 64-bit runtime engine for Windows and Linux.
In
2020, Magic Software significantly enhanced its new Angular based web client capabilities, invested more resources in the overall product
stability, provided GIT version control capability as an integral part of expanding its CI/CD overall capabilities, as well as enhanced
its compare and merge functionality under its xpa 4.7 release.
In
2021 and during 2022, Magic Software moved its Magic xpa platform to be a cloud native platform deployed by a dockers container, thereby
opening the door to its customer to take its applications to be full SaaS products.
AppBuilder
Application Platform
AppBuilder,
a platform we acquired in December 2011, is a proprietary development environment used for managing, maintaining and reusing complicated
applications needed by large businesses. It provides the infrastructure for enterprises worldwide, across several industries, with applications
running millions of transactions daily on legacy systems. Enterprises using AppBuilder can build, deploy and maintain large-scale custom-built
business applications for years without being dependent on any particular technology. The AppBuilder deployment environments include
IBM mainframe, Unix, Linux and Windows. AppBuilder is intended to increase productivity and agility in the creation and deployment of
enterprise class computing.
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AppBuilder
follows the 4GL development paradigm to help enterprises focus on the business needs and definition and overlook technical hurdles. AppBuilder
developers define the business roles and prior to deployment the code is generated from the development environment to the required run
time environment. Several large MSPs have utilized AppBuilder to build state of the art applications that are deployed through many large
customers.
AppBuilder
implements a model driven architecture approach to application development. It provides the ability to design an application at the business
modeling level and generate forward to an application. AppBuilder has a platform-independent, business-rules language that enables generation
to multiple platforms. It is possible to generate the client part of an application as Java and the server part as COBOL. As businesses
change, the server part can be generated as Java without changing the application logic. Only a simple configuration option needs to
be changed.
AppBuilder
contains everything a development environment needs to create any type of simple or complex business application with platform-independent
functionality, including:
●
System administration security
    controls for scope and permissions;
●
Migration, testing, and
    deployment functions;
●
Architecture-independent
    development;
●
An integrated toolset for
    designing, developing, and deploying applications;
●
Object-based components
    managed from host, server, or client repositories;
●
Support for Java/J2EE,
    COBOL, C#, and C programming languages;
●
An efficient, cross-platform
    code generation facility;
●
Ready-to-use business logic
    and libraries;
●
A remote prepare facility
    for mainframe development;
●
Multiple language user
    interface support; and
●
DBCS support.
Magic
xpi Integration Platform
We
believe data is the most valuable competitive asset today as companies increasingly pursue digital transformation initiatives to modernize
their businesses. Enormous amounts of data are being generated by people, applications, and devices worldwide. Enterprises are seeking
to connect data across their various applications, systems, and IT environments in order to become data-driven businesses. Understanding
and connecting these data assets as well as migrating workloads to the cloud, enables superior insights across the business organization,
better service of customers, automation of supply chains, and the democratization of secure, governed data access for all employees.
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The
rise of cloud computing, low-cost data storage and the proliferation of applications that generate and access data, combined with the
increasing volume of data from mobile, social and IoT, is resulting in an explosion of the volume, variety, and velocity of data. According
to a March 2021 report from IDC, "The amount of digital data created over the next five years will be greater than twice the amount
of data created since the advent of digital storage." This new data creates opportunities to generate greater business insights
and pursue new market opportunities, but is overwhelming for organizations to manage, aggregate, and normalize. As enterprises undertake
the massive transition to cloud, we believe a majority of their workloads will remain on-premises for the foreseeable future due to the
mission-critical processes they support. The complexity of this hybrid world will be further exacerbated as enterprises also employ multi-cloud
strategies. According to IDC, "82% of organizations are currently using multiple clouds - or plan to within the next 12 months."
As a result, we expect enterprises will require new technologies purpose-built to connect, analyze, manage, and normalize data anywhere
it resides using modern, cloud-native architectures that can seamlessly be deployed in any IT environment.
Magic
Software's Magic xpi integration platform (an evolution of its original and formerly branded iBOLT platform, launched in 2003)
is a graphical, wizard-based code-free solution delivering fast and simple integration and orchestration of business processes and applications.
Magic xpi allows businesses to more easily view, access, and leverage their mission-critical information, delivering true enterprise
application integration, or EAI, business process management, or BPM, and SOA infrastructure. Increasing the usability and life span
of existing legacy and other IT systems, Magic xpi allows fast EAI, development and customization of diverse applications, systems and
databases, assuring rapid return on invested capital and time-to-market, increased profitability and customer satisfaction.
Magic
xpi allows the integration and interoperability of diverse solutions, including legacy applications, in a quick and efficient manner.
In January 2010, we released Magic xpi 3.2 and since then we have continued to develop the Magic xpi channel. We entered into agreements
with additional system integrators, consultancies and service providers, who acquired Magic xpi skills and offer Magic xpi licenses and
related services to their customers. We also offer special editions of Magic xpi with optimized and certified connectors for specific
enterprise application vendor ecosystems, such as SAP, Oracle JD Edwards, Microsoft SharePoint and Salesforce.com. These special editions
contain specific features and pricing tailored for these market sectors.
Data
engineers, Extract-Transform-Load (ETL) developers, and citizen integrators have the ability to use our platform to ingest, transform
and integrate data spanning departmental to enterprise scale workloads. These workloads include diverse and distributed data sources
in multi-cloud, hybrid environments. The breadth and depth of our data integration capabilities accelerate the aggregation and processing
of data to ready it for analytics, data science and enterprise reporting initiatives. Leveraging a simple graphical design experience,
users can develop workloads across ETL, Extract-Load-Transform (ELT), real-time and streaming data integration patterns. Our platform
is designed to integrate structured and unstructured data across on-premises and cloud-native applications, databases, business intelligence
tools, data modeling tools, data lakes, data warehouses, mainframes, messaging systems, file systems and IoT devices. Our data-lake architecture
allows data stewards and business analysts to create an authoritative single-source view of all business-critical data from internal
and external sources across multiple data domains, including customers, locations, assets, and employees and many other domain types.
Magic
Software's heritage as a veteran player in the integration market provides it with a differentiated understanding and ability to
automate complex processes, and Magic Software has incorporated that expertise into our platform to enable the development of powerful
business software. Magic xpi can leverage a complete stack of automation technologies, applying the right automation approach for each
specific use case.
Key
benefits of Magic Software's platform include:
●
Business Process Management
.
    At the core of our platform is an advanced engine that enables the modeling, modification and management of complex processes. This
    engine enables orchestration of any business workflow.
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●
Decision Rules
.
    Appian includes a declarative environment for defining and executing business logic or rules. These rules can be highly complex and
    can be applied within the Appian platform to many use cases, ranging from automated decision making to user experience personalization.
●
Seamless integration
    with existing systems and data
. In contrast to typical enterprise software, our platform does not require that data reside
    within it in order to enable robust data analysis and cross-department and cross-application insight. Our platform seamlessly integrates
    with many of the most popular enterprise software applications and data repositories and can be used within many legacy environments.
    For example, organizations frequently use our platform to extend the life and enhance the functionality of legacy systems of record,
    such as those used for enterprise resource planning, human capital management and customer relationship management, by building new
    applications that enhance the functionality of those systems and by leveraging the data within those systems to further optimize
    and automate operations.
●
Embrace the full benefits
    of the public cloud.
Our platform helps customers to accelerate the migration of their on-premises workloads to the cloud. Our
    platform modernizes our customers' applications and data management capabilities to accelerate migrations to the cloud, allowing
    them to embrace innovation, create digital-first business models, reduce operating costs, and generate new revenue streams.
●
Deliver rich 360-degree
    business experiences.
By enabling our customers to aggregate, consolidate and normalize their data to build a single source of
    truth, we empower them to deliver highly engaging and personalized customer experiences. This allows our customers to embrace a digital-first
    business strategy, build better connections and relationships with their end users, and modernize their supply chains by intelligently
    matching supply with demand patterns.
In
the aggregate, these core capabilities enable Magic to automate and govern end-to-end processes. Magic complements these automation technologies
with related features like process reporting, analytics and management, which make it simple for organizations to quickly improve and
upgrade their automations as business needs change.
In
March 2018, Magic Software released Magic xpi version 4.7 with a new OData Provider connector, Active Directory Federation Services (ADFS)
support for the SharePoint Online (MOSS) connector, ability to write new connectors based on Magic xpa Application Platform's runtime
technology and multiple features to improve programming productivity, such as visual indicators of data flow status and an enhanced monitor
to provide an even more accurate bird's eye view of all running projects.
In
October 2018, Magic Software announced that Magic xpi Integration Platform 4 achieved SAP-certified integration with SAP S/4HANA, enabling
our customers to optimize business processes through automation across leading ERP, CRM, finance, and other enterprise systems using
a single platform.
In
February 2019, Magic Software released Magic xpi version 4.9 with a new REST client connector, ODATA connector enhancements, inherent
UPSERT support in the data mapper, and built-in cloud support.
In
August 2019, Magic Software released Magic xpi version 4.11, enabling access to remote connectors residing at another site, without the
need for a VPN (aka 'Local Agent' capability). In addition, in the beginning of 2020 we released the major released Magic
xpi 4.12, which includes 64-bit support for our Run-Time engine as-well as integration with one of the industry's API management
solutions suites. During 2019, we also released additional features pursuant to customer requests.
In
2020, Magic Software enhanced the above Local Agent capability with more functionality, added additional connectors (e.g., OPC for manufacturing)
and invested more resources in the overall product stability. In addition, Magic Software has added various features to the platform
to expand its product offering, per customer requests and extended its offering adding EDI capabilities.
In
2021, Magic Software enhanced Magic xpi Local Agent capabilities with more functionalities, added additional connectors (e.g., OPC for
manufacturing) and invested more resources in the overall product stability. In addition, Magic Software moved its Magic xpi platform
to be a cloud native platform deployed by dockers container.
69
In
2022, Magic Software continued to expand its product offering with additional features, per customer requests. In March 2023 Magic Software
launched Magic xpi Cloud Native, allowing shifting xpi integration projects to the cloud smoothly. The xpi Cloud Native environment configurations
based on Kubernetes, focuses on scalability, security, and resilience. The deployment process is made effortless with our new "Cloud
Manager". Cloud Manager interface hides all the complexities of cloud deployment and clustering and performs all the heavy lifting
through easy to use and intuitive set of Rest API's. These APIs also bring agility and efficiency to organizations CI/CD practices
via "Continuous Deployment" capabilities.
Magic
SmartUX
Magic
SmartUX, a platform Magic Software acquired in April 2019, is a low-code development platform for mobilizing and modernizing enterprise
business application designed for citizen to professional developers to rapidly design, build, analyze, and run cross-platform mobile
business applications.
The
Magic SmartUX platform addresses the three biggest challenges enterprises are facing in the road to Digital Transformation:
●
Multi-platform: end client
    devices are abundant and diverse, we provide an omni-channel solution.
●
Many Systems of Record:
    over the years enterprise adopted (home grown and third party) solutions that scattered the business flow over many different system,
    Magic SmartUX enable the enterprise to expose complex business flows to modern technology with now changes and overhead to the existing
    working applications.
●
Talent Gap: Mobile and
    integration are the hardest skillsets for IT orgs to find, with the Magic SmartUX platform addressing Citizens Developers, we allow
    any intern tech savvy individual to deliver complex and robust Mobile business application.
FactoryEye
On
May 2019, Magic Software launched the release of FactoryEye, a proprietary high performance, low-code, flexible, cloud platform built
specially for manufacturers based on a modern architecture enabling advanced manufacturing and organizational intelligence, real-time
virtualizations and actionable insights for cross- organizational effectiveness and increased bottom line. Magic Software has hundreds
of manufacturing customers, and drew on over 35 years of manufacturing experience to develop FactoryEye.
The
product's intuitive and user-friendly workspace empower manufacturers by providing all the analysis the report they need in order
to make faster and smarter decisions based on real time data and analytics. This translates into improved productivity, faster delivery
times, and better control over the manufacturing processes, leading to increased customer satisfaction and higher profit margins. FactoryEye
offers dozens of prebuilt connectors to a range of enterprise applications and MRP systems, such as SAP, JD Edwards, and Infor, as well
as MES, CRM, and PLM systems. FactoryEye collects real-time data from existing machinery, operational and organizational systems and
transforms it into actionable intelligence for immediate results and continuous improvement in the manufacturing process and operational
efficiency. The solution brings the benefits of Industry 4.0 connectivity to mid-sized manufacturers in several industry verticals, including
automotive parts, food & beverage, medical devices, metal processing, packaging, plastics & rubber specialty manufacturing and
more.
The
addition of FactoryEye to Magic Software's software portfolio allows Magic Software to provide to its new and existing manufacturing
clients, with a comprehensive Industry 4.0 digital transformation solution and aligns with Magic Software strategy of enhancing its portfolio
with enterprise grade technologies.
FactoryEye's
end-to-end solution incorporates several key features:
●
Powered by Magic Software
    plug and play IIoT Integration platform.
●
Incorporates advanced analytics
    and AI into decision support
70
●
Promote centralized visibility
    across operations
●
Access to information necessary
    to quickly make smart decisions
●
Flexible, simplified and
    incremental digital transformation
●
Increased equipment productivity
    and operational efficiency
●
Improved machine uptime
    and reduced maintenance costs
●
Leverages
investments and allows quick ROI by integrating existing systems
In
addition to offering a dynamic cloud-based software solution, FactoryEye manufacturing consultants work with customers to harmonize their
systems and fit the right tools for their needs. Consultants analyze business processes for what is working, formulate a plan to add
what is missing from existing systems and create sprints to deliver immediate results. A dynamic cycle of data collection and analysis
allows for continuous improvement and flexibility in the optimization process.
Since
its launch, Magic Software made a targeted effort to reach mid-sized manufacturers who are looking to improve the efficiency of their
factories. Our goal is to position FactoryEye as a solution that offers more than mere factory floor visibility through IIoT connectivity,
while remaining more cost effective and customizable than offerings from "Tier 1" companies. To that end, Magic Software
has built a new website for FactoryEye, as well as blogs, whitepapers, e-books public relations activities, exhibitions and events, round
tables and on-line campaigns , all in the purpose of increasing the awareness of this new offering and benefits for mid-sized manufacturers.
FactoryEye
brings the benefits of Industry 4.0 to mid-sized manufacturing companies, with an easy, affordable, and flexible approach that does not
require changing existing systems and infrastructure. This Industry 4.0 solution captures vast amounts of production data, transforms
it into actionable intelligence, and empowers workers, managers and executives to make informed decisions in real-time.
In
addition, we continue to market Magic Software's application and integration products. These products continue to provide value
and convenience for our customers as low code options to integrate their disparate systems.
Magic
Software Vertical software solutions
Clicks™
Magic
Software Roshtov subsidiary has approximately three decades of proven experience based on its proprietary comprehensive core software
solution for medical record information management systems, using in the design and management of patient-file for managed care and large-scale
healthcare providers. The platform, which can be tailor-made to the specific needs of the healthcare provider, is connected to the clinical,
administrative and financial data base system, residing at the provider's central computer, and allows immediate analysis of complex
data with potentially real-time feedback to meet the specific needs of physicians, nurses, laboratory technicians, pharmacists, front-
and back-office professionals and consumers.
All
of our clients that buy or subscribe to our Clicks software solution also enter into software support agreements with us for maintenance
and support of their medical record management systems. In addition to immediate software support in the event of problems, these agreements
allow clients to access new releases covered by support agreements. In addition, each client has 12-hour access, six days a week (6 hours
on Friday) to the applicable call-center support teams.
71
We
employ a team of 35 research and development specialists that together with our clients create a future where the health care system
works to improve the well-being of individuals and communities. Roshtov's proven ability to innovate has led to what we believe
to be an industry leading architectures and a breadth and depth of solutions and services.
There
are four healthcare service providers in Israel, of which, Maccabi Healthcare Services and Clalit, which are the two largest healthcare
providers in Israel accounting for 77% of the Israeli market, have been our customers since the early 1990's.
Leap™
Our
FTS subsidiary has over 20 years of BSS experience, based on dozens of projects delivered to customers worldwide. We implement revenue
management and monetization solutions in mobile, wireline, broadband, MVNO/E, payments, e-commerce, M2M / Internet of Things, mobile
money, cable, cloud and content markets under the brand name of Leap™. Our Leap™ solutions lower the total cost of ownership
(TCO) for telecom, content and payment service providers.
FTS
works with telecommunications, content and payment service providers globally to help them manage complex transactions and relationships
with greater flexibility and independence. Analyzing transactions from a business standpoint, FTS offers end-to-end and add-on telecom
billing, charging, policy control and payments solutions to customers worldwide, and services both growing and major providers.
FTS
targets mid to lower level tier service providers, supporting their BSS needs with end-to-end, turnkey billing and other BSS projects.
In addition, FTS offers upper-tiers of service providers with BSS and monetization solutions for specific needs, including policy control
and charging solutions, M2M billing, billing for content services, MVNE/MVNO billing, mobile money software solutions, payment and mobile
financial services solutions and others.
Our
Leap™ offering is comprised of:
Leap™
BCCF (Business Control and Charging Function) – a proprietary packaged software solution which serves as the underlying foundation
of our Leap™ products and solutions. Leap BCCF enables service providers to handle the aspects of event processing, from defining
the system's business logic, through importing events and formatting, to charging and executing business rules. With Leap BCCF,
new services are deployed on the fly, and strategic business rules are formulated more easily, ensuring real-time responses to both service
and customer-related events and providing a baseline for policy control.
Leap™
Billing 6.3 – a convergent charging, billing and customer care solution that realizes substantial reductions in OPEX and CAPEX
while increasing customer satisfaction and retention. Leap Billing software's flexibility and ease of use enables the service providers'
billing platform to work more at the speed of marketing by offering new marketing plans or services in a rapid time-to-market.
Leap™
Policy Control
-
Leap Policy Control is an integrated charging and policy control solution (a full PCC solution based on PCRF
& online/offline charging). Compliant with the 3GPP's Diameter policy control standard, Leap Policy Control provides traffic
and subscriber management strategies. Leap Policy Control gives operators the power to monitor usage in real time and, using fully configurable
business rules, define how they manage network resources, applications, and subscribers – in real time – while generating
revenue from personalized mobile applications, content and services. Leap Policy Control can be implemented as a stand-alone solution
or as part of a larger BSS project implementation.
FTS
Express™
-
FTS express™ is an all-in-one software appliance for online charging, billing, AAA, balance management,
customer care, policy control and interconnect, designed for entry-level operations of MVNOs, LTE, VoIP, ISP, broadband, IPTV and more.
The
following is a sample of the monetization solutions offered by FTS:
●
End-to-end, turnkey billing
    and customer care solutions;
●
Convergent, online charging
    and billing;
●
Policy control and charging;
72
●
MVNO/E billing;
●
Billing for content;
●
Interconnect billing;
●
M2M / IoT billing;
●
Broadband and multi-play
    billing;
●
Mobile money solutions;
●
E-commerce and M-commerce
    solutions;
●
Payments and mobile payments
    solutions;
●
Smart revenue sharing and
    partner management solutions; and
●
Billing service bureau.
FTS's
solutions are delivered via cloud, on-premises or in a fully managed-services mode and are backed by our Israel and Bulgaria-based experienced
professional services support team.
HR
Pulse
Now
in its 10
th
release, HR Pulse is a proprietary platform that creates and customizes software applications for HCM, with the
goal to combine technology with effective processes, to facilitate the collection, analysis and interpretation of quality data about
people, their jobs and their performance, to enhance HCM decision making, resulting in increased organizational efficiency and effectiveness.
HR Pulse addresses four distinct functional areas with the ability to also work as one consolidated system:
●
Performance and goal management:
●
Development management;
●
Talent management and succession
    planning; and
●
Compensation and merit
    review.
Our
offering includes customizable "out of the box" HCM SaaS Solutions, such as Pilat Frist and Pilat Professional, that provides
a menu of templates that can be used to affordably and expeditiously create customized HCM solutions for companies. The HR Pulse platform
promotes the building and implementation of solutions that address broader business challenges as well. Such offerings include 360-degree
feedback, employee surveys, leadership and management development, coaching and job evaluation.
Hermes
Cargo
Hermes
has been developing and evolving cargo management systems for the air cargo industry since 2002. Hermes Air Cargo Management System is
a proprietary, state-of-the-art, packaged software solution for managing air cargo ground handling. Our Hermes Solution covers all aspects
of cargo handling, from physical handling and cargo documentation through customs, seamless EDI communications, dangerous goods and special
handling, tracking and tracing, security and billing. Over the last 10 years Hermes systems have been implemented in over 70 terminals
on five continents, providing efficient and accurate handling of more than 5 million tons of freight annually. Customers benefit through
faster processing and more accurate billing, reporting and ultimately enhanced revenue. Customers include independent ground handlers,
airlines with a cargo arm, hubs belonging to an individual airline or those catering to a number of airlines transiting cargo to additional
destinations. The Hermes Solution is delivered on a licensed or fully hosted basis.
73
Hermes
systems are built with the specific needs of air cargo handlers and airlines in mind and are amongst the most versatile and sophisticated
around. Hermes Solutions are focused on maximizing customer profits by streamlining ground handling processes and employing built-in
best practices to reduce handling errors. Hermes team of cargo experts carry out a full business analysis, listen to our customers'
requirements, suggest additional functionality and work with them to deliver an air cargo management solution that is streamlined around
their processes and customized to their needs. Hermes works with everyone from smaller cargo handlers to large airlines all over the
world and counts Menzies Aviation, WFS (FRA), Luxair, Etihad Airport Services and Frankfurt Cargo Services among their customers.
Nativ
Offered
by Magic Software's Menarva Ltd subsidiary, Nativ is the leading system for efficient management of all types of rehabilitation
centers. Selected by many of the largest rehabilitation and treatment centers in Israel, Nativ serves as a comprehensive solution, the
largest and most specialized and equipped system in Israel, with all the capabilities required for operating all aspects of organizations
engaged in rehabilitation and treatment. professional software and IT services. From rehabilitation programs to recruitment, Nativ enables
control of all levels of rehabilitation bodies, including monitoring detailed rehabilitation plans, finance, collection, account management,
recruitment, working hours, asset management, employment and medical files.
In
addition, Nativ also contains many integral interfaces, including the Israel's Ministry of Health's suppliers portal, Israel's
Ministry of Welfare's suppliers portal, rent transfers from the Israel's Ministry of Housing, accounting systems, payroll
systems and more. The system produces a wide range of reports, including a receipt report from Israel's Ministry of Health, Welfare,
Economy and Security, comprehensive and detailed information divided into units and services, a detailed living allowance report, patient
report, condition report, emergency report and more.
Menarva
has extensive experience gained in its work over the past 10 years with dozens of clients in Israel, an experience that has given rise
to in-depth insights into the field of rehabilitation. Nativ is supported by the cloud and allows connection at any time and from any
place for maximum efficiency, including a mobile application for continuous monitoring of field personnel in real time.
Nativ
offers maximum survivability, due to the need for high reliability and comprehensive information security, all infrastructure is owned
by Menarva and the system complies with all standards and guidelines of Israel's Privacy Protection Authority, including ISO standards:
Standard 9001 for Quality Control, and Standard 27001 for information systems development.
Magic
Software Product Development
Magic
Software place considerable emphasis on research and development in order to improve and expand the functionality of our technologies
and to develop new applications. We believe that our future success depends upon our ability to maintain our technological leadership,
to enhance our existing products and to introduce new commercially viable products addressing the needs of our customers on a timely
basis. We also intend to support emerging technologies as they are introduced in the same way we have supported new technologies in the
past. We will continue to devote a significant portion of our resources to research and development. We believe that internal development
of our technology is the most effective means of achieving our strategic objective of providing an extensive, integrated and feature-rich
development technology. For significant version release see "Magic's Software Solutions" discussed above.
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Magic Software Product-Related
Services
Professional Services
.
Magic Software offer fee-based consulting services in connection with installation assurance, application audits and performance enhancement,
application migration and application prototyping and design. Consulting services are aimed at generating both additional revenues and
ensuring successful implementation of Magic xpa, Appbuilder, Magic xpi, Magic BusinessEye, SmartUX and FactoryEye projects through knowledge
transfer. As part of management efforts to focus on license sales, our goal is to provide such activities as a complementary service to
our customers and partners. We believe that the availability of effective consulting services is an important factor in achieving widespread
market acceptance.
Services are offered as separately
purchased add-on packages or as part of an overall software development and deployment technology framework. Over the last several years,
we have built upon our established global presence to form business alliances with our MSPs that use our technology to develop solutions
for their customers, and distributors to deliver successful solutions in focused market sectors.
Maintenance.
We offer
our customers annual maintenance contracts providing for unspecified upgrades and new versions and enhancements for our products on a
when-and-if-available basis for an annual fee.
Customer Support.
We
believe that a high level of customer support is important to the successful marketing and sale of our products. Our in-house technical
support group provides training and post-sale support. We believe that effective technical support during product evaluation as well as
after the sale has substantially contributed to product acceptance and customer satisfaction and will continue to do so in the future.
We offer online support systems
for our MSPs and end users, providing them with the ability to instantaneously enter, confirm and track support requests through the Internet.
These systems support MSPs and end-users worldwide. As part of this online support, we offer Support Knowledge Base tools providing the
full range of technical notes and other documentation including technical papers, product information, and answers to most common customer
queries and known issues that have already been reported.
Training.
We conduct
formal and organized training on our development tools and packaged software solutions. We develop courses, pertaining to our principal
products and provide trainer and student guidebooks. Course materials are available both in traditional, classroom courses and as web-based
training modules, which can be downloaded and studied at the student's own pace and location. The courses and course materials are
designed to accelerate the learning process, using an intensive technical curriculum in an atmosphere conducive to productive training.
Magic Software IT Services
Background
The core of our growth strategy
is to serve as a one-stop-shop for our clients, helping them accelerate their digital transformation to enhance competitiveness, grow
profitability and deliver sustainable stakeholder value. We use our deep industry and functional expertise to help clients capture more
growth and solve a diverse set of business challenges, including identifying and developing new products and services; improving sales
and customer experience; optimizing cost structures; maximizing human performance; harnessing data to improve decision-making; mitigating
risk and enhancing security; shaping and delivering value from large-scale cloud migrations; and digitizing manufacturing and operations
with smart, connected products and platforms.
Technology is the single biggest
driver of change in companies today. We help our clients use technology to build their digital core to drive enterprise-wide transformation—such
as moving them to the cloud, leveraging data and artificial intelligence, and embedding security and sustainability across the enterprise;
by transforming their operations; and by accelerating their revenue growth. We leverage our scale and global footprint, innovation capabilities,
and strong ecosystem partnerships, together with our platforms including to consistently deliver tangible value for our clients.
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Despite the potential impacts
of the Omicron variant, economic recovery is expected to continue to boost technology investments, with high expectations for digital
market prosperity. While according to Gartner, worldwide IT spending was expected to grow by 5%-6% in 2021, it actually grew by over 9%,
and is expected to continue to grow, by 5.1% in 2022 (see https://www.gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five-
point-1-percent-in-2022, which is not incorporated by reference into this annual report).
Our IT services offerings
consist of a variety of professional services that can be grouped into integration and other IT services. Our integration services include:
●
Infrastructure analysis, design and delivery
- management of complex, tailor-made projects and telecom infrastructure projects in wireless and wire-line as well as IT consulting services, mainly for the defense and public sectors.
●
Technology consulting and implementation services
- planning and execution of end-to-end, large-scale, complex solutions in networking, cyber security, command & control and high performance transaction systems.
●
Application development
- We specialize in end-to-end projects that feature an array of technologies, from development and implementation of concepts for startups to overall responsibility for the development of systems for large enterprises. Our development services include development of on-premise, mobile and cloud applications as well as Embedded and real time software development.
Magic Software is a talent-
and innovation-led organization with approximately 4,161 people as of December 31, 2022, who serve our clients at any given time and whose
skills and specialization are a significant source of competitive differentiation. With approximately 3,500 experts, the majority of whom
are in the U.S, Israel and Europe, and hundreds of projects gone live in a variety of advanced technologies, we have developed significant
expertise and accumulated vast experience in integration projects. Such projects are typically more complex and require a high level of
industry knowledge and highly skilled professionals. Our integration expertise, as well as our global reach allows us to deliver comprehensive,
value added services to our customers. Our IT services customers include major global telecoms, OEMs and engineering, furnish and installation
service companies.
Strategic Consulting and Outsourcing Services
Magic Software provides a
broad range of IT consulting services in the areas of infrastructure design and delivery, application development, technology planning
and implementation services, cloud computing, as well as supplemental outsourcing services. Our wholly-owned subsidiaries, Fusion Solutions
LLC, Xsell Resources Inc., Allstates Consulting Services LLC, Futurewave Systems, Inc., NetEffects, Inc, OnTarget Group, Inc, the CommIT
Group, Infinigy Solutions LLC., The Goodkind Group LLC., EnableIT LLC, Comblack Ltd. and Shavit Software (2009) Ltd. provide advanced
IT consulting and outsourcing services to a wide variety of companies including Fortune 1000 companies. Our technical personnel generally
supplement the in-house capabilities of our customers. Our approach is to make available a broad range of technical personnel to meet
the requirements of our customers rather than focusing on specific specialized areas. We have extensive knowledge of and have worked with
virtually all types of wireless and wireline telecom infrastructure technologies as well as in the areas of infrastructure design and
delivery, application development, project management, technology planning and implementation services. Our consulting partners come from
a wide range of industries, including finance, insurance, government, health care, logistics, manufacturing, media, retail and telecommunications.
With an experienced team of recruiters in the telecom and IT areas and with a substantial and a growing database of telecom talent, we
can rapidly respond to a wide range of requirements with well qualified candidates. Our customer list includes major global telecoms,
OEMs and engineering, furnish and installation service companies. We have built long-term relationships with our customers by providing
expert telecom talent. We provide individual consultants for contract and contract-to-hire assignments as well as candidates for full
time placement. In addition, we configure teams of technical consultants for assigned projects at our customers' sites.
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Michpal
Michpal, an Israeli registered
company, is a developer of proprietary, on-premise payroll software solution for processing traditional payroll stubs to Israeli enterprises
and payroll service providers. Michpal also developed several complementary modules such as attendance reporting, which are sold to its
customers for additional fees. As of December 31, 2022, Michpal group serves more than 8,000 customers, most of which are long-term customers.
As part of its payroll software
solution, Michpal allows the preparation of employee paychecks, pay statements, supporting journals, summaries, and management reports
and supports monthly and year-end regulatory and legislative payroll tax statements and other forms such as payroll social and income
taxes, to its clients and their employees. In addition, Michpal enables its clients to connect to certain major enterprise resource planning,
or ERP, applications with a certified connector.
In January 2018, Michpal released
its new product and a new service line – "Michpal Pension" and "Michpal PensionPlus", respectively, which
led to a 25% increase in revenues of Michpal year over year. These solutions enable all Israeli employers to digitally report their employees'
pension fund payments to their respective pension funds as required by Israeli law (this requirement took effect on February 1, 2018 for
employers who employ more than 21 employees, on February 1, 2019 for employers who employ more than 10 employees, on February 1, 2023
for employers who employ more than 3 employees and on February 1, 2024 also for employers who employ less than 3 employees).
In November 2018, Michpal
expanded its business through the acquisition of an 80% share interest in Effective Solutions Ltd., an Israeli company that provides
consulting services in the fields of operational cost savings and procurement, as well as salary control and monitoring. The two companies
have launched, in November 2018, a new service called 'Michpal YEDA', adopted by more than 50% of Michpal's customers,
which allows clients to consult with team of experienced professionals, including employment attorneys and HR experts, with respect to
payroll, labor, pensions, social security and employee income tax matters.
In January 2019, Michpal launched
a supplement service line, "Michpal 360", specially tailored for payroll service providers, allowing them to offer their clients
to digitally report their employees' pension fund payments to their respective pension funds as required by law.
In November 2019, Michpal
completed its second acquisition, acquiring all of the share capital of Unique Software Industries, an Israeli software development and
services company, which during its 30 years of operations, has provided integrated solutions in the field of payroll, including pay-stubs,
pension services management, education funds management, and software solutions for managing employee attendance. The acquisition constituted
an additional strategic move towards the expansion of our operations in the field of payroll and human resources management in which we
currently engage primarily through the Michpal group. Following the acquisition of Unique, we started operating in the complementary field
of outsourced payroll services, in which we were not active and will allow us to penetrate the field of services bureaus, by way of expanding
our present customer base.
In May 2020, Michpal completed
the acquisition of 70% of the share capital of Liram Finance Software Ltd, a provider of proprietary integrated specialized management
systems in the field of financial accounting, taxation and compliance, for accounting professionals (accountants and tax consultants),
bookkeepers, controllers, and CFOs, giving its clients, for more than 35 years, complete confidence in their actions and decisions. Liram's
solutions include specialized financial software solutions for preparation and reporting of financial statements, tax declarations, single-entry
and double-entry bookkeeping. fixed asset management and depreciation calculations (under the brand name Ram-Nihul).
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In 2021, Liram launched its
"RamPlus 360" platform, which is a modular platform offering a wide range of Liram's software solutions under one integrated
working environment (on-premise or online). The new platform has already proven its efficacy during the COVID-19 crisis by enabling financial
professionals to continue their work offsite and provide crucial real-time and personalized service to their clients even during the COVID-19
lockdown period, while saving time and preventing errors. We believe that the acquisition of Liram is a strategic step towards the expansion
of Michpal's operations in the field of payroll, human resources and financial management and compliance.
In January 2022, Michpal launched its digital
employee payroll portal - for employer and employee. The portal allows employees 24X7 access to view their pay stubs and payroll tax history,
update their profile information such as their mailing address, phone number, and email address, get notification directly from their
employer on every monthly salary payment and extract administrative reports including employee's monthly attendance reports.
In February 16, 2022, Michpal acquired 70% of
the share capital of Formally Smart Form System Ltd. ("Formally"). Formally is an Israeli-based company and the creator of
Formally Smart Form platform – a central server platform for managing knowledge and work processes, and for producing digital forms
combined with a legally-binding eSignature technology allowing customers to create impressive documents in minutes and get them signed
in a snap. Formally offers a variety of proprietary computerized and advanced tools for managing business processes trusted by Israel's
largest financial, banking, and insurance enterprises. Its "no-code" platform, allows to convert outdated forms into a digital
process for any company freeing IT teams from ongoing maintenance issues and enables employees across the organization to deliver new
digital products quickly and efficiently.
InSync
InSync is a US based national
supplier of employees to Vendor Management Systems (VMS) Workforce Management Program accounts. InSync specializes in providing professionals
in the following areas: Accounting and Finance, Administrative, Customer Service, Clinical, Scientific and Healthcare, Engineering, Manufacturing
and Operations, Human Resources, IT Technology, LI/MFG, and Marketing and Sales. With an experienced team of IT recruiters, InSync can
rapidly respond to a wide range of requirements with well-qualified candidates. InSync currently supports more than 30 VMS program customers
with employees in over 40 states.
Zap Group
Zap Group, is Israel's
largest group of consumer websites which manages more than 20 leading consumer websites from diverse content worlds with a total of more
than 17 million visits per month, including Zap Price Comparison website, Zap Yellow Pages (the largest business index in Israel) and
Zap Rest (Israel's restaurants index). Zap Group, an Israeli private company, provides a variety of digital advertising solutions
for its customers (small and medium businesses in Israel) and an access to an E-commerce platform to allow them engage with their consumers.
Zap Group serves over 400,000 listed businesses on its platforms; approximately 16,000 of them are paying customers.
The websites managed and offered
by Zap Group offer consumers a user-friendly search experience with a variety of advanced tools, which enable them to make educated purchase
decisions in the best and most informed way.
Digital Solutions
Zap Group provides a variety
of digital advertising solutions for its customers (small and medium businesses in Israel) and an access to an E-commerce platform that
allows them to engage with their consumers. Zap Group regularly seeks to develop attractive digital solutions, which it believes to have
market potential for small and medium businesses and their end user. All of Zap Group's investments in this area have been proven,
where we believe we can leverage our experience to enhance product positioning and increase market penetration. We provide our management
and technical and financial expertise, marketing experience to help bring these products to market.
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E-commerce Solutions
Zap Group provides an E-commerce
platform for approx. 1,500 large, medium and small businesses, which operates stores in Israel. The platform, both website and application,
allow end users to compare prices of the various stores for over 1.2 million products in 650 categories. The platform provides to more
than 120 million visiting end users annually, 300,000 reviews of stores and products and 5,000 quality guides (videos and articles), which
allow them to engage through the platform directly with stores for the purchase of a certain product they looked at through the platform.
Total online purchases through the platform are estimated at approximately NIS 2 billion annually, which is estimated as constituting
14% out of total online purchase volume in Israel (not including food and beverage).
In 2021, Zap Group launched
a new website for car sellers and buyers, which provides a marketplace where buyers can explore on one website various options for buying
a second-hand car (B2C). The platform allows the buyer to compare prices, specs, financing, peripheral services, accessories and overall
packages. The online, real-time supply availability enables transparency, and also provides the buyer an aggregated view of specific sellers
and agencies, and direct contact with a large pool of sellers.
In December 2022 Zap Group concluded the acquisition
of 51% of the outstanding share capital of N.C Marketing and Advertising Ltd. (also known as "Safra digital marketing") and
51% of the outstanding share capital of Marcomit Ltd. ("Marcomit"). Safra digital marketing is an Israeli company specializing
in social media services including Facebook, Instagram and Tik-tok. Marcomit is an Israeli company specializing in digital branding for
large enterprises including advanced branding materials for media and digital advertising.
Digital platforms
Zap Group provides digital
advertising platforms and services through 18 websites for medium and small businesses in 1,600 business categories in Israel, including
doctors, lawyers, and other service and product providers. The platform, both website and application allow end users to contact directly
with the service provider. The platform provides to more than 50 million visiting end users annually, 200,000 reviews 2,000 quality guides
(videos and articles), 300 price lists, and 700 forums with more than 1.5 million expert explanations.
Zap Group also provides its
customers other digital services such as Search Engine Marketing (Pay Per Click Google and Facebook campaigns) and Search Engine Optimization
for their websites. In addition, Zap Group provides website design services, creation of new websites on various tools (ZAP-X), management
of social media, online business cards (GMB), and big data services.
Restaurants and events
Zap Group provides digital
advertising platforms and services for more than 17,000 restaurants listed and provides services for social events. Approximately 2,500
of them are paying customers. The platform, both website and application allow end users to directly contact the restaurant for table
ordering, ordering of delivery or take away, to post visit reviews or explore the restaurant menu, photo gallery and other content such
as articles, etc. The platform provides to more than 30 million visiting end users annually, approximately two million food deliveries,
200,000 reviews, 5,000 food and culinary articles (videos and articles), and more than 0.5 million push updates annually.
Other
Zap Group provides a digital
advertising platform for domestic travel and hospitality businesses in Israel. The platform— both website and application—
allows end users to order directly from the provider (hotel, guesthouse or attraction service provider). The platform provides access
to approximately 1,200 vacation and leisure locations, and to millions of visiting end users annually.
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Our Affiliated Company
TSG
TSG is a global high technology
company engaged in high-end technical solutions for protecting the safety of national borders, improving data gathering mechanisms, and
enhancing communications channels for military, homeland security and civilian organizations.
TSG operates primarily in
the defense and homeland security arenas. The nature of military and homeland security actions in recent years, including low intensity
conflicts and ongoing terrorist activities, as well as budgetary pressures to focus on leaner but more technically advanced forces, have
caused a shift in the defense and homeland security priorities for many of TSG's major customers. As a result, TSG believes there
is a continued demand in the areas of command, control, communications, computer and intelligence (C4I) systems, intelligence, surveillance
and reconnaissance (ISR) systems, intelligence gathering systems, border and perimeter security systems, cyber-defense systems. There
is also a continuing demand for cost effective logistic support and training and simulation services. TSG believes that its synergistic
approach of finding solutions that combine elements of its various activities positions it to meet evolving customer requirements in many
of these areas.
TSG tailors and adapts its
technologies, integration skills, market knowledge and operationally-proven systems to each customer's individual requirements in
both existing and new platforms. By upgrading existing platforms with advanced technologies, TSG provides customers with cost-effective
solutions, and its customers are able to improve their technological and operational capabilities within limited budgets.
TSG markets its systems and
products either as a prime contractor or as a subcontractor to various governments and defense and homeland security contractors worldwide.
In Israel, TSG sells its defense, intelligence and homeland security systems and products mainly to the IMOD, which procures all equipment
for the Israeli Defense Force (IDF).
In 2022 TSG acquired 51% of
the outstanding share capital of E.P.R. Systems Ltd. Headquartered in Israel, E.P.R has over 20 years of experience and serves more than
100 local authorities in Israel. E.P.R offers comprehensive software solutions for municipal institutions primarily to manage all their
billing and collection operations for all types of revenues, including taxes, fees and levies and several innovative extension modules.
Additionally, E.P.R offers a full scope of expert implementation, application management and hosting services, enabling municipal institutions
to execute their digital and business strategies. In accordance with the purchase agreement, TSG may acquire additional 9% of the outstanding
share capital of E.P.R. during the first 12 months following the closing based on the 51% closing date deal value. In January 2023, TSG
exercise its right and acquired the additional 9% of the outstanding share capital of E.P.R.
TSG's offerings include:
Command & Control Solutions
TSG offers sophisticated and
innovative command and control solutions that support military and civilian sectors on land, air and sea. TSG provides a variety of Command
& Control solutions ranging from strategic battlefield management to tactical and special operations forces. TSG systems cover all
echelons of management, from national and regional levels down to the operational and tactical levels. Its systems are field proven and
used by military forces, security services and public safety organizations worldwide.
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Intelligence, Surveillance
and Knowledge Management Solutions
TSG Intelligence solutions
for security agencies and defense forces meet the demand for accurate and timely intelligence, based on multiple sources and sensors.
TSG unique technologies cover the entire life-cycle of intelligence from acquisition to fusion, analysis, distribution, target management
and more. TSG's Knowledge Management solutions provide public sector bodies with the capacity to effectively manage their organizational
data, support decision making and follow-up.
Telecommunication&
IT Management Solutions
TSG has extensive experience
in developing and integrating telecommunications and IT solutions and tools such as Operations Support Systems (OSS), Contact Centers,
Back Office Optimization and Value-Added Services (VAS) that are tailored to meet the requirements of multiple applications. Leveraging
deep know-how in telecommunications, TSG provides wide-ranging offering suitable for public and private sector organizations.
Cyber Security Solutions
& Services:
TSG provides cutting-edge
security services and solutions to government and private sectors including secure critical infrastructure and financial institutions
in cyber space. TSG cyber solutions, Cyber Security Center (CSC), Security Training, Security Investigations and Security Engineering
support the establishment of a safe, secure and reliable work environment and cover, among other things, Security Engineering, Digital
Forensics, Computer emergency response teams (CERT), Mobile Security, and Training.
Homeland Security Solutions
(HLS)
TSG's field proven homeland
security solutions maximize safety and security while minimizing threats. TSG provide its clients with paramount technologies ranging
from emergency management and Chemical, biological, radiological and nuclear defense (CBRN) systems, to rescue& special operations
and smart and safe city solutions.
Supporting Tools:
TSG offers a variety of supporting
system and solutions, providing dynamic and customizable field proven applications for in the following verticals:
●
Facility Management
●
Recording and Debriefing systems
●
Trainers and Simulators
●
Mapping Engines
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Geographical Distribution of Revenues
The following table summarizes
our consolidated revenues classified by geographic regions of our customers, for the periods indicated:
2021
2022
Israel
$
1,506,566
$
1,571,035
International:
United States
591,794
680,325
Europe
255,680
262,303
Africa
18,012
26,692
Japan
12,890
11,333
Other (mainly Asia pacific)
19,434
20,669
Total
$
2,404,376
$
2,572,357
Competition
The markets for the IT products
and services we offer are rapidly evolving, highly competitive and fragmented, and, in some cases, present only low barriers to entry,
with frequent new product introductions, and mergers and acquisitions. Our ability to compete successfully in IT services markets depends
on a number of factors, like breadth of service offerings, sales and marketing efforts, service, pricing, and quality and reliability
of services. The principal competitive factors affecting the market for the proprietary software solutions include product performance
and reliability, product functionality, availability of experienced personnel, price, ability to respond in a timely manner to changing
customer needs, ease of use, training and quality of support.
We face competition, both in Israel and internationally,
from a variety of companies, including companies with significantly greater resources than us who are likely to enjoy substantial competitive
advantages, including:
●
longer operating histories;
●
greater financial, technical, marketing and other resources;
●
greater name recognition;
●
well-established relationships with our current and potential clients; and
●
a broader range of products and services.
As a result, our competitors
may be able to respond more quickly to new or emerging technologies or changes in customer requirements. They may also benefit from greater
purchasing economies, offer more aggressive product and service pricing or devote greater resources to the promotion of their products
and services. In addition, in the future, we may face further competition from new market entrants and possible alliances between existing
competitors. We also face additional competition as we continue to penetrate international markets. As a result, we cannot assure you
that the products and solutions we offer will compete successfully with those of our competitors. Furthermore, several software development
centers worldwide offer software development services at much lower prices than we do. Due to the intense competition in the markets in
which we operate, software products prices may fluctuate significantly. As a result, we may have to reduce the prices of our products.
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Matrix's Competitive Landscape
Matrix's principal competitors
in the domestic Israeli market are Israeli IT services companies and systems integrators such as: Hilan Ltd., Malam-Team, One-1, Kyndryl,
Aman, the Elad Group, Yael, SQLink, Emet Computing, AllCloud, Emet, LogOn, Abra-it, and HMS. In addition, in recent years, large accounting
and advisory firms such as Deloitte and E&Y have expanded their service portfolio to include managed services and consulting in the
fields of BI, Cybersecurity, ERP and CRM. We view these firms as direct competition, given that they already have a deep understanding
of a particular client's business because of the accounting and auditing services they provide, and given the trust that they have
developed with the client, which is an essential part of providing any services to a client. This international trend is as evident in
Israel as it is in all major markets around the world. Matrix's competitors in the United States market include many companies that
provide similar services to those of Matrix, as well as providers of offshore services which utilize low rates. In some cases, Matrix
competes with IBM, Accenture, Oracle and the large accounting and advisory accounting firms. Matrix's international competitors
in the Israeli marketplace include Microsoft, IBM, HP and Oracle. These international competitors often use local subcontractors to provide
personnel for contracts performed in Israel. Most of these international entities are also business partners of Matrix. The main competitors
with respect to infrastructure solutions include One-1, Malam-Team and Emet Computing. With respect to cloud services, competitors include
All Cloud, DoIT, Google, Microsoft and Amazon Web Services. Matrix competitors with respect to training are the training centers of the
Technion, IITC, HackerU, Ness Technologies, SQLink and Sela.
Sapiens' Competitive Landscape
Sapiens is focused on serving
insurers. The market for core software solutions for the insurance industry is highly competitive and characterized by rapidly changing
technologies, evolving industry standards and customer requirements, and frequent innovation. In addition, we offer a business decision
management platform, mainly to financial services organizations.
Competitive Landscape
for Insurance Software Solutions
Sapiens' competitors
in the insurance software solutions market differ from us based on size, geography and lines of business. Some of our competitors offer
a full suite, while others offer only one module; some operate in specific (domestic) geographies, while others operate on a global basis.
And delivery models vary, with some competitors keeping delivery in-house, using IT outsourcing (ITO), or business process outsourcing
(BPO).
The insurance software solutions
market is highly competitive and demanding. Maintaining a leading position is challenging, because it requires:
●
Development of new core insurance solutions, which necessitates a heavy R&D investment and in-depth knowledge of complex insurance environments
●
Technology innovation to attract new customers, with rapid, technology-driven changes in the insurance business model and new propositions coming
●
A global presence and the ability to support global insurance operations
●
Ability to manage multiple partnerships, due to the changing landscape of insurers' ecosystems
●
Extensive knowledge of regulatory requirements and how to fulfill them (they can be burdensome and require specific IT solutions)
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●
Continued support and development of the solutions entails a critical mass of customers that support an ongoing R&D investment
●
Know-how of insurance system requirements and an ability to bridge between new systems and legacy technologies
●
Enabling mission-critical operations that require experience, domain expertise and proven delivery capabilities to ensure success
The complex requirements
of this market create a high barrier to entry for new players. As for existing players, these requirements have led to a marked increase
in M&A transactions in the insurance software solutions sector, since small, local vendors have not been able to sustain growth without
continuing to fund their R&D departments and following the globalization trend of their customers.
We believe Sapiens is well-positioned
to leverage our modern solutions, customer base and global presence to compete in this market and meet its challenges. In addition, our
accumulated experience and expert teams allow us to provide a comprehensive response to the IT challenges of this market.
Different types of competitors include:
●
Global software providers with their own IP
●
Local/domestic software vendors with their own IP, operating in a designated geographic market and/or within a designated segment of the insurance industry
●
BPO providers who offer end-to-end outsourcing of insurance carriers' business, including core software administration (although BPO providers want to buy comprehensive software platforms to serve as part of the BPO proposition from vendors and may seek to purchase our solutions for this purpose)
●
Internal IT departments, who often prefer to develop solutions in-house
●
New insurtech companies with niche solutions
We differentiate Sapiens from
its potential competitors for insurance software solutions through the following key factors:
●
We offer cloud-based innovative and modern software solutions, with rich functionality and advanced, intuitive user interfaces, based on deep domain expertise and insurance know how
●
Sapiens uses model-driven architecture that allows rapid deployment of the system, while reducing total cost of ownership and benefiting from cloud deployment
●
Our solutions are built using an architecture that allows customers to implement the full solution or components, and readily integrate the solution or individual components into their existing IT landscape
●
Strong and global partnership program, with established IT players and new insurtech companies, to ensure linkage to innovative technologies and new business models, as well as ongoing work to embed innovation into Sapiens platforms
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●
We identify technology trends and invest in adjusting our solutions to keep pace with today's frenetic evolutions
●
Our financial stability, and our large and growing global customer base, enables us to fund R&D investment and maintain the competitive advantage of our products We are able to fund R&D investment and maintain the competitive advantage of our products, due to our large and growing customer base and financial stability
●
Our delivery methodology is based on extensive insurance industry experience and cooperation with large insurance companies globally. Our track record over the past few years in developing a strong offshore development center is also a significant parameter in differentiating our abilities in the services space
We leverage our proven track
record of successful delivery to help our customers deploy our modern solutions, while integrating with their legacy environment (when
that legacy environment must remain supported)
Competitive Landscape for
Business Decision Management Solutions
Sapiens Decision is a pioneer
in this disruptive market landscape. Since the introduction of our innovative approach to enterprise architecture to the market, we have
identified only a small number of potential competitors.
Sapiens differentiates itself
from potential competitors through the following key factors:
●
We believe that Sapiens Decision is the only solution (that is currently generally available and already in production) that offers a true separation of the business logic in a decision management system for large enterprises.
●
Sapiens Decision is unique in its proven ability to support complex environments, with a full audit trail and governance that is crucial for large financial services organizations.
●
We understand complex environments where Decision is deployed, due to our experience delivering complex, mission-critical solutions.
Magic Software's Competitive Landscape
The markets for Magic Software
Magic xpa and Magic xpi platforms are characterized by rapidly changing technology, evolving industry standards, frequent new product
introductions, mergers and acquisitions, and rapidly changing customer requirements. These markets are therefore highly competitive, and
we expect competition to continue to intensify. The growth of the cloud adoption and mobile markets increases the competition in these
areas. We constantly follow and analyze the market trends and our competitors in order to effectively compete in these markets and avoid
losing market share to our direct competitors and other players.
With Magic xpa, we compete
in the low-code application platform, SOA architecture and enterprise mobility markets.  Our main competitors fall into two categories:
(1) providers of custom software and customer software solutions that address, or are developed to address, some of the use cases that
can be addressed by applications developed on our platform; and (2) providers of low-code development platforms, such as Microsoft, Salesforce.com,
ServiceNow, OutSystems, Appien and Mendix;
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As our market grows, we expect
it will attract more highly specialized vendors as well as larger vendors that may continue to acquire or bundle their products more effectively.
The principal competitive factors in our market include:
●
Platform features, reliability, performance, and effectiveness;
●
Ease of use and speed;
●
Platform extensibility and ability to integrate with other technology infrastructures;
●
Deployment flexibility;
●
Robustness of professional services and customer support;
●
Price and total cost of ownership;
●
Strength of platform security and adherence to industry standards and certifications;
●
Strength of sales and marketing efforts; and
●
Brand awareness and reputation
With Magic xpi, we compete
in the integration platform market, which is highly competitive and rapidly evolving. Among our current competitors are IBM, Informatica,
TIBCO, MuleSoft, Jitterbit, Talend, Dell–Boomi, Scribe and Software AG.
There are several similar
products in the market utilizing the model driven architecture, or MDA, approach utilized by AppBuilder. The market for this type of platform
is highly competitive. Companies such as CA and IBM have tools that compete directly with AppBuilder. Furthermore, new development paradigms
have become very popular in IT software development and developers today have many alternatives.
As our market grows, we expect
that it will attract more highly specialized vendors as well as larger vendors that may continue to acquire or bundle their products more
effectively. The principal competitive factors in our market include:
●
platform features, reliability, performance and effectiveness;
●
ease of use and speed;
●
platform extensibility and ability to integrate with other technology infrastructures;
●
deployment flexibility;
●
robustness of professional services and customer support;
●
price and total cost of ownership;
●
strength of platform security and adherence to industry standards and certifications; and
●
strength of sales and marketing efforts.
86
We believe we generally
compete favorably with our competitors with respect to the features, security and performance of our platform, the ease of integration
of our applications and the relatively low total cost of ownership of our applications. However, many of our competitors have substantially
greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets, broader distribution,
more diversified product lines and larger and more mature intellectual property portfolios.
Our goal is to maintain our
technological advantages, time to market and worldwide sales and distribution network. We believe that the principal competitive factors
affecting the market for our products include developer productivity, rapid results, product functionality, performance, reliability,
scalability, portability, interoperability, ease-of-use, demonstrable economic benefits for developers and users relative to cost, quality
of customer support and documentation, ease of installation, vendor reputation and experience, financial stability as well as intuitive
and out-of-the-box solutions to extend the capabilities of ERP, CRM and other application vendors for enterprise integration.
Michpal's Competitive Landscape
With respect to Michpal, the
market in which it operates is very fragmented and among its current competitors in the Israeli market in which it operates are mainly
Hilan, MalamTeam, Tamal, Synel, Oketz systems and others.
Our goal is to maintain Michpal's
technological advantages, time to market, sales and distribution network. We believe that the principal competitive factors affecting
the market for Michpal's products include developer productivity, rapid results, product functionality, performance, reliability,
scalability, portability, interoperability, ease-of-use, demonstrable economic benefits for developers and users relative to cost, quality
of customer support and documentation, ease of installation, vendor reputation and experience, financial stability as well as intuitive
and out-of-the-box solutions that extend its capabilities to effectively manage its operations and reduce its business risks in the face
of changing business environments.
Seasonality
Even though not significantly
reflected in our financial results, traditionally, the first and third quarters of the fiscal year have tended to be slower quarters for
some of our subsidiaries and our affiliated companies and the industries in which they operate. The first quarter usually reflects a decline
following a highly active fourth quarter during which companies seek to complete transactions and projects and utilize budgets before
the end of the fiscal year. The relatively slower third quarter reflects reduced activities during the summer months in many of the regions
where our customers are located and also reflects the Jewish national holidays in Israel.
In addition, our quarterly
results are also influenced by the number of working days in each period in Israel. For example, during the Jewish holidays period (typically
at the end of the third quarter and beginning of the fourth quarter or at the end of the first quarter and beginning of the second quarter),
when the number of working days is lower, we tend to see a decrease in our revenues, which may impact our quarterly results. Following
is the quarterly breakdown, by percentage, of standard working hours in each quarter of 2022 and 2023 in the Israeli market, which accounts
for approximately 61% of our annual revenues:
1
st
quarter
2
nd
quarter
3
rd
quarter
4
th
quarter
2023
26.1
%
24.6
%
23.7
%
25.6
%
2022
24
%
25.2
%
24.6
%
26.2
%
87
In 2022, seasonality due to
the Jewish holiday periods adversely impacted the second and fourth quarters (in addition to any adverse impact on working hours caused
by the coronavirus pandemic, and the Israeli election day). In 2023, we expect seasonality due to the Jewish holiday periods to adversely
impact the second and late third/ early fourth quarters.
The following table presents
our revenues allocation per quarter in 2021 and 2022 (by percentage):
1
st
quarter
2
nd
quarter
3
rd
quarter
4
th
quarter
2022
25.6
%
25.1
%
24.7
%
24.6
%
2021
23.8
%
24.5
%
24.4
%
27.4
%
Raw Materials
Generally, we are not dependent
on raw materials or on a single source of supply. We manage our inventory according to project requirements. In some projects, specific
major subcontractors are designated by the customer. Raw materials used by us are generally available from a range of suppliers internationally,
and the prices of such materials are generally not subject to significant volatility.
Further, although we believe
that there are currently adequate replacements for the third-party technology that we presently use and distribute, the loss of our right
to use any of this technology could result in delays in producing or delivering affected products until equivalent technology is identified,
licensed or otherwise procured, and integrated. Our business would be disrupted if any third-party technology we license from others or
functional equivalents of that technology were either no longer available to us or no longer offered to us on commercially reasonable
terms. In either case, we would be required either to attempt to redesign our products to function with technology available from other
parties or to develop these components ourselves, which would result in increased costs and could result in delays in product sales and
the release of new product offerings. Alternatively, we might be forced to limit the features available in affected products. Any of these
results could harm our business and impact our results of operations.
Software Development
The software industry is generally
characterized by rapid technological developments, evolving industry standards and customer requirements, and frequent innovations. In
order to maintain technological leadership, we engage in ongoing software development activity through our investees, aimed both at introducing
new commercially viable products addressing the needs of our customers on a timely basis, as well as enhancing and customizing existing
products and services. This effort includes introducing new supported programming languages and database management systems; improving
functionality and flexibility; and enhancing ease of use. We work closely with current and potential end-users, our strategic partners
and leaders in certain industry segments to identify market needs and define appropriate product enhancements and specifications.
Intellectual Property Rights
Sapiens, Magic and Michpal
rely on a combination of contractual provisions and intellectual property law to protect their proprietary technology. We believe that
due to the dynamic nature of the markets in which we operate and software industries, factors such as the knowledge and experience of
our management and personnel, the frequency of product enhancements and the timeliness and quality of our support services, build upon
the protection offered by copyrights. We seek to protect the source code of our products as trade secret information and as unpublished
copyright work, although in some cases, we agree to place our source code into escrow. We also rely on security and copy protection features
in our proprietary software. We distribute our products under software license agreements that grant customers a personal, non-transferable
license to use its products and contain terms and conditions prohibiting the unauthorized reproduction, reverse engineering or misuse
of its products. In addition, we attempt to protect trade secrets and other proprietary information through agreements with employees,
consultants and distributors. Sapiens' trademark rights include rights associated with its use of its trademarks, and rights obtained
by registration of its trademarks. Sapiens' use and registration of its trademarks do not ensure that it has superior rights to
others that may have registered or used identical or related marks on related goods or services. We have registrations for the mark "Sapiens"
in the U.K., Benelux, Germany, France, Italy Switzerland, Israel, and the European Union. In the past we have registered trademarks and
tradenames for many of our products both in the US and in the European Union, and we intend to continue to do so going forward. The initial
terms of protection for our registered trademarks range from 10-20 years and are renewable thereafter.
88
Magic Software has obtained
trademark registrations in South Africa, Canada, China, Israel, the Netherlands (Benelux), Switzerland, Thailand, Japan, the United Kingdom
and the United States. The initial terms of the registration of its trademarks range from 10 to 20 years and are renewable thereafter.
Magic Software's use and registration of its trademarks do not ensure that it would have superior rights to others that may have
registered or used identical or related marks on related goods or services. Magic Software has registered a copyright for its software
in the United States and Japan. In addition, it has registered copyrights for some of its manuals in the United States and has acquired
an International Standard Book Number (ISBN) for some of its manuals. Magic Software's copyrights expire 70 years from date of first
publication.
In accordance with industry
practice, we do not otherwise hold any patents and rely upon a combination of trade secret, copyright and trademark laws and non-disclosure
agreements, to protect our proprietary know-how. Our proprietary technology incorporates processes, methods, algorithms and software that
we believe are not easily copied. Despite these precautions, it may be possible for unauthorized third parties to copy aspects of our
products or to obtain and use information that we regard as proprietary. We believe that because of the rapid pace of technological change
in the industry generally, patent and copyright protection are less significant to our competitive position than factors such as the knowledge,
ability and experience of our personnel, new product development and ongoing product maintenance and support.
With respect to our defense
sector activities, the IMOD usually retains specific rights to technologies and inventions resulting from our performance under Israeli
government contracts. This generally includes the right to disclose the information to third parties, including other defense contractors
that may be our competitors. Consistent with common practice in the defense industry, a majority of TSG's revenues in 2020, 2021,
and 2022 were dependent on products incorporating technology that a government customer may disclose to third parties . When the
Israeli government funds research and development, it usually acquires rights to data and inventions. We often may retain a non-exclusive
license for such inventions. The Israeli government usually is entitled to receive royalties on export sales in relation to sales resulting
from government financed development. However, if only the product is purchased without development effort, we normally retain the principal
rights to the technology. Subject to applicable law, regulations and contract requirements, TSG attempts to maintain its intellectual
property rights and provide customers with the right to use the technology only for the specific project under contract.
Regulatory Impact
The global financial and defense
services industries served in particular by Sapiens, Matrix, Magic Software, Michpal and TSG are heavily subject to government and market
regulation, which is constantly changing. Financial services companies must comply with regulations such as the Sarbanes-Oxley Act, Solvency
II, Retail Distribution Review (known as RDR) in the United Kingdom, the European Union General Data Protection Regulation, or GDPR, in
the EU, the CCPA, a statute that went into effect on January 1, 2020 in California (and similar privacy legislation in New York and elsewhere
in the U.S.), the Dodd-Frank Act and other directives regarding transparency. In addition, many individual countries have increased supervision
over local financial services companies. For example, in Europe, regulators have been very active, motivated by past financial crises
and the need for pension restructuring. Distribution of insurance policies is being optimized with the increasing use of Bank Assurance
(selling of insurance through a bank's established distribution channels), supermarkets and kiosks (insurance stands). Increased
activity such as that in Europe would generally tend to have a positive impact on the demand for our software solutions and services;
nevertheless, insurers are cautiously approaching spending increases, and while many companies have not taken proactive steps to replace
their software solutions in recent years, many of them are now looking for innovative, modern replacements to meet the regulatory changes.
Matrix's and Magic Software's
IT businesses are generally positively affected by regulatory reform and other regulatory changes with respect to banking, insurance and
telecommunications in Israel, as such reforms and changes create demand for specific IT solutions, often in a set, short time frame. In
particular, regulation on large financial institutions operating in the Israeli financial market is continuously increasing, as a means
of reducing the risk associated with the activities of such financial institutions and increasing transparency and increases the demand
for Matrix's and Magic Software's services offering for entities that become subject to such supervision. Banks' entry
into the sphere of offering advice with respect to pension, insurance and other financial products has also generated demand for Matrix's
IT solutions, given the increased supervision of the Israeli Securities Authority that is triggered by such activities, although the pace
at which such demand has grown has been relatively slower. Enhanced disclosure requirements for banks and financial institutions in the
Israeli market, such as those published with respect to the required capital liquidity of banks in Israel, have also been generating demand
for new IT solutions that Matrix offers. Matrix's business is also affected by changes in regulations of the U.S Securities and
Exchange Commission, the Financial Industry Regulatory Authority, the Commodity Futures Trading Commission, the National Futures Association,
the Federal Energy Regulatory Commission, with respect to requirements relating to Know Your Customer, Customer Identification Programs,
Anti-Money Laundering and Fraud Prevention.
89
In recent years, there has
been greater focus on core banking issues, and today a number of banks are in the process of undergoing a gradual examination / replacement
of the traditional core systems. The financial market is also facing significant changes and opportunities for the IT market in light
of the Strum Reform and its implications for the banking market, credit card companies and other relevant players in the financial market.
In the insurance industry, there is a delay in decision making based on the prolonged selling process of some of the companies, and in
light of the worsening of the capital adequacy ratios and actuarial reserves that are required by regulators and which affect the profitability
of the companies, their ability to distribute a dividend or allocate budgets for IT investments as in the past.
With respect to our defense
sector activities, we operate under laws, regulations and administrative rules governing defense and other government contracts, mainly
in Israel. Some of these carry major penalty provisions for non-compliance, including disqualification from participating in future contracts.
In addition, our participation in governmental procurement processes in Israel, the United States and other countries is subject to specific
regulations governing the conduct of the process of procuring defense and homeland security contracts.
Government Contracting
Regulations.
We operate under laws, regulations, administrative rules and other legal requirements governing defense and other government
contracts, mainly in Israel. Some of these legal requirements carry major penalty provisions for non-compliance, including disqualification
from participating in future contracts. In addition, our participation in governmental procurement processes in Israel, the United States
and other countries is subject to specific regulations governing the conduct of the process of procuring defense and homeland security
contracts, including increasing requirements in the area of cyber production and information assurance.
Israeli Export Regulations
.
Israel's defense export policy regulates the sale of a number of our systems and products, which are developed and marketed by our
affiliated company TSG. Current Israeli policy encourages exports to approved customers of defense systems and products such as ours,
as long as the export is consistent with Israeli government policy. Subject to certain exemptions, a license is required to initiate marketing
activities. We also must receive a specific export license for defense related hardware, software and technology exported from Israel.
Israeli law also regulates export of "dual use" items (items that are typically sold in the commercial market but that also
may be used in the defense market).
Procurement Regulations
.
Solicitations for procurements by governmental purchasing agencies in Israel, the United States and other countries are governed by laws,
regulations and procedures relating to procurement integrity, including avoiding conflicts of interest, corruption, human trafficking
and conflict minerals in the procurement process. Such regulations also include provisions relating to information assurance and for the
avoidance of counterfeit parts in the supply chain.
Civil Aviation Regulations
.
Several of the products sold by TSG for commercial aviation applications are subject to flight safety and airworthiness standards of the
U.S. Federal Aviation Administration (FAA) and similar civil aviation authorities in Israel, Europe and other countries.
Buy-Back.
As part of
their standard contractual requirements for defense programs, several of our customers may include "buy-back" or "offset"
provisions. These provisions are typically obligations to make, or to facilitate third parties to make, various specified transactions
in the customer's country, such as procurement of defense and commercial related products, investment in the local economy and transfer
of know-how.
Matrix's and Magic Software's
businesses have not been impacted to a material extent by government regulations.
Environmental, Social & Governance Matters
Our subsidiaries place an
emphasis on, and devote considerable time towards, business responsibility, sustainability, and delivering value for their respective
customer base, employees, investors, suppliers, and each of their respective communities. This requires that we conduct our business in
accordance with all applicable laws and regulations, and to adhere to outstanding ethical business practices. Our subsidiaries have developed
a strong set of corporate values that inspire ethical behavior throughout their decision-making process and that promote one of their
business objectives of bringing together a diverse group with the unique skill sets, knowledge, and talents to effectuate our vision.
For example, Sapiens specifically is proud to encourage female advancement in its company, with 38% of its executive leadership consisting
of women in 2022. Matrix specifically is also proud to foster a strong female voice in its company, with 56% of its overall human capital
resources consisting of women in 2022.
90
C.
Organizational Structure
Formula is the parent company
of the Formula Group.
The following table presents
certain information regarding the control and ownership of our directly held investments in subsidiaries and affiliates, as of April 30,
2023.
Subsidiaries and affiliate
Country  of
Incorporation
Percentage of
Ownership
Matrix IT Ltd.
Israel
48.2
%
Sapiens International Corporation N.V.
Cayman Islands
44.1
%
Magic Software Enterprises Ltd.
Israel
46.3
%
Michpal Micro Computers (1983) Ltd.
Israel
100.0
%
TSG IT Advanced Systems Ltd.
Israel
50.0
%
InSync Staffing Solutions, Inc.
Delaware
90.1
%
Ofek Aerial Photography Ltd
Israel
80
%
Zap Group Ltd.
Israel
100
%
Shamrad Electronic (1997) Ltd
Israel
100
%
The common shares of Sapiens
and the ordinary shares of Magic Software are each traded on the Nasdaq Global Select Market and on the TASE, and the ordinary shares
of Matrix are traded on the TASE.
D.
Property, Plants and Equipment
Formula's headquarters,
as well as the headquarters and principal administrative, finance, sales, marketing and research and development office of Magic Software,
are located in Or-Yehuda, Israel, a suburb of Tel Aviv. Magic Software leases its and our office space, constituting approximately 32,404
square feet, under a lease agreement entered in November 2019. The lease expires in June 2033, with an option by Magic Software to extend
for an additional two 5-year term. In 2022, Magic Software paid $0.6 million under that lease. In addition, Magic Software subsidiaries
lease office spaces in the United States, Israel, Europe, India, Japan and South Africa. In 2022, Magic Software's rent costs for
those additional facilities totaled $4.2 million, in the aggregate. We believe that Magic and our existing facilities are adequate for
our current needs.
Matrix leases approximately 699,654 square feet of office space in
various locations in Israel pursuant to leases of varying duration, including for a facility in Herzliya that serves as Matrix's
corporate headquarters. In October 2018, Matrix renewed its corporate headquarters lease agreement with Ofer Brothers Properties Ltd.
according to which it leases its office spaces in Herzliya, Israel. The lease term is expected to end in October 2023. The cost of rent
is NIS 10 million annually (approximately $3.0 million). In addition, Matrix leases an aggregate of approximately 67,000 square feet of
office space in locations outside of Israel, in the United States, Bulgaria, Macedonia, Hungary, India and the UK. The lease terms for
the spaces that Matrix currently occupies are generally three to four years. In 2023, Matrix announced that by the end of 2023, it would
be moving to a new campus in the O-TECH complex in Kfar Saba. The new campus will spread over 172,200 square feet of office space across
15 building floors and 151,000 square feet of parking space across 3 building floors. The lease term for the new campus expires in January
2032, with an option by Matrix to extend for an additional two 5-year term with an annual rent cost of approximately NIS 20 million (approximately
$5.7 million). In the year ended December 31, 2022,
Matrix's rent costs totaled NIS 27.3 million
(approximately $8.1 million),
in the aggregate, for all of its leased offices. We believe that Matrix's existing facilities
are adequate for its current needs.
91
Sapiens leases office space
in India, Israel, the United States, Germany, Poland, Lithuania, Latvia, Denmark, Spain, The United Kingdom, and China. The lease terms
for the spaces that Sapiens currently occupies are generally two to eight years. Based on Sapiens' current occupancy, it leases
the following amount of space in the following locations
(offices over 500 square feet), which constitute
Sapiens' primary locations
: in India, approximately 213,598 square feet; in Israel, approximately 104,043 square feet of
office space (98,021 square feet that Sapiens s – 6,022 square feet is subleased); in the United States, approximately 53,882 square
feet (43,074 square feet that we use - 10,808 square feet is subleased); in Germany, approximately 26,398 square feet; in Poland, approximately
26,012 square feet; in Lithuania, approximately 17,655 square feet; in Latvia, approximately 14,271 square feet; in Denmark, approximately
7,860 square feet; in Spain, approximately 6,700 square feet; in the United Kingdom, approximately 7,374 square feet, and in China, approximately
5,180 square feet. Sapiens Israeli offices house its corporate headquarters, as well as its core delivery research and development activities.
We believe that Sapiens' existing facilities are adequate for our current needs. In 2022, Sapiens' rent costs totaled $12.8
million, in the aggregate, for all of its leased offices. We believe that Sapiens' existing facilities are adequate for its current
needs.
Michpal leases approximately
40,000 square feet of office space in various locations in Israel pursuant to leases of varying duration, including for a facility in
Tel-Aviv that serves as Michpal's corporate headquarters. During the year ended December 31, 2022, Michpal's rent costs totaled
$0.8 million, in the aggregate, for its leased office space.
Zap Group leases approximately
111,203 square feet of office space in various locations in Israel pursuant to leases of varying duration, including for a facility in
Petah-Tikva that serves as Zap Group's corporate headquarters. During the year ended December 31, 2022 Zap Group's rent costs
totaled $1.1 million, in the aggregate, for its leased office space.
Ofek leases approximately
16,145 square feet of office space in Netanya, Israel, under a lease agreement entered in March 2020 for a term of six (6) years. During
the year ended December 31, 2022, Ofek's rent costs totaled $0.1 million, for its leased office space.
We believe that our properties
are adequate for our present use of them. If in the future we require additional space to accommodate our growth, we believe that we will
be able to obtain such additional space without difficulty and at commercially reasonable prices.
As described in "Subsidiary
Commitments" in Item 5.B below, while our subsidiaries and our affiliated companies have incurred liens on leased vehicles, leased
equipment and other assets in favor of leasing companies, neither Formula nor any subsidiary has encumbered the real property that it
uses in its operations.
We furthermore believe that
there are no environmental issues that encumber our use of our facilities.
92
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS
Overview
We are a global software solutions
and IT professional services holdings company that is principally engaged through our directly held investees in providing proprietary
and non-proprietary software solutions and IT professional services, software product marketing and support, computer infrastructure and
integration solutions and learning and integration. We deliver our solutions in numerous countries worldwide to customers with complex
IT services needs, including a number of "Fortune 1000" companies.
Since our inception, we have
acquired effective controlling interests, and have invested, in companies which are engaged in the IT solutions and services business.
We, together with our investees, are known as the Formula Group.
Other than in our joint control
in TSG in which each of we and Israeli Aerospace Industries Ltd. holds 50% of its voting power, we currently have effective control under
IFRS 10 in each of our other investees, Matrix, Sapiens, Magic Software, Michpal, Ofek Aerial Photography, InSync and Zap Group, despite
the lack of absolute majority of voting power in Matrix, Magic Software and Sapiens. As a result of our effective control in these investees
as of December 31, 2022 and in accordance with IFRS 10, we consolidated their financial results with ours throughout the period covered
by the financial statements included in Item 18 of this annual report. Prior to our transition to reporting under IFRS, we consolidated
investees in which we held an equity interest only if we held a controlling interest in those companies. Under IFRS 10, we may consolidate
entities in which we have effective control. For further information, please see Note 2(3) to our consolidated financial statements included
in Item 18 of this annual report.
Except for providing our investees
with our management, technical expertise and marketing experience to help them create a consecutive positive economic impact and long-term
value and direct their overall strategy through our active involvement, we do not conduct independent operations at our parent company
level. Our operating results are, and have been, directly influenced by the business operations of our subsidiaries and affiliated company.
Our consolidated financial
statements for the years ended December 31, 2021 and 2022 are prepared in accordance with IFRS. We have presented herein consolidated
statements of financial position that comply with IFRS applicable as of December 31, 2021 and 2022. Our consolidated statements of profit
or loss presented herein in IFRS cover the years ended December 31, 2020, 2021, and 2022.
We recognize revenues in two
categories: the delivery of software services and the delivery of proprietary software solutions and related services. All of our investees,
recognize revenues from the delivery of software services, and most of them recognize revenues in both revenue categories. For ease of
reference, we have separated our subsidiaries into these categories in accordance with the category in which each subsidiary has earned
most of its revenues (although each type of revenue is nevertheless recorded according to actual revenue type, rather than based on strict,
subsidiary-demarcated categories).
93
Our functional and reporting currency
Until December 31, 2019, the
currency of the primary economic environment in which our operations on a standalone basis were conducted was the dollar. Following an
examination and reevaluation of the primary economic environment in which we currently operate and expects to continue operating and,
taking into consideration the recent trends and our forward-looking business strategy, in accordance with the International Accounting
Standard 21 (IAS 21), we concluded that the currency of the primary economic environment in which our operations on a standalone basis
are currently conducted is the NIS. The functional currencies applied by our investees which are consolidated in these financial statements
are the currencies of the primary economic environment in which each one of them operates. We have elected to use the dollar as our reporting
currency for all years presented since we believe that financial statements in U.S dollars provide more relevant information to our investors
and users of the financial statements.
Assets, including fair value
adjustments upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each
reporting date. Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences
are recognized in other comprehensive income (loss).
Intragroup loans for which
settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in the foreign
operation and, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded in other comprehensive
income (loss).
Upon the full or partial disposal
of a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which
had been recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is
reattributed to non-controlling interests.
Transactions denominated in
foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition,
monetary assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at
the exchange rate at that date. Exchange rate differences, other than those capitalized to qualifying assets or accounted for as hedging
transactions in equity, are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currency and measured
at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign
currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the
fair value was determined.
For those subsidiaries whose
functional currency has been determined to be their local currency, assets and liabilities are translated at year-end exchange rates and
statement of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded
as a separate component of accumulated other comprehensive income (loss) in equity.
A.
Operating Results
This section presents an analysis
of our results of operations, on a comparative basis, for the years ended December 31, 2021 and 2022. We have omitted herein a comparative
analysis of our results of operations for the years ended December 31, 2020 and 2021. In order to view that latter analysis, please see
"Item 5. Operating and Financial Review and Prospects—A. Operating Results—Year Ended December 31, 2021 Compared to
Year Ended December 31, 2020" in our Annual Report on Form 20-F for the year ended December 31, 2021, which we filed with the SEC
on May 16, 2022, which analysis is incorporated by reference herein.
94
Year Ended December
31, 2021 Compared to Year Ended December 31, 2022
The following tables set forth
certain data from our statement of profit or loss for the years ended December 31, 2021 and 2022, as well as such data as a percentage
of our revenues for those years. The data has been derived from our audited consolidated financial statements included elsewhere in this
annual report. The operating results for the below years should not be considered indicative of results for any future period. This information
should be read in conjunction with the audited consolidated financial statements and notes thereto included in this annual report.
Statements of Profits or Loss
(U.S. dollars, in thousands)
2021
2022
Revenues
2,404,376
2,572,357
Cost of revenues
1,840,517
1,949,892
Gross profit
563,859
622,465
Research and development expenses, net
65,858
72,129
Selling, marketing, general and administrative expenses
289,985
317,956
Capital gain from realization of a Matrix IT's subsidiary
-
44,260
Operating income
208,016
276,640
Financial expenses
(29,994
)
(27,216
)
Financial income
5,989
7,286
Pre-tax income before share of profits of companies accounted for at equity, net
184,011
256,710
Taxes on income
42,614
55,235
Share of profits of companies accounted for at equity, net
505
(1,808
)
Net income
$
141,902
199,667
Attributable to:
Equity holders of the Company
54,585
81,393
Non-controlling interests
87,317
118,274
141,902
199,667
95
Statement of Profits or Loss as a
Percentage of Revenues
2021
2022
Revenues
100
%
100%
Cost of revenues
77
%
76%
Gross profit
23
%
24%
Research and development expenses, net
3
%
3%
Selling, marketing, general and administrative expenses
12
%
12%
Capital gain from realization of a Matrix IT's subsidiary
-
2%
Operating income
9
%
11%
Financial expenses
(1
)%
(1)%
Financial income
0
%
0%
Pre-tax income before share of profits of companies accounted for at equity, net
8
%
10%
Taxes on income
2
%
2%
Group's share of earnings of companies accounted for at equity, net
0
%
0%
Net income
6
%
8%
Attributable to:
Equity holders of the Company
2
%
3%
Non-controlling interests
4
%
5%
Revenues
.
Revenues
in 2022 increased by approximately 7%, from $2,404.4 million in 2021 to $2,572.4 in 2022. Revenues from the two categories of our operations
were as follows: revenues from the delivery of software services increased by approximately 8%, from $1,771.4 million in 2021 to $1,912.9
million in 2022, and revenues from the sale of our proprietary software products and related services increased by approximately 4%,
from $633.0 million in 2021 to $659.5 in 2022.
Software Services Revenues
The increase in software services
revenues was recorded across the following of our investees reporting under this revenue stream— Matrix, Magic Software, Michpal,
Insync, Ofek and Zap Group — and was primarily due to growth in their revenues as described below:
Matrix
:
Matrix's revenues reported
under this revenue stream increased from NIS 4,234.0 million (approximately $1,311.6) in 2021 to NIS 4,541.2 in 2022, reflecting an increase
of approximately 7% when measured in NIS, Matrix's local currency (compared to 3% when measured in U.S dollars). The increase in
Matrix's revenues, when measured in NIS, reflected an increase in almost all of Matrix's principal areas of operations (excluding
a 3% decrease recorded in Matrix's Software product marketing and support business segment, when measured in NIS, resulting mainly
from a decrease in margins pushing selling rates down which characterized the trend in this business segment), and to the transition to
subscription based selling model.
96
The increase in Matrix revenues
was mainly attributable to each of the following: (1) an increase of approximately 3% in Matrix's Information Technologies (IT)
Software solutions and services in Israel from NIS 2,361.0 million (approximately $731.4) in 2021 to NIS 2,435.4 million (approximately
$725.9) in 2022; (2) an increase of approximately 11% in Matrix's computer infrastructure and integration solutions from NIS 1,210.3
million (approximately $374.9 million) in 2021 to NIS 1,345.6 million (approximately $401.1) in 2022; (3) an increase of approximately
22% in Matrix's Information Technologies (IT) Software solutions and services in the United States from NIS 355.9 million (approximately
$110.3 million) in 2021 to NIS 434.3 million (approximately $129.4) in 2022; and (4) an increase of approximately 19% in Matrix's
Training and integration from NIS 174.9 million (approximately $54.2 million) in 2021 to NIS 207.6 million (approximately $61.9) in 2022.
The increase was offset, in part, by a decrease of 3% in Matrix's software product marketing and support from NIS 258.1 million
(approximately $79.9 million) in 2020 to NIS 249.9 million (approximately $74.5 million) in 2021.
The increase in Matrix's
revenues was also due to: (A) the inclusion of the first full year of revenues of the following entities' during 2022: (i) SQ Service
Quality Ltd., A. A. Engineering Ltd., and I.T.D. Group Ltd. (consolidated upon acquisition by Matrix as of April 2021); and (ii) AVB Technologies
Ltd. (consolidated upon acquisition by Matrix as of October 2021); and (B) the inclusion for the first time of revenues during 2022 of
RDT Equipment and Systems (1993) Ltd. (consolidated upon acquisition by Matrix as of June 2022).
Magic Software:
Magic Software's revenues,
reported under this revenue stream, increased by approximately 22% from $402.2 million in 2021 to $489.2 million in 2022, primarily attributable
to (i) an increase of $3.7 million due to the inclusion of the first full year of revenues of Enable IT, consolidated upon acquisition
by Magic Software as of April 1, 2021), and (ii) an increase of $21.0 million due to the inclusion for the first time of revenues of Appush
and The Goodkind Group, LLC (consolidated upon acquisition by Magic Software as of January 1, 2022 and August 15, 2022, respectively),
with the remaining increase resulted primarily from increased demand for our IT software services across most of Magic Software business
units.
InSync:
InSync's revenues increased
by approximately 19% from $38.7 million in 2021 to $46 million in 2022. Insync's revenues were positively impacted by the recovery
from the COVID-19 pandemic in 2021.
Michpal
Michpal's revenues,
reported under this revenue stream, increased by approximately 11% from $8.3 million in 2021 to $9.2 million in 2022. Michpal's
revenues reported under this revenue stream were impacted by the recovery from the COVID-19 pandemic in 2021 and increased demand for
its consulting services in the fields of operational cost savings, procurement and expense management, as well as salary control and monitoring.
The increase in software services
revenues was also attributable to the inclusion, for the first full year of revenues of Zap Group, reported under this revenue stream,
which was consolidated upon acquisition by Formula as of April 6, 2021.
Proprietary Software Products and Related Services
Revenues
The increase in revenues from proprietary software products and related
services was attributable in part to the (i) inclusion of the first full year of revenues of Zap Group, reported under this revenue stream,
consolidated upon acquisition by Formula as of April 6, 2021, accounting for $9.1 million; (ii) the increase of Sapiens revenues by approximately
3% from $461.0 million in 2021 to $474.7 million in 2022; (iii) the decrease by approximately 1%, from $78.1 million in 2021 to $77.6
million in 2022, in Magic Software's revenues, reported under this revenue stream, resulting from a decrease in revenues of $6.9
million resulting from devaluation of mainly the NIS, GBP, JPY and Euro in relation to the US dollar, which was offset by (a) an increase
of $6.0 million revenues which resulted from increased demand for Magic Software's proprietary software solutions and (b) $1.4 million
resulting from the first-time consolidation of Intrabases SAS acquired on July 1, 2022 and; (iv) the increase by approximately 21%, from
$23.8 million in 2021 to $28.8 million in 2022, in Michpal's revenues reported under this segment, which resulted from increased
demand for Michpal's payroll software solutions and related services and by the inclusion for the first time of revenues of Formally
Smart Form System Ltd., consolidated upon acquisition by Michpal as of February 16, 2022.
97
Sapiens:
Sapiens' revenues increased
by approximately 3%, from $461.0 million in 2021 to $474.7 million in 2022. The net increase in revenues of approximately $13.7 million
for the year ended December 31, 2022 was attributable to Sapiens' core business growth. In 2022 and 2021, Sapiens' largest
customer accounted for 4.6% and 5%, respectively, of its consolidated revenues.
Michpal:
Michpal's revenues reported
under this revenue stream increased from $23.8 million in 2021 to $28.8 million in 2022, reflecting an increase of 21%. The increase in
revenues of approximately $5.0 million for the year ended December 31, 2022 was primarily attributable to the inclusion for the first
time of revenues of Formally Smart Form System Ltd., consolidated upon acquisition by Michpal as of February 16, 2022, and increased demand
for Michpal's payroll software solutions and related services.
Magic Software:
Magic Software's revenues,
reported under this revenue stream, decreased by approximately 1% from $78.1 million in 2021 to $77.6 million in 2022 resulting from a
decrease in revenues of $6.9 million resulting from devaluation of mainly the NIS, GBP, JPY and Euro in relation to the US dollar, which
was offset by (a) an increase of $6.0 million revenues which resulted from increased demand for Magic Software's proprietary software
solutions and (b) $1.4 million resulting from the first-time consolidation of Intrabases SAS acquired on July 1, 2022.
A breakdown of our overall
revenues into (i) proprietary software products and related services revenues, and (ii) software services revenues for the years ended
December 31, 2021 and 2022, the percentage those respective categories of revenues constituted out of our total revenues in those years,
and the percentage change for each such category of revenues from 2021 to 2022, are provided in the below table:
Year ended December 31,
Year-over
Year ended December 31,
2021
Year
2022
Revenues
Percentage
change
Revenues
Percentage
($ in thousands)
Revenue category
Proprietary software products and related services
632,986
26.33
%
4.2
%
659,470
25.64
%
Software services
1,771,390
73.67
%
8.0
%
1,912,887
74.36
%
Total
2,404,376
100
%
7.0
%
2,572,357
100
%
Revenues by geographical region
The dollar amount of our revenues
attributable to each of the geographical regions in which we conduct our operations for the years ended December 31, 2021 and 2022, respectively,
were as follows:
Year ended December 31,
2021
2022
($ in thousands)
Israel
$
1,506,566
1,571,035
International:
United States
591,794
680,325
Europe
255,680
262,303
Africa
18,012
26,692
Japan
12,890
11,333
Other (mainly Asia pacific)
19,434
20,669
Total
$
2,404,376
2,572,357
98
Cost of Revenues
.
Cost of revenues consists primarily of compensation expense to employees and subcontractors, royalties and licenses payable to third
parties, amortization of acquired technologies, capitalized software and depreciation, cloud-related cost, and hardware and other materials
costs. Cost of revenues increased by 5.9% from $1,840.5 million in 2021 to $1,949.9 million in 2022. As a percentage of total revenues,
costs of revenues in 2021 and 2022 decreased from 76.5% in 2021 to 75.8%, in 2022.
Our proprietary software solutions
and related services sales are generally characterized by a higher gross margin than sales of our software services. The cost of revenues
for proprietary software solutions and related services decreased from $350.8 million in 2021 to $346.8 million in 2022. As a percentage
of our proprietary software solutions and related services revenues, costs of revenues for proprietary software solutions and related
services decreased from 55.4% in 2021 to 52.3% in 2022. The decrease in our cost of revenues for proprietary software solutions and related
services as a percentage of revenues from proprietary software solutions and related services was primarily attributable to the inclusion
for the first time of the results of operations of Formally Smart Form System Ltd., consolidated upon acquisition by Michpal as of February
16, 2022, which achieved gross margin of approximately 83%. Furthermore, while the rate of payroll expenses increased in 2022, in line
with industry trends, we mitigated that increase by increasing our reliance upon offshore employees.
The cost of revenues for software
services increased from $1,489.7 million in 2021 to $1,605.5 million in 2022. As a percentage of software services revenues, costs of
revenues for software services remained relatively stable, at 84.0% in 2022 compared to 84.1% in 2021.
The increase in our cost of
revenues in 2022 was attributable in part to the inclusion of the results (and, consequently, the cost of revenues) of the following entities
in our consolidated results in 2021: (i) the first full year of Y.G. Soft IT Ltd (consolidated upon acquisition by Magic Software as of
January 2021), (ii) the first full year of EnableIT, LLC., and Menarva Ltd., (consolidated upon acquisition by Magic Software as of April
2021), (iii) the first full year of SQ Service Quality Ltd., A. A. Engineering Ltd., and I.T.D. Group Ltd. (consolidated upon acquisition
by Matrix as of April 2021), (iv) the first full year of AVB Technologies Ltd., (consolidated upon acquisition by Matrix as of October
2021), (v) the first full year of Zap Group (consolidated upon acquisition by Formula as of April 2021), (vi) the first-time inclusion
of Shamrad Electronic (1997) Ltd (consolidated upon acquisition by Formula as of October 2022), (vii) the first-time inclusion of Cognitive
Ltd (consolidated upon acquisition by Sapiens as of May 2022), (viii) the first-time inclusion of Appush Ltd.. (consolidated upon acquisition
by Magic Software as of January 2022), (ix) the first-time inclusion of The Goodkind Group, LLC., (consolidated upon acquisition by Magic
Software as of August 2022), (x) the first-time inclusion of Intrabases SAS (consolidated upon acquisition by Magic Software as of July
2022), (xi) the first-time inclusion of RDT Equipment and Systems (1993) Ltd. (consolidated upon acquisition by Matrix as of June 2022)
and (xii) the first-time inclusion of Formally Smart Form System Ltd (consolidated upon acquisition by Formula as of February 2022).
The increase in our cost of
revenues in 2022 was also attributable to the following increases involving Matrix, Sapiens and Magic Software:
Matrix:
Matrix's cost of revenues
increased by approximately 7%, when measured in NIS, Matrix's local currency, from NIS 3,729.7 million (approximately $1,155.3 million)
in 2021 to NIS 4,000.6 million (approximately $1,192.7 million) in 2022. The increase in absolute cost of revenues was in line with the
increase in Matrix revenues and was primarily attributable to the increase in the operations of Matrix's cloud and infrastructure
business segment which grew in 2022 by approximately 11% when measured in NIS and accounted for 29% of Matrix's total revenues.
The level of Matrix's cost of revenues as a percentage of its revenues remained relatively stable these last two years, at 85.5%
in 2021 and 85.6% in 2022 (when measured in NIS).
Matrix's cost of revenues
for each of the years ended December 31, 2021 and 2022 does not include amounts of stock-based compensation.
99
Sapiens:
Sapiens' cost of revenues
increased by $2.5 million, or 0.9%, to $272.6 million for the year ended December 31, 2022, as compared to $270.1 million for the year
ended December 31, 2021. The increase was mainly due to an increase in the number of delivery employees compared to 2021 offset by $4.7
million decrease of intangible assets and software capitalization amortization expenses. Cost of revenues amounted to 57.4% as a percentage
of Sapiens' revenues during the year ended December 31, 2022, which was a decrease by 116 basis points from the corresponding percentage
for the year ended December 31, 2021.
Sapiens' cost of revenues
for each of the years ended December 31, 2022 and 2021 does not include amounts of stock-based compensation.
Magic Software:
Magic Software's cost
of revenues increased by approximately 17%, from $351.1 million in 2021 to $411.4 million in 2022. The increase in absolute cost of revenues
was in line with the increase in revenues by 18% year over year, from $411.4 million recorded in 2021 to $566.8 million recorded in 2022.
Cost of revenues amounted to 72.6% as a percentage of Magic Software's revenues during the year ended December 31, 2022, which was
a decrease by 51 basis points from the corresponding percentage for the year ended December 31, 2021.
Cost of revenues for each
of the years ended December 31, 2021 and 2022 does not include amounts of stock-based compensation.
Operating Expenses
:
Research and Development
Expenses, net
.
Research and development, or R&D, expenses consist primarily of compensation expense to employees
and subcontractors engaged in research and development. Research and development expenses, net, consist of research and development
expenses, gross, less capitalized software costs.
Research and development expenses,
gross, increased from $77.6 million in 2021 to $81.3 million in 2022, mainly due to: an increase in the number of R&D employees in
2022 compared to 2021, along with the full-year effect of the increase in compensation expenses to employees, which was mostly implemented
over the course of 2021. Capitalization of software costs in 2021 and 2022 was attributable to our subsidiaries engaged in providing proprietary
software solutions (i.e., Magic Software and certain of its subsidiaries, and Sapiens and certain of its subsidiaries). Research and development
expenses, net, increased from $65.9 million in 2021 to $72.1 million in 2022, mainly due to the factors described above.
As a percentage of revenues,
research and development expenses, net, remained the same in 2022 as in 2021, at 2.8% and 2.7%, respectively. Research and development
expenses for the years ended December 31, 2022 and 2021 do not include amounts of stock-based compensation.
Selling, Marketing
General and Administrative Expenses
.
Selling, marketing, general and administrative, or SMG&A, expenses consist primarily
of cost of compensation expense to employees and subcontractors involved in sales, marketing, management and administrative functions,
travel expenses, selling expenses, rent, utilities, communications expenses, expenses related to external consultants, depreciation,
amortization and other expenses. Selling, marketing, general and administrative expenses increased from $290.0 million in 2021 to $318.0
million in 2022. As a percentage of revenues, SMG&A slightly increased from 12.1% in 2021 to 12.4% in 2022.
100
The increase in SMG&A
expenses in 2022 was mainly attributable to: (i) the increase in Matrix's SMG&A by $6.3 million resulting from an increase in
sales and marketing activities in line with the increase recorded in Matrix revenues, which wes offset in part by a decrease by $4.0 million
resulting from the appreciation of the USD compared to the NIS in 2022 (Matrix's general and administrative expenses remained relatively
stable when measured in NIS); (ii) an increase of $8.8 million from the inclusion for the first full year of Zap Group (consolidated upon
acquisition by Formula as of April 2021); (iii) an increase in Magic Software's SMG&A from $68.1 million in 2021 to $83.5 million
in 2022, which was mainly attributable to (a) the inclusion for a full year for the first time in 2022 of entities acquired in 2021, and
inclusion for the first time in 2022 of entities acquired in 2022, (b) an increase in cost related to share-based compensation from $1.0
million in 2021 to $2.1 million in 2022, and (c) the accompanying increase in Magic Software's revenues; and (iv) an increase in
Michpal Group's SMG&A expenses by approximately $1.0 million resulting from an increase in sales and marketing activities and
$0.4 million recorded with respect to revaluation of contingent consideration due with respect to the acquisition of Unique Software Industries,
which was acquired in November 2019.
Consolidated stock-based compensation
expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and 2021 amounted
to $15.0 million and $14.8 million, respectively.
Matrix:
Matrix's SMG&A expenses
increased to $95.6 million for the year ended December 31, 2022 compared to $93.3 million for the year ended December 31, 2021, representing
an increase of $2.3 million. This increase was mainly attributable to an increase of $6.3 million in sales and marketing activities in
line with the increase recorded in Matrix's revenues, which was offset, in part, by a decrease of $4.0 million resulting from the
appreciation of the USD compared to the NIS. Matrix general and administrative expenses remained relatively stable when measured in NIS.
As a percentage of Matrix's revenues, Matrix's SMG&A expenses remained the same, at 6.9% in each of 2021 and 2022 when
measured in NIS.
Matrix's stock-based
compensation expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and
2021 amounted to $0.4 million and $1.0 million, respectively.
Sapiens:
Sapiens' SMG&A expenses,
which are primarily comprised of compensation expenses for employees and subcontractors, were $76.2 million for the year ended December
31, 2022 compared to $77.2 million in the year ended December 31, 2021, representing a decrease of $1.0 million. This decrease was mainly
attributable to a decrease of $1.1 million of Sapiens share-based compensation expenses compared to the previous year. As a percentage
of total revenues, Sapiens' SMG&A decreased from 16.7% in the year ended December 31, 2021, to 16.0% for the year ended December
31, 2022.
Sapiens' stock-based
compensation expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and
2021 amounted to $4.3 million and $5.4 million, respectively.
Magic Software:
Magic Software's SMG&A
expenses increased to $83.5 million for the year ended December 31, 2022 compared to $68.1 million for the year ended December 31, 2021,
representing an increase of $15.4 million. This increase was attributable to (a) the inclusion for a full year for the first time in 2022
of entities acquired in 2021 and inclusion for the first time in 2022 of entities acquired in 2022, (b) an increase in cost related to
share-based compensation from $1.0 million in 2021 to $2.1 million in 2022, and (c) an increase in overall SMG&A in line with the
increase in Magic Software's revenues, from $480.3 million in 2021 to $566.8 million in 2022.
Magic Software's stock-based
compensation expenses recorded under selling, marketing general and administrative expenses for the years ended December 31, 2022 and
2021 amounted to $2.1 million and $1.0 million, respectively.
101
Operating Income
.
Our operating income increased from $208 million in 2021 to $276.6 million in 2022. Operating income in 2022 included a capital gain
from the disposition of a Matrix's subsidiary (Infinity Labs R. & D. Ltd) for a total consideration of NIS 154.5 million (approximately
$46.2 million), which resulted in a capital gain of $44.3 million. Excluding the impact of capital gain resulted from the sale of Infinity
Labs, as a percentage of revenues, our operating income remained stable and changed from 8.7% in 2021 to 9.0 % in 2022. The increase
in our operating income during the year ended December 31, 2022 relative to the year ended December 31, 2021 as an absolute amount was
attributable to the various gross profit and operating expenses trends described above.
Financial Expenses,
net
. Financial expenses decreased from $30.0 million in 2021 to $27.2 million. Financial expenses, net decreased from $24.0
million in 2021 to $19.9 million in 2022. Financial expenses are influenced by various factors, including: our cash balances; loan balances;
outstanding debentures; changes in liabilities related to business combinations; changes in the exchange rate of the NIS against the dollar;
changes in the exchange rate of the dollar against the Euro; and changes in the Israeli consumer price index, or CPI.
The decrease in net financial
expenses in 2022 was primarily attributable to (i) a decrease in financial costs related to debentures from $6.9 million to $3.8 million
resulting from repayment of debentures in an amount of $53.1 million during 2022, (ii) a decrease in financial expenses related to liabilities
in respect of business from $3.5 million in 2021 to $1.1 million in 2022, (iii) an increase in net positive impact of foreign exchange
differences amounting to $7.6 million, offset, in part, by (iv) a decrease in income from marketable securities and derivatives, net from
$3.3 million of income in 2021 to a loss of $1.2 million in 2022, and (v) an increase in interest expenses on loans and borrowings from
$6.2 million in 2021 to $9.8 million in 2022.
Taxes on Income
.
Taxes on income increased from $42.6 million in 2021 to $55.2 million in 2022, in line with the increase in our income before taxes. As
a percentage of pre-tax income, tax expenses amounted to approximately 21.5% in 2022, compared to 23.2% in 2021.
Share of profits
(loss) of companies accounted for at equity, net
.
Share of profits (loss) of companies accounted for at equity, net,
decreased from a gain of $0.5 million in 2021 to a loss of $1.8 million in 2022. Our share of loss of companies accounted for at equity,
net in 2022 was mainly attributable to a loss recorded in TSG in 2022.
Net income attributable
to non-controlling interests
. Net income attributable to non-controlling interests includes the non-controlling interests
held by other shareholders in our consolidated companies, which were not wholly owned by Formula during each of the periods indicated.
Net income attributable to non-controlling interests increased from $54.6 million in 2021 to $81.4 million in 2022, mainly due to (i)
an increase in Sapiens' net income attributable to its shareholders, from $45.6 million of net income attributable to its shareholders
during the year ended December 31, 2021 to $52.1 million net income attributable to its shareholders during the year ended December 31,
2022, (ii) an increase in Matrix's net income attributable to its shareholders from $60.6 million recorded during the year ended
December 31, 2021 to $99.9 million recorded during the year ended December 31, 2022 which was offset, in part, by a decrease in net income
attributable to non-controlling interests recorded in Matrix, from $11.3 million during the year ended December 31, 2021 to $9.5 million
during the year ended December 31, 2022, (iii) an increase in Magic Software's net income attributable to its shareholders from
$29.8 million recorded during the year ended December 31, 2021 to $40.0 million recorded during the year ended December 31, 2022.
102
Impact of Inflation
and Currency Fluctuations on Results of Operations
Our financial statements are
stated in U.S. dollars. However, most of our revenues and expenses from our software services revenue line are denominated in NIS and
a substantial portion of our revenues and costs from our proprietary software products and related services revenue line are incurred
in other currencies, particularly NIS, Euros, Japanese yen, Indian rupee and the British pound. We also maintain substantial non-U.S.
dollar balances of assets, including cash, accounts receivable, and liabilities, including accounts payable, debentures and debt to financial
institutions Therefore, fluctuations in the value of the currencies in which we do business relative to the U.S. dollar may adversely
affect our business, results of operations and financial condition. For financial reporting purposes, we translate all non-U.S. dollar
denominated transactions into dollars using the average exchange rate over the period during which the transactions occur, in accordance
with IFRS. Therefore, we are exposed to the risk that the devaluation of the NIS relative to the U.S. dollar may reduce the revenue growth
rate and profitability for our software services in dollar terms. The average of the daily representative exchange rates of the NIS to
the dollar in 2021 and 2022, as reported by the Bank of Israel, was NIS 3.2293 per $1 U.S. dollar, and NIS 3.3596 per $1 U.S. dollar,
respectively. Consequently, this trend decreased the dollar value of our NIS-based revenues and profitability for our Israeli software
services in 2022 relative to 2021. On the other hand, a significant portion of our revenues from proprietary software products and related
services is currently mainly denominated in U.S dollars, Euros, Japanese yen, Indian rupee and the British pound, whereas a substantial
portion of our expenses relating to those products, principally salaries and related personnel expenses, are denominated in NIS. As a
result, the devaluation of the Euro, Japanese yen, Indian rupee and the British pound relative to the U.S. dollar (in which our financial
results are reported) reduces the revenue growth rate and profitability for our proprietary software products and related services in
dollar terms, thereby adversely affecting our operating results. From the perspective of expenses (and contrary to the trend involving
software services), the devaluation of the NIS relative to the dollar, decreases the relative value, in U.S. dollars, of the NIS-denominated
operating costs related to our proprietary software product revenues. That, therefore, increases our profitability and partially compensates
for the negative effect that this movement has on our revenues and our profitability from our software services.
Since most of our expenses
are incurred in NIS, the dollar cost of our operations also rises as a result of any increase in the rate of inflation in Israel, to the
extent that such inflation is not offset, or is only offset on a lagging basis, by the devaluation (if any) of the NIS against the dollar
during a relevant period of time. The average Israeli rate of inflation on an annual basis amounted to (0.7%), 2.8%, and 5.3% for the
years ended December 31, 2020, 2021, and 2022, respectively. In 2020 and 2021, the NIS appreciated relative to the U.S dollar, whereas
in 2022 the NIS devaluated against the dollar (in each case, based on average of the daily representative exchange rates). Therefore,
in 2020 and 2021 the appreciation of the NIS relative to the dollar increased the cost of our operations. In 2022, the depreciation of
the NIS relative to the dollar reduced the dollar cost of our operations, despite the increase that would have otherwise been caused by
the rise in inflation in Israel.
An increase in the rate of
inflation in Israel may also have a material adverse effect on our financial results by increasing our operational expenses, as certain
of our operating lease and rent agreements are denominated in NIS and are generally linked to the Israeli CPI, so to the extent that the
Israeli CPI rises, so will our operational expenses.
Though, to date, we have not
engaged in significant currency hedging transactions, we do periodically engage in certain economic hedging in order to help protect against
fluctuation in foreign currency exchange rates. Instruments that we use to manage currency exchange risks may include foreign currency
forward contracts. The purpose of our foreign currency hedging activities is to reduce our exposure, from the perspective of our profitability,
to the risks that arise from the adverse impact that exchange rates bear on our revenues and expenses that are denominated in non-U.S.
currencies. Instruments are used selectively to manage risks, but there can be no assurance that we will be fully protected against material
foreign currency fluctuations. We do not use these instruments for speculative or trading purposes. In the future, we may enter into more
or larger currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the NIS,
Euro, Japanese yen or British pound against the dollar, and from increases in the Israeli inflation rate. However, we cannot assure you
that these measures will adequately protect us from the adverse effects of those fluctuations.
103
Following is a summary of the most relevant monetary
indicators for the reported periods:
For the year ended December 31,
Inflation rate in Israel
Devaluation (appreciation) of NIS against the US$*
Devaluation (appreciation) of Euro against the US$*
%
%
%
2020
(0.7
)%
(7.0
)%
(9.3
)%
2021
2.8
%
(3.2
)%
7.7
%
2022
5.26
%
(13.2
)%
5.8
%
*
Reflects the change in the
daily exchange rate from the start of such year until the end of such year rather than the change in the average daily exchange rate
over the course of that year relative to the previous year.
Effective Corporate Tax Rates in Israel
Tax regulations have a material
impact on our business, particularly in Israel where we have our headquarters. The following is a summary of some of the current tax law
applicable to companies in Israel, with special reference to its effect on us.
Corporate Tax
Generally, Israeli companies
are subject to corporate tax on their taxable income. As of 2018 and thereafter, the corporate tax rate is 23%. However, the effective
tax rate payable by a company that derives income from an AE, BE, PFE or a PTE, in each case, as defined and further discussed below,
may be considerably lower. See "Law for the Encouragement of Capital Investments" in this Item 5.A below. In addition, Israeli
companies are currently subject to regular corporate tax rate on their capital gains.
Besides being subject to the
general corporate tax rules in Israel, certain of our Israeli subsidiaries have also, from time to time, applied for and received certain
grants and tax benefits from, and participate in, programs sponsored by the Government of Israel, as described below.
Taxation of Non-Israeli Subsidiaries Held
by an Israeli Parent Company
Non-Israeli subsidiaries of
an Israeli parent company are generally subject to tax in their countries of residence under tax laws applicable to them in such countries.
Such subsidiaries could also be subject to Israeli corporate tax on their income if they were to be managed and controlled from Israel.
In such case, double taxation could ensue unless an applicable tax treaty provides applicable rules for relief from double taxation or
such relief is available under internal law.
An Israeli parent company
may also be required to include in its income on a current basis, as a deemed dividend, certain income derived by its subsidiaries under
the Israeli Controlled Foreign Corporation rules, or CFC, regardless of whether such income is distributed or not. Under these rules,
a non-Israeli subsidiary is considered to be a CFC, if, among other things, (i) a majority of the subsidiary's means of control
are held by Israeli residents, (ii) most of its revenues or income is passive (such as interest, dividends, royalties, rental income or
income from capital gains) and (iii) such income is taxed at a rate that does not exceed 15%. An Israeli parent company that is subject
to Israeli taxes on such deemed dividend income, may generally receive a credit for foreign taxes paid by its subsidiaries in their country
of residence and for deemed foreign taxes to be withheld upon the actual distribution of such income.
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Law for the Encouragement of Industry (Taxes),
5729-1969
The Law for the Encouragement
of Industry (Taxes), 5729-1969 (the "
Industry Encouragement Law
") provides several tax benefits for an "Industrial
Company." Pursuant to the Industry Encouragement Law, a company qualifies as an Industrial Company if it is an Israeli resident
company which was incorporated in Israel and at least 90% of its income in any tax year (other than income from certain government loans)
is generated from an "Industrial Enterprise" that it owns and is located in Israel or in the "Area," in accordance
with the definition under Section 3A of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance. An "Industrial Enterprise"
is defined as an enterprise which is held by an Industrial Company whose major activity, in a given tax year, is industrial production.
An Industrial Company is entitled
to certain tax benefits, including:
■
Amortization of the cost of the purchases of patents, or the right to use a patent or know-how that were purchased in good faith and used for the development or promotion of the Industrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised;
■
the right to elect, under certain conditions, to file a consolidated tax return together with Israeli Industrial Companies controlled by it; and
■
Expenses related to a public offering are deductible in equal amounts over three years beginning from the year of the offering.
Eligibility for benefits under
the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.
We believe that certain of
our Israeli subsidiaries and affiliate currently qualify as Industrial Companies within the definition under the Industry Encouragement
Law. We cannot assure you that they will continue to qualify as Industrial Companies or that the benefits described above will be available
in the future.
Law for the Encouragement of Capital Investments,
5719-1959
The Law for the Encouragement
of Capital Investments, 5719-1959, or the Investment Law, provides certain incentives for capital investments in a production facility
(or other eligible assets). Generally, an investment program that is implemented in accordance with the provisions of the Investment Law,
referred to as an Approved Enterprise, or AE, a Benefitted Enterprise, or BE, or a Preferred Enterprise, or PFE, or a Special Preferred
Enterprise, or "SPFE", or a Preferred Technological Enterprise, or PTE, or a Special Preferred Technological Enterprise, or
SPTE is entitled to benefits as discussed below. These benefits may include cash grants from the Israeli government and tax benefits,
based upon, among other things, the geographic location in Israel of the facility in which the investment is made. In order to qualify
for these incentives, an AE, BE, PFE, SPFE PTE or SPTE is required to comply with the requirements of the Investment Law.
The Investment Law has been
amended several times over the recent years, with the three most significant changes effective as of April 1, 2005 (referred to as the
2005 Amendment), as of January 1, 2011 (referred to as the 2011 Amendment) and as of January 1, 2017 (referred to as the 2017 Amendment).
Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by
the 2005 Amendment remain in force but any benefits granted subsequently are subject to the provisions of the amended Investment Law.
Similarly, the 2011 Amendment introduced new benefits instead of the benefits granted in accordance with the provisions of the Investment
Law prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect up to January 1, 2011 were
entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego
such benefits and elect the benefits of the 2011 Amendment. The 2017 Amendment introduces new benefits for Technological Enterprises,
alongside the existing tax benefits.
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Tax benefits under the 2011 Amendment that
became effective on January 1, 2011.
The 2011 Amendment canceled
the availability of the benefits granted in accordance with the provisions of the Investment Law prior to 2011 and, instead, introduced
new benefits for income generated by a "Preferred Company" through its PFE (as such terms are defined in the Investment Law)
as of January 1, 2011. A Preferred Company is defined as either (i) a company incorporated in Israel which is not wholly owned by a governmental
entity or (ii) a limited partnership that (a) was registered under the Israeli Partnerships Ordinance and (b) all of its limited partners
are companies incorporated in Israel, but not all of them are governmental entities; which has, among other things, PFE status and is
controlled and managed from Israel. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of
15% with respect to its preferred income, or PFI, attributed to its PFE in 2011 and 2012, unless the PFE is located in a certain development
zone, in which case the rate will be 10%. Such corporate tax rate was reduced to 12.5% and 7%, respectively, in 2013 and was increased
to 16% and 9%, respectively, in 2014 until 2016. Pursuant to the 2017 Amendment, in 2017 and thereafter, the corporate tax rate for a
PFE that is located in a specified development zone was decreased to 7.5%, while the reduced corporate tax rate for other development
zones remains 16%. Income derived by a Preferred Company from a Special Preferred Enterprise, or SPFE (as such term is defined in the
Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates of 8%, or 5% if the SPFE is located
in a certain development zone. As of January 1, 2017, the definition for SPFE includes less stringent conditions.
The classification of income
generated from the provision of usage rights in know-how or software that were developed in a PFE, as well as royalty income received
with respect to such usage, is subject, as PFE income, to the issuance of a pre-ruling from the Israel Tax Authority, or ITA, that stipulates
that such income is associated with the productive activity of the PFE in Israel.
Dividends paid to Israeli
shareholders out of PFI attributed to a PFE or to a Special PFE are generally subject to withholding tax at source at the rate of 20%(in
case of non-Israeli residents - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate,
20%, or such lower rate as may be provided in an applicable tax treaty). However, if such dividends are paid to an Israeli company, no
tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company the aforesaid
will apply).
Sapiens has received a new
tax ruling from the ITA valid until December 31, 2024, according to which dividends paid to Israeli shareholders who are individuals and
to non-Israeli shareholders (individuals and corporations) will be subject to withholding tax at source at the rate of 25% and in the
case of Israeli resident corporations— 0%, regardless of the source of the dividends. We cannot guarantee that the tax ruling will
be extended.
The 2011 Amendment also provided
transitional provisions to address companies already enjoying current benefits under the Investment Law. These transitional provisions
provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011
with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was
granted to an AE, which chose to receive grants, before the 2011 Amendment became effective, will remain subject to the provisions of
the Investment Law as in effect on the date of such approval, and subject to certain conditions; and (ii) the terms and benefits included
in any certificate of approval that was granted to an AE, that had participated in an alternative benefits program, before the 2011 Amendment
became effective, will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that
certain conditions are met.
In 2011, Magic and one of
its Israeli subsidiaries filed a notice to the Israeli tax authorities to apply for the new benefits under the 2011 Amendment.
In 2015, certain of Sapiens'
Israeli subsidiaries that had tax-exempt profits, filed a notice to the Israeli tax authorities to apply for the new benefits under the
2011 Amendment.
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On November 15, 2021, the
Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2021 and 2022 Budget Years), 2021, which we refer
to as the Economic Efficiency Law, was enacted. This law established a temporary order, or the Temporary Order, allowing Israeli companies
to release tax-exempt earnings, which we refer to as trapped earnings or accumulated earnings, that had accumulated until December 31,
2020, through a mechanism established for a reduced corporate income tax rate applicable to those earnings. In addition to reducing the
corporate income tax (or CIT) rate, the Economic Efficiency Law amended Article 74 of the Investment Law, whereby effective from August
15, 2021, for any dividend distribution (including a dividend specified in Article 51B of the Investment Law) by a company which has trapped
earnings, there is a requirement to allocate a portion of that distribution to the trapped earnings. Under the Temporary Order, the reduction
of CIT applies to earnings that are released (with no requirement for an actual distribution) within a period of one year from the date
of enactment of the Temporary Order. The reduction in the CIT is dependent on the proportion of the trapped earnings that are released
relative to the total trapped earnings, and on the foreign investment percentage in the years the earnings were generated. Consequently,
the larger the proportion of the trapped earnings that are released, the lower the tax in respect of the distribution. The minimum tax
rate is 6%. Further, a company that elects to pay a reduced CIT is required to invest in its industrial enterprise a designated amount
in accordance with the Economic Efficiency Law within a period of five years commencing from the tax year in which the election is made.
The designated investment should be utilized for the acquisition of production assets, and/or investments in research and development
and/or compensation to additional new employees.
In 2021, Sapiens elected to
benefit from the Temporary Order and pay the reduced CIT as per the provisions of the Economic Efficiency Law in respect of its total
accumulated tax-exempt earnings amounting to NIS 109 million (approximately $35.0 million), and accordingly our deferred tax liability
includes an amount of $3.5 million. In 2022, the Sapiens filed its application for the Temporary Order and paid the required amount to
the Israeli tax authority.
In November 2022, Magic Software
also elected to benefit from the Temporary Order and filed its application for the Temporary Order and paid the required reduced CIT as
per the provisions of the Economic Efficiency Law in respect of its total accumulated tax-exempt earnings amounting to NIS 25.0 million
(approximately $7.1 million), and accordingly recognized a tax liability of NIS 2.5 million (approximately $0.7 million).
As of December 31, 2022 all of Sapiens'
and Magic Software's trapped earnings were released.
New Tax benefits under the 2017 Amendment
that became effective on January 1, 2017
The 2017 Amendment provides
new tax benefits for two types of Technology Enterprises, as described below, and is in addition to the other existing tax beneficial
programs under the Investment Law.
The 2017 Amendment provides
that a technology company satisfying certain conditions will qualify as a PTE, and will thereby enjoy a reduced corporate tax rate of
12% on income that qualifies as Preferred Technology Income, or PTI, as defined in the Investment Law. The tax rate is further reduced
to 7.5% for a PTE located in development zone A. In addition, a Preferred Technology Company will enjoy a reduced corporate tax rate of
12% on capital gain derived from the sale of certain Benefited Intangible Assets (as defined in the Investment Law). to a related foreign
company if the "Benefitted Intangible Assets" (as defined under the Investment Law) were acquired from a foreign company after
January 1, 2017 for at least NIS 200 million, and the sale receives prior approval from the Israeli Innovation Authority ("IIA").
The 2017 Amendment further
provides that a technology company satisfying certain conditions will qualify as an SPTE (an enterprise for which, among others, total
consolidated revenues of its parent company and all subsidiaries is at least NIS 10 billion) and will thereby enjoy a reduced corporate
tax rate of 6% on PTI regardless of the company's geographic location within Israel. In addition, an SPTE will enjoy a reduced corporate
tax rate of 6% on capital gain derived from the sale of certain "Benefited Intangible Assets" to a related foreign company
if the Benefited Intangible Assets were either developed by the Special Preferred Technology Enterprise or acquired from a foreign company
on or after January 1, 2017, and the sale received prior approval from IIA. An SPTE that acquires Benefitted Intangible Assets from a
foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject to certain approvals
as specified in the Investment Law.
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Dividends distributed by a
PTE or a Special PTE, paid out of PTI to Israeli shareholders,, are generally subject to withholding tax at source at the rate of 20%
(in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced
tax rate, 20%, or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company,
no tax is required to be withheld (although, if such dividends are subsequently distributed from such Israeli company to individuals or
a non-Israeli company, the aforesaid will apply). If such dividends are distributed to a foreign company that holds solely or together
with other foreign companies 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% (or
a lower rate under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced
tax rate).
We examined the impact of
the 2017 Amendment and the degree to which certain of our Israeli subsidiaries will qualify as a PTE or SPTE, and the amount of PTI that
we may have, or other benefits that we may receive, from the 2017 Amendment. Beginning in 2017, part of our Group's taxable income
in Israel is entitled to a preferred 12% tax rate under the 2017 Amendment. In addition, from 2019 onwards, certain of our Israeli subsidiaries
are considered an SPTE and are entitled to an SPTE tax rate of 6%, as described above.
Tax Benefits and grants for Research and
Development
Israeli tax law allows, under
certain conditions, a tax deduction for research and development expenditures, including capital expenditures, for the year in which they
are incurred. Such expenditures must relate to scientific research and development projects, and must be approved by the relevant Israeli
government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company's
business and carried out by or on behalf of the company seeking such tax deduction. However, the amount of such deductible expenses is
reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects.
Expenditures not so approved by the relevant Israeli government ministry, but otherwise qualifying for deduction, are deductible over
a three-year period.
Tax Reform - United States of America:
The U.S. Tax Cuts and Jobs
Act of 2017 ("TCJA") was approved on December 22, 2017. This legislation makes significant changes to the U.S. Internal Revenue
Code. Such changes include a reduction in the corporate tax rate and limitations on certain corporate deductions and credits, among other
changes. The TCJA reduces the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. In addition, the TCJA
makes certain changes to the depreciation rules and implements new limits on the deductibility of certain expenses and deduction.
Effective in 2022, the TCJA
requires all U.S. companies to capitalize, and subsequently amortize R&E expenses that fall within the scope of Section 174 over five
years for research activities conducted in the United States and over fifteen years for research activities conducted outside of the United
States, rather than deducting such costs in the year incurred for tax purposes. Although Congress may defer, modify, or repeal this provision,
potentially with retroactive effect, we have no assurance that Congress will take any action with respect to this provision. During 2022,
Sapiens has accounted for the effects of the R&E capitalization, based on interpretation of the law as currently enacted. Accordingly,
Sapiens increased its current tax expenses in 2022 against a corresponding deferred tax benefit in the same amount, resulting in no effect
on the total taxes on income in the statements of income.
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B.
Liquidity and Capital Resources
Since inception, we have financed
our growth and business primarily through cash provided by operations and through public debt and equity offerings, as well as through
private and public debt and equity offerings of our subsidiaries. In addition, we finance our business operations through short-term and
long-term loans and borrowings available under our credit facilities.
Current Outlook
We had cash and cash equivalents
and short-term investments (including marketable securities) of $512.5 million and $569.1 million as of December 31, 2021 and 2022, respectively.
At December 31, 2021, we had indebtedness to banks and others, including debentures, of $586.4 million and $647.7 million, respectively,
of which $224.2 million and $226.2 million were current liabilities and $362.3 million and $421.5 million were long-term liabilities as
of those respective dates. Included in the balance of our indebtedness to banks and others as of December 31, 2022, Formula standalone
had indebtedness of $154.7 million and $158.5 million, in the aggregate, outstanding under Formula's secured debentures (Series
A and Series C, respectively) which Formula sold in public offerings in Israel in September 2015 (extended in January 2018) and March
2019 (extended in April 2021 and August 2022), in each case, as described below.
We had cash and cash equivalents
that were held outside of Israel and that would have been subject to income taxes if distributed as a dividend as of December 31, 2021
and 2022 in amounts of $56.9 million and $81.8 million, respectively.
Sources of Financing
Series A Secured Debenture Financings
In September 2015, Formula
consummated a public offering of debentures in Israel. The two series of debentures issued by Formula in the public offering consisted
of one series of debentures— the Series A Secured Debentures— that is secured by liens on the shares of Formula's subsidiaries
(Matrix, Sapiens and Magic Software), and a second series— the Series B Convertible Debentures— that was convertible into
ordinary shares of Formula. Both series of debentures were listed for trading only on the TASE. Of those two series, only the Series A
Secured Debentures remain outstanding as of the current time.
In the public offering, NIS
102,260,000 ($26.3 million) par value of Series A Secured Debentures were sold, which bear interest on the unpaid principal at a fixed
annual rate equal to 2.8% (which may vary based on the credit rating of the debentures), which is paid on a semi-annual basis through
July 2024. The principal is payable in eight equal annual installments beginning in July 2017 and ending in July 2024. The interest rate
varies based on the credit rating of the Series A Secured Debentures. The net proceeds received by Formula from the issuance of the Series
A Secured Debentures in September 2015 amounted to $25.9 million (net of issuance expenses).The gross proceeds received by Formula from
the issuance of all debentures in September 2015 (including from the Series B Convertible Debentures, which are no longer outstanding)
were approximately NIS 229.8 million ($58.6 million), in the aggregate.
January 2018 Private Placement
On January 31, 2018, Formula consummated a private
placement to qualified investors in Israel, of an additional, aggregate NIS 150 million par value of Series A Secured Debentures at a
price of NIS 1,034.7 for each NIS 1,000 principal amount. The aggregate gross proceeds totaled NIS 155.2 million (approximately $45.6
million), excluding issuance costs of $0.2 million. The terms of the Series A Secured Debentures sold in the private placement are identical
in all respects to those of the Series A Secured Debentures sold in Formula's September 2015 public offering.
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Series C Secured Debenture Financings
On March 31, 2019, Formula
consummated a public offering in Israel of a new series of secured debentures—Series C Secured Debentures— in an aggregate
NIS 300.0 million par value amount, at a price of NIS 1,000 for each unit of NIS 1,000 principal amount. The aggregate gross proceeds
from the public offering totaled NIS 300.0 million (approximately $82.6 million) excluding issuance costs of $0.9 million. The Series
C Secured Debentures are secured by liens on the shares of Formula's subsidiaries and are listed for trading only on the TASE. Each
Series C Debenture unit bears interest at a fixed annual rate equal to 2.29%, which interest will be paid out on a semi-annual basis.
The principal amount of the Series C Debentures will be payable by Formula in seven annual installments from December 1, 2020 through
December 1, 2026, the first five of which will each constitute 11% of the principal, and the final two of which will each constitute 22.5%
of the principal.
The terms of the Series C
Secured Debentures sold in the March 2019 public offering are substantially similar to those of the Series A Secured Debentures sold in
Formula's September 2015 public offering and January 2018 private placement.
April 2021 Private Placement
On April 12, 2021, Formula
consummated a private placement to qualified investors in Israel of an aggregate NIS 160 million (approximately $48.6 million) principal
amount of its non-convertible Series C Secured Debentures at a price of NIS 1,037 for each NIS 1,000 principal amount. The total aggregate
gross proceeds received by Formula from the investors was NIS 165.92 million (approximately $50.4 million), out of which NIS 1.7 million
was attributed to interest payable (approximately $0.5 million). Debt premium of NIS 4.4 million (approximately $1.0 million) net of issuance
costs of NIS 0.9 million (approximately $0.3 million) were allocated to the Formula Systems Series C Secured Debentures and are amortized
as financial income over the remaining term of Formula Systems Series A Secured Debentures due in 2026.
The additional debentures
were sold by means of an increase in the outstanding principal amount of Series C Secured Debentures. As a result of this private placement,
the total outstanding principal amount of the Series C Debentures increased to approximately NIS 427 million. The Series C Secured Debentures
sold in the private placement are subject to the terms of the deed of trust, entered into in March 2019, by and between Formula, as the
issuer of the debentures, and Reznick Paz Nevo Trusts Ltd., as trustee on behalf of the debenture holders.
The terms of the Series C
Debentures sold in the April 2021 private placement were identical in all respects to those of the Series C Debentures sold in Formula's
March 2019 public offering.
August 2022 Private Placement
On August 22, 2022, Formula
entered into agreements with qualified investors in Israel for the private placement to those investors of an additional aggregate of
NIS 200 million principal amount of Formula's Series C Secured Debentures, at a price of NIS 975 for each NIS 1,000 principal amount.
The total aggregate gross proceeds received by Formula from the investors was NIS 195 million (of which NIS 1.1 million was attributed
to interest payable, or approximately $0.3 million). The additional debentures were sold by means of an increase in the outstanding principal
amount of Series C Secured Debentures.
The total principal amount
of all debentures—including Series A Secured Debentures and Series C Secured Debentures—issued by Formula that remain outstanding
as of March 31, 2023 constituted NIS 561.7 million (approximately $155.4 million).
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General Terms of Outstanding Debentures
The Series A Secured Debentures
and Series C Secured Debentures contain, in addition to standard terms and obligations, the following obligations on our part:
●
a negative pledge, subject to certain exceptions;
●
a covenant not to distribute dividends unless: (i) shareholders' equity (not including minority interests) is at least $290 million (for the Series C Secured Debentures) or $250 million (for the Series A Secured Debentures); (ii) Formula's consolidated net financial indebtedness (financial indebtedness net of cash, marketable securities, deposits and other liquid financial instruments) does not exceed 50% (for the Series C Secured Debentures) or 65% (for the Series A Secured Debentures) of net CAP (which is defined as financial indebtedness, net, plus shareholders equity); (iii) the amount of the distributions (including, in the case of the Series C Secured Debentures, any previous distribution starting from January 1, 2016) does not exceed that aggregated amount of the profit accrued for 2015 and 75% of profits accrued from January 1, 2016 until the distribution; (iv) no event of default shall have occurred; and (v) no material breach of obligations under the debentures shall have occurred; and
●
Financial covenants, including: (i) the equity attributable to the shareholders of Formula, as reported in Formula's annual or quarterly financial statements, will not be less than $160 million (for the Series A Secured Debentures) or $215 million (for the Series C Secured Debentures); (ii) Formula's consolidated net financial indebtedness (financial indebtedness net of cash, marketable securities, deposits and other liquid financial instruments) shall not exceed 65% of net CAP (which is defined as financial indebtedness, net, plus shareholders equity); (iii) for the Series C Secured Debentures, Formula's consolidated net financial indebtedness shall not exceed five times EBITDA (which is defined as the consolidated net profit plus taxes, net financing expenses, depreciation and amortization and without expenses for employee stock option, expenses for transactions and on-time income/expenses); and (iv) at all times, Formula's cash balance will not be less than the annual interest payment (compounded) for the unpaid principal amount of the Series C Secured Debentures or the Series A Convertible Debentures (as applicable).
We have agreed to standard
events of default under the Series A Secured Debentures and Series C Secured Debentures, together with the following additional events
of default due to any of the following:
●
cross default, excluding following an immediate repayment initiated in relation to the other series of debentures or other indebtedness (other than non-recourse debt) over NIS 75 million ($21.3 million as of December 31, 2022);
●
suspension of trading of the debentures on the TASE over a period of 60 days;
●
failure to have the debentures rated over a period of 60 days;
●
if the rating of the debentures is less than BBB- by Standard and Poors Maalot or equivalent rating of other rating agencies;
●
if there is a change in control without consent of the rating agency;
●
if Formula fails to provide additional security when the loan-to-value of the securities securing the Series A Secured Debentures or Series C Secured Debentures (as applicable) falls below the required ratio;
111
●
the existence of a real concern that Formula will not meet its material undertakings towards the debenture holders;
●
the inclusion in Formula's financial statements of a note regarding the existence of significant doubt as to Formula's ability to continue as a going concern;
●
breach of Formula's undertakings regarding the issuance of additional debentures;
●
Formula's failure to continue to control any of its subsidiaries; and
●
failure to comply with the negative pledge covenant.
Subsidiary and Affiliate Financing Activities
From time to time, our subsidiaries
and affiliated companies also maintain credit facilities with banks and other financial institutions and issue debt instruments such as
debentures in accordance with their cash requirements. These credit facilities and debentures include, inter alia, certain standard events
of defaults related to our subsidiaries' operations, which restrict their ability to: (i) undergo a change of control, (ii) distribute
dividends, (iii) incur debt or apply a floating charge on their assets, or (iv) undergo an asset sale or other change that would result
in a fundamental change in their operations. The subsidiaries' and affiliated companies' indebtedness also requires that they
comply with certain financial covenants, including maintenance of certain financial ratios related to their shareholders' equity,
total rate of debt and liabilities, minimum outstanding balance of total cash and short-term investments and operating results that are
customary for companies of their comparable size and the risk. Some of our subsidiaries' assets are pledged to the lender banks
and debenture holders. If we or any of our subsidiaries do not meet the covenants specified in our credit agreements or indentures (or
equivalent agreement with the debenture holders), and a waiver with respect to the fulfillment of such covenants has not been received
from the lender bank or representative of the debenture holders, the lender bank or debenture holders (via the action of their representative)
may foreclose on the pledged assets to satisfy a debt.
Currently, Matrix, Sapiens,
Magic Software and Formula have such material credit facilities and/or debentures outstanding. The long-term debt obligations of Matrix
over NIS nominated loans bear fixed interest at an average annual rate of 1.4.0%-4.1% (including Matrix Series B Debentures issued September
2022 and extended in December 2022) and floating interest over U.S dollar nominated loans at a rate of LIBOR + 2.2%. The long-term debt
obligations of Magic Software over NIS nominated loans bear fixed interest at an annual rate of 2.1%-3.3% and floating interest over NIS
dollar nominated loans at a rate of SOFR + 2.1% SOFR + 2.2.25 over U.S dollar nominated loans. The long-term debt obligations of Sapiens
bear fixed interest at an annual rate of 3.37%. These credit facilities and/or debentures expire over a period of time that ranges from
one to seven years.
As of December 31, 2022, Matrix
had aggregate short-term obligations to banks and others of NIS 471.5 million (approximately $134.0 million) and aggregate long-term obligations
to banks and others of NIS 274.5 million (approximately $78.0 million) under its credit facilities. As of December 31, 2022, Magic Software
had aggregate short-term obligations to banks and others of $20.8 million and aggregate long-term obligations to banks and others of $30.4
million under its credit facilities. During the second half of 2022, in an effort to hedge its exposure to the effects of the increase
in interest rates, Matrix engaged in two Series B bonds issuances, yielding a net amount (minus issuance expenses) of approximately NIS
471.1 million (approximately $140.3). The principal due under the Matrix IT Series B Debentures is payable in thirteen (13) semi-annual
installments each equal to approximately 7.14% of the aggregate principal amount (or approximately NIS 33,959) on February 1 and on August
1 of each of the years 2023 through 2029 with the last payment equal to 7.18% of the aggregate principal amount (or approximately NIS
34,148) paid on February 1, 2030. The outstanding principal amount under the Matrix IT Series B Debentures bears interest at a fixed rate
of 4.1% per annum (subject to adjustments based on the credit rating of the debentures), payable on February 1st and August 1st of each
of the years as of February 1, 2023, through 2030. In addition, as of December 31, 2022, Zap Group had aggregate short-term obligations
to banks and others of $1.9 million and aggregate long-term obligations to banks and others of $6.7million under its credit facilities.
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In November 2016, Magic
Software obtained an NIS 120 million (approximately $31.4 million) loan linked to the NIS from an Israeli institution. Magic Software
intended to use the proceeds from this loan for its general corporate purposes, which may include the funding of its working capital needs
and the funding of potential acquisitions. The principal amount of the loan is payable in seven equal annual payments with the final payment
due on November 2, 2023 and bears a fixed interest rate of 2.60% per annum, payable in two semi-annually payments. The loan, which may
be prepaid under certain circumstances, is subject to various financial covenants, which mainly consist of the following:
1.
Magic Software equity will not be lower than $100 million (one hundred million U.S. dollars) at all times.
2.
Magic Software cash and cash equivalent and marketable securities available for sales will not be less than $10 million (ten million U.S. dollars).
3.
The ratio of Magic Software total financial debts to total assets will not exceed 50%.
4.
The ratio of Magic Software total financial debts less cash, short-term deposits and short-term marketable securities to the annual EBITDA will not exceed 3.25 to 1.
5.
Magic Software will not create any pledge on all of its property and assets in favor of any third party without the financial institution's consent
In September 2017, Sapiens
issued NIS 280 million (approximately $78.3 million, net of $0.96 million of debt discount and issuance costs) principal amount of Series
B unsecured, non-convertible debentures, in a public offering and private placement in Israel. Proceeds of such offering were utilized
to repay the entire outstanding loan amount (including accrued interest) under a $40 million credit agreement to which Sapiens had been
party with HSBC Bank USA, National Association as financing for Sapiens' acquisition of StoneRiver. The outstanding principal amount
of the Sapiens Series B debentures is linked to the US dollar and bears interest at an annual rate of 3.37%, to be paid on a semi-annual
basis (on January 1 and July 1 of 2018 through 2025, with one final interest payment on January 1, 2026). The principal of the Sapiens
Series B debentures is payable in eight equal annual payments beginning on January 1, 2019, with the final payment due on January 1, 2026.
The first five principal installments for the September 2017 Series B Debentures, in amounts of $9.9 million each, were paid on January
1, 2019, 2020, 2021, 2022 and 2023.
In June 2020, Sapiens issued
additional Series B Debentures in an aggregate principle amount of NIS 210 million (approximately $60.4 million) through a public offering
in Israel. The gross proceeds received for the issuance of Sapiens' Series B Debentures in June 2020 were NIS 210.8 million (approximately
$60.6 million), out of which approximately NIS 3.0 million was attributed to interest payable (approximately $0.9 million). Debt discount
of NIS 2.2 million (approximately $0.6 million) and issuance costs of NIS 2.3 million (approximately $0.7 million) were allocated to Sapiens'
Series B Debentures and are amortized as financial expenses over the remaining term of the Sapiens Series B Debentures due in 2026. The
first three principal payments of $9.9 million each for the June 2020 Series B Debentures were made on January 1, 2021, 2022 and 2023.
On October 20, 2020, Sapiens
closed an underwritten follow-on public offering of 3,389,830 of its common shares at a public offering price of $29.50 per share, before
underwriting discounts and commissions. Sapiens also granted the underwriters a 30-day option to purchase up to an additional 508,474
common shares at the public offering price, less underwriting discounts and commissions, which option was exercised in full. In total,
Sapiens raised net proceeds of approximately $108.7 million from the offering, after deducting underwriting discounts and commissions
and estimated offering expenses.
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In the deed of trust entered
into by Sapiens with the trustee for the holders of its Series B Debentures, Sapiens undertook to maintain a number of conditions and
limitations on the manner in which it can operate its business, including limitations on its ability to undergo a change of control, distribute
dividends, incur a floating charge on its assets, or undergo an asset sale or other change that results in a fundamental change in its
operations. The deed of trust also requires Sapiens to comply with certain financial covenants, including maintenance of a minimum shareholders'
equity level and a maximum ratio of financial indebtedness to shareholders' equity, at levels that are customary for companies of
comparable size. The deed of trust furthermore provides for an upwards adjustment in the interest rate payable under the debentures in
the event that the debentures' rating is downgraded below a certain level. A breach of the financial covenants for more than two
successive quarters or a substantial downgrade in the rating of the debentures (below BBB-) could result in the acceleration of Sapiens'
obligation to repay the debentures.
As of the date of the financial
statements included in this annual report, each of Formula, Sapiens, Magic Software and Matrix was in compliance with each of its respective
financial covenants.
We believe that our current
cash reserves, together with cash that may be distributed to us from the ongoing operations of our subsidiaries and any credit that we
may choose to draw upon that is available under our (and our subsidiaries' and affiliated company's) existing credit facilities
should be sufficient for our present working capital requirements for at least the next 12 months at our current level of operations.
We may consider in the future additional equity issuances, debt issuances or borrowings from banks if necessary to meet cash needs for
our growth, including if needed to consummate one or more acquisitions for consideration consisting of all or a substantial portion of
our available cash. Should we require additional financing in the future, we cannot assure you that such financing will be available on
favorable terms or at all.
Credit Ratings
In April 2021, following Formula's
consummation of a private placement to qualified investors in Israel of additional Series C Secured Debentures, Formula reported publicly
to the TASE and Israeli Securities Authority that Midroog (established in affiliation with the worldwide rating company, Moody's
Corporation which maintains a 51% share capital interest) maintained the then-current credit rating of Aa3.il with stable outlook for
Formula's current series of secured debentures (Series A Secured Debentures and Series C Secured Debentures).
In connection with its August
2022 private placement of additional Series C Secured Debentures, on August 22, 2022, Formula publicized an updated rating report published
by Standard & Poor's Maalot, or S&P (a subsidiary of S&P Global), with respect to Formula and its two outstanding series
of debentures. In that report, S&P assigned a rating of ilAA- for both the Series A Secured Debentures and Series C Secured Debentures,
and a rating of ilAA-/stable for Formula itself.
In connection with Sapiens'
offering of its Series B Debentures, Sapiens received from S&P a corporate credit rating and a rating for the Series B Debentures,
which S&P affirmed, as of July 2018 and 2019, May 2020 and July 2021, as ilA+, with stable outlook. On June 28, 2022, S&P upgraded
the rating for Sapiens' Series B Debentures from "ilA+" to "ilAA-" (on local scaling), with a stable outlook.
In connection with Matrix's
August offering of its Series B Debentures (then extended in December 2022 in a private placement) Matrix received from Midroog (established
in affiliation with the worldwide rating company, Moody's Corporation which maintains a 51% share capital interest) a corporate
credit rating and a rating for the Series B Debentures, which Midroog affirmed, as of March 2023, as ilAa3.il, with stable outlook.
Cash Provided by Operating Activities
Cash flow provided by our
operating activities increased from $209.1 million in 2021 to $239.1 million in 2022, mainly resulting from increase in Matrix's
cash flow provided by operating activities from NIS 219.2 million (approximately $67.9 million) in 2021 to NIS 387.4 million (approximately
$115.3 million).
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Net cash provided by operating
activities in 2022 consisted primarily of the cash generated by our subsidiaries' ongoing operating activities and of net income
stemming therefrom, as adjusted for non-cash activity, including changes in operating assets and liabilities. The material upwards adjustments
in cash flow reflecting non-cash activity included adjustments due to: (i) depreciation and amortization of capitalized research and development
assets, other intangible assets (mainly customer relations), property, plants and equipment and operating right-of-use assets in an aggregate
amount of $115.3 million; (ii) an increase in trade payables in an amount of $25.3 million; (iii) an increase in other accounts payable
and employees and payroll accrual in an amount of $22.3 million; (iv) stock-based compensation expenses in an amount of $15.0 million;
(v) a decrease in other current and long-term accounts receivable in an amount of $2.6 million, offset in part by: (a) an increase in
trade receivables in an amount of $51.4 million; (b) a gain from disposition of a subsidiary of Matrix in an amount of $44.3 million;
(c) changes in deferred taxes, net in an amount of $18.1 million; (d) an increase in inventories in an amount of $13.8 million; (e) a
decrease in deferred revenues in an amount of $6.4 million; and (f) a decrease in value of short-term and long-term loans from bank and
others and deposits, net in an aggregate amount of $4.7 million.
Cash flow provided by operating
activities in 2022 was primarily comprised of NIS 387.4 million (approximately $115.3 million) provided by Matrix, $55.6 million provided
by Sapiens, $56.7 million provided by Magic Software, $6.9 million provided by Michpal, $8.5 million provided by Zap Group, $2.9 million
provided by Shamrad, $0.8 million provided by Insync and approximately $0.6 million provided by Ofek, offset by $7.9 million used by Formula.
Net cash provided by operating
activities in 2021 consisted primarily of the cash generated by our subsidiaries' ongoing operating activities and of net income
stemming therefrom, as adjusted for non-cash activity, including changes in operating assets and liabilities. The material upwards adjustments
in cash flow reflecting non-cash activity included adjustments due to: (i) depreciation and amortization of capitalized research and development
assets, other intangible assets (mainly customer relations), property, plants and equipment and operating right-of-use assets in an aggregate
amount of $122.2 million; (ii) an increase in liabilities in respect of business combinations in an amount of $4.7 million; (iii) stock-based
compensation expenses in an amount of $14.8 million; (iv) an increase in value of short-term and long-term loans from bank and others
and deposits, net in an aggregate amount of $2.0 million; (v) an increase in trade payables in an amount of $40.1 million; (vi) a decrease
in other current and long-term accounts receivable in an amount of $20.1 million; (vii) a decrease in inventories in an amount of $4.6
million and (viii) an increase in other accounts payable and employees and payroll accrual in an amount of $7.3 million; (ix) an increase
in deferred revenues in an amount of $9.3 million, offset in part by an increase in trade receivables in an amount of $150.8 million and
changes in deferred taxes, net in an amount of $8.0 million.
Cash flow provided by operating
activities in 2021 was primarily comprised of NIS 219.2 million (approximately $67.9 million) provided by Matrix, $89.9 million provided
by Sapiens, $43.7 million provided by Magic Software, $6.3 million provided by Michpal, $1.1 million provided by Ofek and approximately
$6.9 million provided by Zap Group, offset by $1.0 million used by Insync and $6.2 million used by Formula.
Cash Used by or Provided by Financing Activities
Cash flow used by financing
activities was $80.0 million in 2022 compared to cash flow used by financing activities in an amount of $114.1 million in 2021, mainly
reflecting the cumulative effect of the following financing-related transactions that occurred over the course of those years:
Year Ended December 31, 2022
In 2022, Magic Software declared
cash dividends to its shareholders in an aggregate amount of approximately $24.8 million, of which $13.4 million were paid to non-controlling
interests. In addition, in March 2023, upon the publication of its financial results for the year ended December 31, 2022, Magic Software
announced an additional dividend distribution in an aggregate amount of approximately $14.7 million of which $7.9 million was paid to
non-controlling interests.
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In 2022, Matrix declared cash
dividends to its shareholders in an aggregate amount of approximately NIS 284.3 million (approximately $84.6 million, based on the average
exchange rate for the year 2022), of which NIS 145.9 million (approximately $43.4 million) were paid to non-controlling interests. In
addition, in March 2023, upon the publication of its financial statements for the year ended December 31, 2022, Matrix announced an additional
dividend distribution in an aggregate amount of approximately NIS 37.4 million (approximately $10.2 million) of which NIS 19.4 million
(approximately $5.3 million) was paid to non-controlling interests.
In 2022, Sapiens declared
cash dividends to its shareholders in an aggregate amount of approximately or $38.9 million, of which $21.6 million were paid to non-controlling
interests. In addition, in March 2023, upon the publication of its financial statements for the year ended December 31, 2022, Sapiens
announced an additional dividend distribution in an aggregate amount of approximately $13.8 million of which $7.7 million was paid to
non-controlling interests.
Over all, net cash used by
financing activities in 2022 was attributable to: (i) dividends paid to non-controlling interests in subsidiaries in an amount of $96.6
million; (ii) dividends paid to Formula's shareholders in an amount of $21.8 million; (iii) repayment of long-term loans from banks
and others in an amount of $87.9 million; (iv) repayment of debentures in an amount of $53.1 million; (v) repayment of lease liabilities
in an amount of $49.7 million; (vi) purchase of non-controlling interests in an amount of $16.8 million; and (vii) a decrease in short-term
bank credit, net in an amount of $7.3 million; offset in part by (a) proceeds from issuance of debentures, net in an amount of $199.1
million (mainly gross proceeds received by Matrix for the issuance of the Series B Debentures and proceeds received by Formula for the
issuance of the additional Series C Secured Debentures); and (b) receipt of long-term loans from banks and others in an amount of $65.7
million.
Year Ended December 31, 2021
In 2021, Magic Software declared
cash dividends to its shareholders in an aggregate amount of approximately $21.8 million, of which NIS 74.8 million (approximately $23.2
million) were paid to non-controlling interests.
Over all, net cash used by
financing activities in 2021 was attributable to: (i) a dividend to Formula's shareholders in an amount of $22.1 million; (ii) repayment
of long-term loans from banks and others in an amount of $84.2 million; (iii) repayment of debentures in an amount of $47.0 million; (iv)
repayment of lease liabilities in an amount of $44.1 million; and (v) dividends paid to non-controlling interests in subsidiaries in an
amount of $63.0 million; offset in part by (a) an increase in short-term bank credit, net in an amount of $36.3 million; (b) receipt of
long-term loans from banks and others in an amount of $62.7 million; and (c) proceeds from issuance of debentures, net in an amount of
$50.3 million (mainly gross proceeds received by Formula for the issuance of the additional Series C Secured Debentures).
Cash Used in Investing Activities
Net cash used in our investing
activities was $74.3 million in 2022 compared to $110.2 million in 2021.
Net cash used in investing
activities in 2022 was attributable to: (i) expenditures (net of cash acquired) with respect to business acquisitions in an aggregate
amount of $52.3 million; (ii) purchase of property and equipment and intangible assets in an amount of $25.2 million; (iii) purchase of
other investments in an amount of $15.1 million; (iv) capitalization of software development and other costs in an amount of $14.1 million;
and (v) payments in conjunction with deferred payments and contingent liabilities related to business combinations in an amount of $5.2
million. This cash use was offset in part by the following cash amounts provided by investing activities in 2022: (a) proceeds from sale
of a subsidiary of Matrix net of taxes paid in conjunction of this sale in an amount of $34.5 million; (b) increase in short-term and
long-term deposits, net in an amount of $2.0 million; and (c) proceeds from sale of property and equipment in an amount of $0.7 million.
Net cash used in investing
activities in 2021 was attributable to: (i) expenditures (net of cash acquired) with respect to business acquisitions in an aggregate
amount of $77.2 million; (ii) purchase of property and equipment in an amount of $17.4 million; (iii) capitalization of software development
and other costs in an amount of $12.8 million; and (iv) payments in conjunction with deferred payments and contingent liabilities related
to business combinations in an amount of $8.6 million. This cash use was offset in part by the following cash amounts provided by investing
activities in 2021: (a) proceeds from sale of property and equipment in an amount of $2.3 million; and (b) increase in short-term and
long-term deposits, net in an amount of $4.8 million.
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Company Commitments
The total principal amount
of all debentures—including Series A Secured Debentures and Series C Secured Debentures—issued by Formula that remain outstanding
as of March 31, 2023 constituted NIS 561.7 million (approximately $155.4 million).
For a description of the amounts
outstanding under these debenture series and the related covenants and restrictions to which we are subject, please see "Sources
of Financing" above in this Item 5.B ("Liquidity and Capital Resources").
We do not have material commitments
for capital expenditures by Formula as of December 31, 2022 or as of the date of this annual report.
We have entered into an undertaking
to indemnify our office holders in specified limited categories of events and in specified amounts, subject to certain limitations. For
more information, see "Item 7. Major Shareholders and Related Party Transactions— Related Party Transactions— Indemnification
of Office Holders."
Subsidiary Commitments
Our subsidiaries do not have
any material commitments for capital expenditures as of December 31, 2022 or as of the date of this annual report.
As alluded to above (see "Sources
of Financing—Subsidiary and Affiliate Financing Activities" in this Item 5.B ("Liquidity and Capital Resources")),
the loan agreements, debentures and indentures to which we are party contain a number of conditions and limitations on the way in which
we (Matrix, Sapiens, Magic Software and Formula) can operate our businesses, including limitations on our ability to raise debt and sell
or acquire assets not in normal business activity. For example, Matrix's loan agreement includes a negative pledge with respect
to Matrix's assets, as well as limitations on Matrix's ability to provide guarantees to third parties and sell or transfer
its assets. Matrix's loan agreements also contain various covenants which require it to maintain certain financial ratios related
to shareholders' equity and operating results that are customary for companies of comparable size.
Our subsidiaries and affiliate
have provided bank guarantees aggregating to approximately $43.3 million as of December 31, 2022 as security for the performance of various
contracts with customers. If our subsidiaries and affiliates were to breach certain terms of such contracts, the customers could demand
that the banks providing the guarantees pay amounts claimed to be due.
Our subsidiaries and affiliate
have also provided additional bank guarantees aggregating to $8.2 million as of December 31, 2022 as security for rent to be paid for
their offices. If our subsidiary and affiliate were to breach certain terms of their leases, the lessors could demand that the banks providing
the guarantees pay amounts claimed to be due.
Pursuant to the Series A Secured
Debentures and Series C Secured Debentures described above, liens have been incurred over a certain portion of our investment in outstanding
shares of Matrix, Sapiens and Magic Software, in respect of the amounts shown in the table below:
December 31, 2022
Formula's Series A Secured Debentures
Formula's Series C Secured Debentures
Matrix ordinary shares, par value NIS 1 per share
4,128,865
6, 169,761
Magic Software ordinary shares, par value NIS 0.1 per share
5,825,681
3,141,474
Sapiens common shares, par value €0.01 per share
1,260,266
2,957,590
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We and IAI have granted TSG,
our jointly controlled affiliate, in equal share, a guarantee of NIS 40 million (approximately $12.4 million) as security against TSG's
bank credit line and bank guarantees issued by TSG for the performance of various contracts with its customers.
C.
Research and Development, Patents and Licenses, etc.
The net amounts that we spent
on research and development activities in 2021 and 2022 were $65.9 million and $72.1 million, respectively. For more information about
our research and development activities, see "Item 4. Information on the Company—Business Overview— Software Development."
For information concerning
our intellectual property rights, see "Item 4. Information on the Company— Business Overview— Intellectual Property
Rights."
D.
Trend Information
Trends Impacting Our
Industry and Our Business
The demands for IT services
in Israel is directly influenced by global trends.
2022 was initially expected
to be slower than 2021 (which was a year of acceleration and significant growth in the demand for IT Services resulting from the slowdown
in 2020 caused by COVID-19) - but still with significant growth. Gartner, a leading global research and advisory company, expected global
IT spending to grow by 5%-6% in 2021, while it actually grew by over 9%, and was expected to continue and grow by 5.1% in 2022 (see https://www.gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five-
point-1-percent-in-2022, which is not incorporated by reference into this annual report).
In practice, due to global
events, including the war in Ukraine, the closures in China and their effect on global economy, IT global activity in 2022 was weaker
than the forecasts and in practice 2022 ended (at the global level, according to Gartner's estimate) with a decrease of about 0.2% (see
https://www.gartner.com/en/newsroom/press-releases/2023-01-18-gartner-forecasts-worldwide-it-spending-to-grow-2-percent-in-2023, which
is not incorporated by reference into this annual report). Neutralizing exchange rate fluctuations impact, 2022 ended with a slight increase
of about 0.8%, and the year 2023 is expected to benefit from an increase of only 2.4%.
In the analysis of the market
according to Gartner, a significant part of the decrease in growth compared to prior years is due to a very sharp decrease in investments
in end point devices (workstations, cellular devices), which reached a decrease of about 10.6% compared to 2021. When you neutralize the
decrease of the end points devices then it is an increase of about 2.3%, that is: less than half of the forecast. According to Forrester
(see https://www.forrester.com/report/european-tech-market-outlook-by-country-2021-to-2022/RES176894?ref_search=1051634_1645482187974,
which is not incorporated by reference into this annual report), global IT expenses increased in 2022 by approximately 0.3% (compared
to a forecast of approximately 6.7%) and are expected to increase in 2023 by approximately 4.7%.
According to Gartner, a significant
part of the decrease is due to a very sharp decrease in investments in end point devices (workstations, cellular devices), which reached
a decrease of about 10.6% compared to 2021 (See Forecast Analysis: IT Spending, Worldwide, Gartner, ID G00778744, which is not incorporated
by reference into this annual report). When you neutralize the decrease of the end points means then it is an increase of about 2.3%,
that is: less than half of what was originally forecasted for 2022. According to Gartner, global investments in software increased in
2022 by approximately 7.1% and when neutralizing impact of changes in currency rates by approximately 12.1% compared to investments in
global software in 2021, including an increase in infrastructure software, application software and vertical software. Most of the growth
was in software as a service (SAAS).
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According to Forrester (See
Global Software Industry Forecast, 2022, not incorporated by reference into this annual report), the prominent areas in the field of software
applications are: CRM (increase of about 11.9%), vertical software (increase of about 13.3%), ERP (increase of about 10.5%), content management
and collaboration (increase of about 11.9%) and engineering software (an increase of about 9.9%). According to the same report, cyber
and information security software (increase of about 15.4%), technology management programs (increase of about 13.1%) and data software
(increase of about 12.8%) stand out in the field of infrastructure software.
The growth in the cyber field
is very significant, and not only in the software field. According to Gartner (see https://www.gartner.com/en/newsroom/press-releases/2022-10-13-gartner-identifies-three-factors-influencing-growth-i,
which is not incorporated by reference into this annual report) the growth in 2022 in the Security & Risk Management field is about
7.2%, while application security and cloud security, increased by more than 20%. According to Forrester the total global investments in
the cloud market are expected to increase by about 23% compared to 2021 (see "The Public Cloud Market Outlook, 2022 To 2026, Forrester",
which is not incorporated by reference into this annual report) and according to Gartner (see https://www.gartner.com/en/newsroom/press-releases/2022-10-31-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-nearly-600-billion-in-2023,
which is not incorporated by reference to this annual report) the expected increase is about 20.7%. The infrastructure cloud sector (IaaS)
is expected to grow in 2022 by almost 30%.
Israeli market:
2021 was characterized by
a significant shortage of technological human capital and related professions, resulting with fierce competition for every candidate and
employee, and many difficulties in locating and recruiting suitable candidates and then in retaining quality professional personnel. Although
in 2022 there was a significant slowdown in the high-tech sector in Israel and around the world, which was reflected, among other things,
in reductions and layoffs of employees in the high-tech sector, a large part of those who were laid off managed to return to work in other
companies, which still suffers from a shortage of technological manpower. We estimate that the trend of reducing manpower in some high-tech
companies may make it easier on us to recruit and retain employees and moderate the compensation level.
The shortage and competition
in technological manpower and related professions in Israel may also have opposite effects on our business. On the one hand, it is an
inhibiting factor in the development of our business and our ability to satisfy the demand for our services in the technological fields
(compensated to some extent by further increase in the demand for our non-IT services), it leads to salary increases for the company's
manpower (and consequently to the reduction of our profitability) and recruitment and retention costs. On the other hand, it increases
the demand for our services - both for projects and for the services of our professional experts.
These days the Israeli government
is promoting changes to its legal system. The proposed changes arouse controversy, and according to publications in the media and opinions
of various experts, their effects, the controversy surrounding them and the conduct of the parties in connection with them may
have
a negative impact on Israel's economy. Since a significant portion of our activity is in Israel, the negative impact of
such changes
on the Israeli economy, to the extent that it occurs, could have a negative effect on the company's results. As of the date of this annual
report, we are unable to assess the future effects of all of the aforementioned factors, to the extent that they occur, on the Israeli
economy, on the IT industry in Israel in general, and on our activities.
Technology/Digital Insurance
There are various sales and
marketing trends that influence Sapiens' business.
Gartner, a leading global
research and advisory company, has stated in its "2021 CIO Agenda: An Insurance Perspective" published on November 11, 2020
by Kimberly Harris-Ferrante, that while 2020 was tough for P&C and life insurance, the 2021 Gartner CIO Survey shows optimism for
CX, investment in technologies and stronger approaches to digital insurance. Gartner recommends that CIOs should look beyond obvious pandemic
impacts and adjust digital strategies for long-term impacts as the industry changes.
Other analyst reports, which
were published before the global outbreak, highlighted potential growth opportunities and areas of focus for insurers.
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Other
Trends
As
people accumulate more property and live longer, the insurance industry has become more competitive. The competition for the customers'
business requires insurers to improve customer experience, be faster to market with new products and offer innovative channels, such as
social media and mobile. Innovative technology infrastructure is necessary to support these business initiatives.
In
addition, insurers are faced with the increasing significance of regulatory changes to protect the policyholder in many markets, particularly
large insurers that are considered important to the stability of the world economic system. Many insurers are integrating enterprise risk
management as standard operating procedure, while spreading ownership of risk throughout the strategic decision-making process.
As
customers become more sophisticated, the support of innovative products and distribution channels is mandatory. Insurers are identifying
growth opportunities by attracting new customers and retaining current customers by seeking to reinvent the customer experience and provide
quote and policy information to their customers upon request.
With
today's strong trend of shifting attention to the end-customer experience and activities, there is an increasing focus on digital
operations to support the increasing usage of the Internet for sales, recommendations and general communication. This affects the carriers'
needs to innovate their product proposition through a flexible and modern solution. Another substantial trend is the increasing usage
of data for decision-making, risk analysis, and customers' evaluation and rating, which requires streamlined data flow and easy
access to information from multiple sources.
Increased
global competition, the need to improve distribution channels and provide an enhanced customer experience, and efforts to expand into
new countries and markets, have required heavy investments from insurers, resulting in a trend towards consolidation. This has mainly
included consolidation of applications, databases, development tools, hardware and data centers.
Property & Casualty
Market
Property
& casualty insurance protects policyholders against a range of losses on items of value. P&C insurance includes the
personal
segment
, which is insurance coverage for individuals, with products such as motor, home, personal property and travel; the
commercial
segment
, covering aspects of commercial activity, such as commercial property, car fleets, cyber and professional liability; and
specialty
lines
, covering unique domains, such as marine, art and credit insurance. This market also includes workers' compensation for
market carriers, administrators and state funds, and Medical Professional Liability for health care professionals.
During
the past few years, the P&C market has been characterized by a fast rate of digital adoption. New business and technology models are
adopted rapidly, to launch innovative business offerings. This requires advanced software solutions, both on the core layer, which needs
to be flexible and open, and with the variety of digital tools addressing customer experience needs.
Life, Pension &
Annuity Markets
Life,
pension & annuity providers offer their customers a wide range of products for long-term savings, protection, pension and insurance.
They assist policyholders with financial planning through life insurance, medical and investment products. Their products can be classified
into several areas, primarily investment and savings, risk and protection, pension and health-related products. These products can be
targeted to individuals, as well as group- and employee-benefit types of products.
The
products in this field are long-term in nature. When insurance providers consider purchasing new platforms from Sapiens, the decision
is typically slower and involves multiple decision-makers throughout the organization.
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Reinsurance Market
Reinsurance
is insurance that is purchased by an insurance company (ceded reinsurance) from another insurance company (assumed reinsurance) as a means
of risk management. The reinsurer and the insurer enter into a reinsurance agreement, which details the conditions upon which the reinsurer
would pay the insurer's losses. The reinsurer is paid a reinsurance premium by the insurer and the insurer issues insurance policies
to its own policyholders. The insurer must maintain an accurate system of records to track its reinsurance contracts and treaties, to
avoid claims leakage.
Workers' Compensation
Workers'
compensation is one of the largest lines of business in the P&C industry in North America. But future profitability is getting harder
to maintain, with medical and indemnity costs per lost time claim increasing at rates greater than inflation. Insurance organizations
require technology solutions that can adapt quickly to business and market conditions, offering high levels of accuracy and efficiency.
Financial & Compliance
Market
Financial
professionals face overwhelming challenges as they struggle to satisfy ever-changing regulatory requirements, while meeting the demands
of managerial reporting. The move towards globalization has introduced new currencies, and CEOs need more performance data for strategic
decision-making. Organizations require one partner to optimize efficiencies with solutions that can be implemented quickly.
Decision Management Market
Increasing competition, regulatory
burden, customer experience expectations and the proliferation of digital and product innovation requirements have necessitated a shift
in thinking and approach among organizations across verticals. By replacing conventional policy and process management with the discipline
known as "decision management," financial institutions are bridging the gap between business and IT, by enabling business users
to rapidly frame requirements in formal business models that can be easily understood by all stakeholders.
The decision management processes
affect overall corporate performance, including its impact on customers and competitors. Decision management systems are a key performance
component of every financial services organization, as they help the organization define, avoid and hedge financial risk.
Business Decision Management Market Needs
Many large organizations,
particularly in the financial services market, must comply with complex regulations. They operate in highly competitive markets that require
quick responses. Business logic drives most of the financial services transactions and is the backbone of an organization's policies and
strategies, and its ability to successfully operate.
To achieve efficiency, business
owners must assume ownership of the business logic and possess the ability to define, modify, standardize and reuse it across the organization.
Business logic is defined today by business owners and compliance officers, but IT departments translate the requirements into code. This
process raises several key challenges: 1) the result does not always accurately reflect the business requirements; 2) the new requirements
might conflict with, or override, previous requirements; 3) the changes can take a long time and, 4) the entire process is not fully audited.
These gaps often create an inefficient and risk-exposed organization.
For additional trend information,
please see the discussion in Item 4. "Information on the Company— Business Overview" and Item 5. "Operating and
Financial Review and Prospects— Results of Operations."
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E.
Critical Accounting Estimates
Our discussion and analysis
of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with IFRS. The preparation of our financial statements required us, in certain circumstances, to make estimations, assumptions
and judgments that affect the reporting amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities within the reporting period. We have based our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions. More detailed descriptions of these policies are provided in Note 2 to our consolidated financial statements contained
elsewhere in this annual report.
The significant accounting
policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the
following:
Consolidated financial
statements:
The consolidated financial
statements comprise the financial statements of companies that we controlled (subsidiaries). Control is achieved when we are exposed,
or have rights, to variable returns from our involvement with the investee and have the ability to affect those returns through our power
over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial
statements commences on the date on which control is obtained and ends when such control ceases.
In a situation when we hold
less than a majority of voting rights in a given entity, but it is sufficient to unilaterally direct the relevant activities of such entity,
then the control is exercised. When assessing whether our voting rights are sufficient to give us power, we consider all facts and circumstances,
including: the size of our holding of voting rights relative to the size and dispersion of other vote holders; our potential voting rights
and other shareholders or parties; rights arising from other contractual arrangements; significant personal ties and any additional facts
and circumstances that may indicate that we have, or do not have the ability to direct the relevant activities when decisions need to
be made, inclusive of voting patterns observed at previous meetings of shareholders.
Our financial statements and
the financial statements of our investees, after being adjusted to comply with IFRS, are prepared for the same reporting period and using
consistent accounting treatment of similar transactions and economic activities. Any discrepancies in the applied accounting policies
are eliminated by making appropriate adjustments. Significant intragroup balances and transactions and gains or losses resulting from
intragroup transactions are eliminated in full in the consolidated financial statements.
Other than our joint control
of TSG, in which each of we and Israeli Aerospace Industries Ltd. hold 50% of its voting power, we currently have effective control under
IFRS 10 of each of our other investees, Matrix, Sapiens, Magic Software, Zap Group, Michpal, Ofek Aerial Photography, Shamrad and InSync,
despite our lacking absolute majority of voting power in Matrix, Magic Software and Sapiens. As a result of our effective control in these
investees as of December 31, 2022 and in accordance with IFRS 10, we consolidated their financial results with ours throughout the period
covered by the financial statements included in Item 18 of this annual report.
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Business combinations
and goodwill:
Business combinations are accounted for by applying
the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred on the acquisition
date with the addition of non-controlling interests in the acquiree. In each business combination, we consider whether to measures the
non-controlling interests in the acquiree based on their fair value on the acquisition date or at their proportionate share in the fair
value of the acquiree's net identifiable assets.
Direct acquisition costs are
carried to the statement of profit or loss as incurred.
In a business combination
achieved in stages, equity interests in the acquiree that had been held by the acquirer prior to obtaining control are measured at the
acquisition date fair value while recognizing a gain or loss resulting from the revaluation of the prior investment on the date of achieving
control.
Contingent consideration is
recognized at fair value on the acquisition date and classified as a financial asset or liability in accordance with IFRS 9, "Financial
Instruments". Subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If the contingent
consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement.
Goodwill is initially measured
at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net identifiable
assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognizes the resulting gain on the acquisition
date.
Non-controlling interests:
Non-controlling interests
in subsidiaries, represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests
are presented in equity separately from the equity attributable to the equity holders of Formula. Profit or loss and components of other
comprehensive income are attributed Formula and to non-controlling interests. Losses are attributed to non-controlling interests even
if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. A change in the
ownership interest 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 interests with a corresponding adjustment of the equity attributable to equity holders of Formula less / plus the
consideration paid or received.
Functional currency,
presentation currency and foreign currency:
The presentation currency
of our consolidated financial statements is the U.S. dollar (the "dollar"), since we believe that financial statements in
U.S. dollars provide more relevant information to our investors and users of the financial statements. The functional currency applied
by Formula, on a stand-alone basis, until December 31, 2018, was the dollar. Following an examination and reevaluation of the primary
economic environment in which Formula currently operates and expects to continue operating and taking into consideration the recent trends
and its forward-looking business strategy, in accordance with the International Accounting Standard 21 (IAS 21), Formula concluded that
our functional currency on a stand-alone basis commencing January 1, 2019 is the NIS. The functional currencies applied by our subsidiaries
and associates are the currencies of the primary economic environment in which each one of them operates.
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Assets, including fair value
adjustments upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each
reporting date. Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences
are recognized in other comprehensive income (loss).
Intragroup loans for which
settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in the foreign
operation and, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded in other comprehensive
income (loss).
Upon the full or partial disposal
of a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which
had been recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is
reattributed to non-controlling interests.
Investment in joint
arrangements:
Joint arrangements are arrangements
in which we have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require the unanimous consent of the parties sharing control.
i.
Joint ventures:
In joint ventures
the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted
for by using the equity method.
ii.
Joint operations:
In joint operations
the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement.
We recognize in relation to our interest our share of the assets, liabilities, revenues and expenses of the joint operation.
The acquisition
of interests in a joint operation which represents a business, as defined in IFRS 3, is accounted for using the acquisition method, including
the measurement of the identifiable assets and liabilities at fair value, the recognition of deferred taxes arising from this measurement,
the accounting treatment of the related transaction costs and the recognition of goodwill or bargain purchase gains. This applies to the
acquisition of the initial interest and additional interests in a joint operation that represents a business.
Investments accounted
for using the equity method:
Our investments in associates
and joint ventures are accounted for using the equity method. Associates are companies in which we have significant influence over the
financial and operating policies without having control. An investment in an associate is accounted for using the equity method.
Under the equity method, the
investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in our share of
net assets, including other comprehensive income of the associate or the joint venture. Gains and losses resulting from transactions between
us and the associate or the joint venture are eliminated to the extent of the interest in the associate or in the joint venture.
Goodwill relating to the acquisition
of an associate or a joint venture is presented as part of the investment in the associate or the joint venture, measured at cost and
not systematically amortized. Goodwill is evaluated for impairment as part of the investment in the associate or in the joint venture
as a whole.
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Our financial statements and
of the associate or joint venture are prepared as of the same dates and periods. The accounting policies applied in the financial statements
of the associate or the joint venture are uniform and consistent with the policies applied in our financial statements.
Upon the acquisition of an
associate or a joint venture achieved in stages when the former investment in the acquiree was accounted for pursuant to the provisions
of IAS 9, we adopt the principles of IFRS 3 regarding business combinations achieved in stages. Consequently, equity interests in the
acquiree that had been held by us prior to achieving significant influence or joint control are measured at fair value on the acquisition
date and are included in the acquisition consideration while recognizing a gain or loss resulting from the fair value measurement.
The equity method is applied
until the loss of significant influence in the associate or loss of joint control in the joint venture or classification as investment
held for sale. On the date of loss of significant influence or joint control, we measure any remaining investment in the associate or
the joint venture at fair value and recognize in profit or loss the difference between the fair value of any remaining investment plus
any proceeds from the sale of the investment in the associate or the joint venture and the carrying amount of the investment on that date.
Revenue Recognition
Revenue from contracts with
customers is recognized when the control over the goods or services is transferred to the customer. The transaction price is the amount
of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third parties
(such as taxes).
In determining the amount
of revenue from contracts with customers, we evaluate whether we are the principal or the agent in the arrangement. We are considered
as the principal when we control the promised goods or services before transferring them to the customer. In these circumstances, we recognize
revenue for the gross amount of the consideration. When we are considered as the agent, we recognize revenue for the net amount of the
consideration, after deducting the amount due to the principal.
i.
Sale of software licensing, maintenance
services and post implementation consulting services
A software licensing transaction
that does not require significant implementation services is considered a distinct performance obligation, as the customer can benefit
from the software on its own or together with other readily available resources.
We recognize revenue from
software licensing transactions at a point in time when we provide the customer a right to use our intellectual property as it exists
at the point in time at which the license is granted to the customer. We recognize revenue from software licensing transactions over time
when we provide the customer a right to access our intellectual property throughout the license term.
We may generate revenue from
sale of software licensing which includes significant implementation and customization services. In such contracts we are normally committed
to provide the customer with a functional IT system and the customer can only benefit from such functional system, being the final product
that would normally be comprised of proprietary licenses and significant related services. Revenues from these contracts are based on
either fixed price or time and material.
Software licensing transactions
which involve significant implementation, customization, or integration of the our software license to customer-specific requirements,
are considered as one performance obligation satisfied over-time. The underlying deliverable is owned and controlled by the customer and
does not create an asset with an alternative use to the Group. In addition, we have enforceable right to payment for performance completed
throughout the duration of the contract.
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Accordingly, we recognize
revenue from such contracts over time, using the percentage of completion accounting method. We recognize revenue and gross profit as
the work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract. Provisions
for estimated losses on uncompleted contracts are made during the period in which such losses are first determined, in the amount of the
estimated loss for the entire contract.
When post implementation and
consulting services do not involve significant customization, we account for such services as performance obligations satisfied over time
and revenues are recognized as the services are provided.
Revenue from maintenance is
recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the our performance.
When payments from customers are made before or after the service is performed, we recognize the resulting contract asset or liability.
ii.
Sale of hardware and infrastructure
Revenue from sale of hardware
and infrastructure is recognized in profit or loss at the point in time when the control of the goods is transferred to the customer,
generally upon delivery of the goods to the customer.
iii.
Sale of training and implementation
services
Revenues from training and
implementation services are recognized when the service is provided. revenue from training services in respect of public courses whose
operating range is up to 3 months will be recognized at the end of the course period. Revenues from training services in respect of long-term
courses will be recognized over the term of the course. Revenues from implementation projects ordered by organizations will be recognized
according to actual inputs (actually worked hours).
iv.
Revenue of contracts according
to actual inputs
Revenue from framework agreements
for the performance of work according to actual inputs is recognized according to the hours invested.
v.
Revenue of fixed price contracts
Revenue from fixed price contracts
is recognized according to the completion rate method when all the following conditions are met: the revenue is known or can be estimated
reliably, the collection of income is expected, the costs involved in performing the work are known or can be estimated, there is no material
uncertainty about the our ability to complete the work, and the customer and the completion rate can be reliably estimated.
We apply a cost-based input
method for measuring the progress of performance obligations that are satisfied over time. In applying this cost-based input method, we
estimate the costs to complete contract performance in order to determine the amount of the revenue to be recognized. These estimated
costs include the direct costs and the indirect costs that are directly attributable to a contract based on a reasonable allocation method.
In certain circumstances,
we are unable to measure the outcome of a contract, but we expect to recover the costs incurred in fulfilling the contract as of the reporting
date. In such circumstances, we recognize revenue to the extent of 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 from a contract, the loss is recognized in full regardless of the
percentage of completion.
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When appropriate, we also
apply a practical expedient permitted under IFRS 15 whereby if we have a right to consideration from a customer in an amount that corresponds
directly with the value to the customer of our performance completed to date (for example, a service contract in which an entity bills
a fixed amount for each hour of service provided), we may recognize revenue in the amount it is entitled to invoice. Deferred revenues,
which represent a contract liability, include unearned amounts received under maintenance and support (mainly) and amounts received from
customers for which revenues have not yet been recognized.
vi.
Allocating the transaction price
For contracts that consist
of more than one performance obligation, at contract inception we allocate the contract transaction price to each performance obligation
identified in the contract on a relative stand-alone selling price basis. The stand-alone selling price is the price at which we would
sell the promised goods or services separately to a customer. We determine the standalone selling price for the purposes of allocating
the transaction price to each performance obligation by considering several external and internal factors including, but not limited to,
transactions where the specific performance obligation is sold separately, historical actual pricing practices and geographies in which
we offer our products and services. If a specific performance obligation, such as the software license, is sold for a broad range of amounts
(that is, the selling price is highly variable) or if we have not yet established a price for that good or service, and the good or service
has not previously been sold on a standalone basis (that is, the selling price is uncertain), we apply the residual approach whereby all
other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective stand-alone
selling prices, with any residual amount of transaction price allocated to the remaining specific performance obligation.
vii.
Variable consideration
We determine the transaction
price separately for each contract with a customer. When exercising this judgment, we evaluate the effect of each variable amount in the
contract, taking into consideration discounts, penalties, variations, claims, and non-cash consideration. In determining the effect of
the variable consideration, we normally use the "most likely amount" method described in the Standard. Pursuant to this method,
the amount of the consideration is determined as the single most likely amount in the range of possible consideration amounts in the contract.
According to the Standard, variable consideration is included in the transaction price only to the extent that it is highly probable that
a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated with the variable consideration
is subsequently resolved.
viii.
Costs of obtaining a contract
In order to obtain certain
contracts with customers, we incur incremental costs in obtaining the contract (such as sales commissions which are contingent on making
binding sales). Costs incurred in obtaining the contract with the customer which would not have been incurred if the contract had not
been obtained and which we expect to recover are recognized as an asset and amortized on a systematic basis that is consistent with the
provision of the services under the specific contract.
An impairment loss in respect
of capitalized costs of obtaining a contract is recognized in profit or loss when the carrying amount of the asset exceeds the remaining
amount of consideration that we expect to receive for the goods or services to which the asset relates, less the costs that relate directly
to providing those goods or services and that have not been recognized as expenses.
We have elected to apply the
practical expedient allowed by IFRS 15 according to which incremental costs of obtaining contract are recognized as an expense when incurred
if the amortization period of the asset is one year or less.
ix.
Revenues that include warranty
services
In certain cases, we also
provide a warranty for goods and services sold (i.e., extended warranties when we contractually undertake to repair any errors in the
delivered software within a strictly specified time limit and/or when the scope of which is broader than just an assurance to the customer
that the product/service complies with agreed-upon specifications). We have ascertained that such warranties granted by us meet the definition
of service. The conclusion regarding the extended nature of a warranty is made whenever we contractually undertake to repair any errors
in the delivered software within a strictly specified time limit and/or when such warranty is more extensive than the minimum required
by law. Under IFRS 15, the fact of granting an extended warranty indicates that we provide an additional service. As such, we recognize
an extended warranty as a separate performance obligation and allocate a portion of the transaction price to such service. In all cases
where an extended warranty is accompanied by a maintenance service, which is even a broader category than the extended warranty itself,
revenues are recognized over time because the customer consumes the benefits of such service as it is performed by the provider. If this
is the case, we continue to allocate a portion of the transaction price to such maintenance service. Likewise, in cases where a warranty
service is provided after the project completion and is not accompanied by any maintenance service, then a portion of the transaction
price and analogically recognition of a portion of contract revenues will have to be deferred until the warranty service is actually fulfilled.
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x.
Disaggregation of revenue
Service revenue includes contracts
primarily for the provision of supplies and services other than design, development, customization, implementation, software maintenance
and support and software updates associated with delivery of products or proprietary software. It may be a standalone service contract
or a service performance obligation which is distinct from a contract or performance obligation for design, development, customization,
support and upgrade or delivery of product. Our service contracts include contracts in which the customer simultaneously receives and
consumes the benefits provided as the performance obligations are satisfied. Our service contracts primarily include operation-type contracts,
outsourcing, consulting, remote development services, digital advertising management, training and similar activities.
xi.
A significant benefit of financing
In certain contracts, we provide
the customer with financing for a period exceeding one year. In such circumstances, we recognize revenue based on the amount that reflects
the price that would have been paid by the customer in cash on the date of receipt of the goods or services, and the balance is recognized
in finance income.
When long-term advances are
received for services which we are to provide in the future, we accrue interest on the advances and recognizes finance expense over the
expected period of the contract, provided that the contract contains a significant financing component. As the advances are recognized
in revenue, we also recognize the accrued interest as part of revenue from services.
We have elected to apply the
practical expedient allowed by IFRS 15 according to which we do not separate the financing component in transactions for which the period
of financing is one year or less and recognize revenue in the amount of the consideration stated in the contract even if the customer
pays for the goods or services before or subsequent to their receipt.
Income tax:
Current or deferred taxes
are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income or
equity.
i.
Current taxes:
The current tax
liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as
adjustments required in connection with the tax liability in respect of previous years.
ii.
Deferred taxes:
Deferred taxes are
computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax
purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability is settled,
based on tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are reviewed at each reporting
date and reduced to the extent that it is not probable that they will be utilized. Deductible carry forward losses and temporary differences
for which deferred tax assets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized
to the extent that their utilization is probable.
Taxes that would
apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as
the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event
of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution
of dividends does not involve an additional tax liability or since it is our policy not to initiate distribution of dividends from a subsidiary
that would trigger an additional tax liability.
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Taxes on income
that relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted for pursuant to IAS
12.
Deferred taxes are
offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate
to the same taxpayer and the same taxation authority.
Research and development
expenditures
Research expenditures incurred
in the process of software development are recognized in profit or loss when incurred. An intangible asset arising from a software development
project or from the development phase of an internal project is recognized if we can demonstrate the technical feasibility of completing
the intangible asset so that it will be available for use or sale; our intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of
adequate technical, financial and other resources to complete the intangible asset; and the ability to measure reliably the respective
expenditure asset during its development. We establish technological feasibility upon completion of a detailed program design or a working
model.
Capitalized software costs
are measured at cost less any accumulated amortization and any accumulated impairment losses on a product-by-product basis. Amortization
of capitalized software costs begin when development is complete, and the product is available for use or for sale. We consider a product
to be available for use when we complete its internal validation of the product that is necessary to establish that the product meets
its design specifications including functions, features, and technical performance requirements. Internal validation includes the completion
of coding, documentation and testing that ensure bugs are reduced to a minimum. The internal validation of the product takes place a few
weeks before the product is made available to the market. In certain instances, we enter into a short pre-release stage, during which
the product is made available to a selected number of customers as a beta program for their own review and familiarization. Subsequently,
the release is made generally available to customers. Once a product is considered available for use, the capitalization of costs ceases
and amortization of such costs to "cost of sales" begins.
Capitalized software costs are amortized on a product-by-product
basis by the straight-line method over the estimated useful life of the software product (between 5-7 years).
Research and development costs
incurred in the process of developing product enhancements are generally charged to expenses as incurred.
We assess the recoverability
of our capitalized software costs on a regular basis by assessing the net realizable value of these intangible assets based on the estimated
future gross revenues from each product reduced by the estimated future costs of completing and disposing of it, including the estimated
costs of performing maintenance and customer support over its remaining economical useful life using internally generated projections
of future revenues generated by the products, cost of completion of products and cost of delivery to customers over its remaining economical
useful life.
During the years ended December
31, 2020, 2021, and 2022, no such  unrecoverable amounts were identified.
Intangible assets
Separately acquired intangible
assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination
are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized
development costs, are recognized in profit or loss when incurred.
Intangible assets with a finite
useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired.
The amortization period and the amortization method for an intangible asset are reviewed at least at each year end.
Intangible assets excluding
capitalized development costs are comprised mainly of customer-related intangible assets, backlogs, distribution rights, brand names,
non-compete agreements and acquired technology and Patent, and are amortized over their useful lives using a method of amortization that
reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up. The useful life of intangible
assets is as follows:
Years
Customer relationship, backlog and distribution rights
3–15
Acquired technology
2–8
Patents
10
Brand names
5
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Gains or losses arising from
the derecognition of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of
the asset, and are recognized in the statement of profit or loss.
The useful life of these assets
is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances
do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted for prospectively
as a change in accounting estimate, and on that date the asset is tested for impairment. Commencing from that date, the asset is amortized
systematically over its useful life.
Impairment of non-financial
assets:
We evaluate the need to record
an impairment of non-financial assets (property, plant and equipment, capitalized software costs and other intangible assets, goodwill,
investments in joint venture) whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the
carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable
amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are
discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not
generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized
in profit or loss.
An impairment loss of an asset,
other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount
since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the
carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset
in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.
The following criteria are
applied in assessing impairment of these specific assets:
i.
Goodwill in respect of subsidiaries:
For the purpose
of impairment testing, goodwill acquired in a business combination is allocated, at the acquisition date, to each of our cash-generating
units that are expected to benefit from the synergies of the combination. We review goodwill for impairment once a year, on December 31,
or more frequently if events or changes in circumstances indicate that there is an impairment.
Goodwill is tested
for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill
has been allocated.
An impairment loss
is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated
is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first
to goodwill. Impairment losses recognized for goodwill cannot be reversed in subsequent periods.
ii.
Investment in associate or joint venture using the equity method:
After application
of the equity method, we determine whether it is necessary to recognize any additional impairment loss with respect to the investment
in associates or joint ventures. We determine at each reporting date whether there is objective evidence that the carrying amount of the
investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire investment,
including the goodwill attributed to the associate or the joint venture.
iii.
Intangible assets with an indefinite useful life / capitalized development costs that have not yet been systematically amortized:
The impairment test
is performed annually, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment.
During the years ended December
31, 2020, 2021, and 2022, no impairment indicators were identified.
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Financial instruments:
A.
Financial assets:
Financial assets
are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial
assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in
profit or loss.
We classify and
measure the debt instruments in our financial statements on the basis of the following criteria:
●
our business model for the
management of financial assets; and
●
the contractual cash flow characteristics
of the financial asset.
i.
We measure debt instruments at
amortized cost when:
Our business model
is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give
rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial
recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate
method, less any provision for impairment. On the date of initial recognition, we may irrevocably designate a debt instrument as measured
at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency, such
as when a related financial liability is also measured at fair value through profit or loss.
ii.
We measure debt instruments at
fair value through other comprehensive income when:
Our business model
is to hold the financial assets in order to both collect their contractual cash flows and to sell the financial assets, and the contractual
terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding. Subsequent to the initial recognition, the instruments in this category are measured at fair value. Gains or losses
from fair value adjustments, excluding interest and exchange rate differences, are recognized in other comprehensive income.
iii.
We measure debt instruments at
fair value through profit or loss when:
A financial asset
which is a debt instrument does not meet the criteria for measurement at amortized cost or at fair value through other comprehensive income.
After initial recognition, the financial asset is measured at fair value and gains or losses from fair value adjustments are recognized
in profit or loss.
iv.
Equity instruments and other financial
assets held for trading:
Investments in equity
instruments do not meet the above criteria and accordingly are measured at fair value through profit or loss. Other financial assets held
for trading such as derivatives, including embedded derivatives separated from the host contract, are measured at fair value through profit
or loss unless they are designated as effective hedging instruments. In respect of certain equity instruments that are not held for trading,
on the date of initial recognition, we made an irrevocable election to present subsequent changes in fair value in other comprehensive
income which, changes would have otherwise been recorded in profit or loss. These changes will not be reclassified to profit or loss in
the future, even when the investment is disposed of. Dividends from investments in equity instruments are recognized in profit or loss
when the right to receive the dividends is established.
131
B.
Impairment of financial assets:
We evaluate at the
end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or
loss. We distinguish between two types of loss allowances:
i.
Debt instruments whose credit risk has not increased significantly since initial recognition, or whose credit risk is low - the loss allowance recognized in respect of this debt instrument is measured at an amount equal to the expected credit losses within 12 months from the reporting date; or
ii.
Debt instruments whose credit risk has increased significantly since initial recognition, and whose credit risk is not low - the loss allowance recognized is measured at an amount equal to the expected credit losses over the instrument's remaining term.
We have short-term
financial assets such as trade receivables in respect of which we apply a simplified approach in IFRS 9 and measure the loss allowance
in an amount equal to the lifetime expected credit losses.
An impairment loss
on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from
the carrying amount of the financial asset, whereas the impairment loss on debt instruments measured at fair value through other comprehensive
income is recognized in profit or loss with a corresponding loss allowance that is recorded in other comprehensive income and not as a
reduction of the carrying amount of the financial asset in the statement of financial position.
We apply the low
credit risk simplification in IFRS 9, according to which we assume the debt instrument's credit risk has not increased significantly
since initial recognition if on the reporting date it is determined that the instrument has a low credit risk, for example when the instrument
has an external rating of "investment grade".
C.
Derecognition of financial
assets:
We derecognize a
financial asset when and only when:
i.
The contractual rights to the cash flows from the financial asset expire; or
ii.
We transferred substantially all the risks and rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset; or
iii.
We retained our contractual rights to receive cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to a third party.
D.
Financial liabilities:
i.
Financial liabilities measured
at amortized cost
Financial liabilities
are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, we measure all financial liabilities at amortized cost using the effective interest rate method, except for:
●
Financial liabilities at fair
value through profit or loss, such as derivatives;
●
Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies;
●
Financial guarantee contracts;
●
Contingent consideration recognized
by an acquirer in a business combination as to which IFRS 3 applies.
132
ii.
Financial liabilities measured
at fair value through profit or loss:
At initial recognition,
we measure financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit or
loss. After initial recognition, changes in fair value are recognized in profit or loss.
E.
Derecognition of financial
liabilities:
A financial liability
is derecognized when it is extinguished, that is, when the obligation is discharged or cancelled or expires. A financial liability is
extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services or is legally released
from the liability. When there is a modification to the terms of an existing financial liability, we evaluate whether the modification
is substantial.
If the terms of
an existing financial liability are substantially modified, such modification is accounted for as an extinguishment of the original liability
and the recognition of a new liability. The difference between the carrying amounts of the above liabilities is recognized in profit or
loss.
If the modification
is not substantial, we recalculate the carrying amount of the liability by discounting the revised cash flows at the original effective
interest rate and any resulting difference is recognized in profit or loss.
F.
Compound financial instruments:
i.
Convertible debentures which contain both an equity component and a liability component are separated into two components. This separation is performed by first determining the liability component based on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined to be the residual amount. Directly attributable transaction costs are apportioned between the equity component and the liability component based on the allocation of proceeds to the equity and liability components.
ii.
Convertible debentures that are denominated in foreign currency contain two components: the conversion component and the debt component. The liability conversion component is initially recognized as a financial derivative at fair value. The balance is attributed to the debt component. Directly attributable transaction costs are allocated between the liability conversion component and the liability debt component based on the allocation of the proceeds to each component.
G.
Offsetting financial instruments:
Financial assets
and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable
right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the
liability simultaneously. The right of set-off must be legally enforceable not only during the ordinary course of business of the parties
to the contract but also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to be currently
available, it must not be contingent on a future event, there may not be periods during which the right is not available, or there may
not be any events that will cause the right to expire.
133
H.
Put option granted to non-controlling interests:
When we grant to
non-controlling interests a put option to sell part or all of their interests in a subsidiary, during a certain period, even if such purchase
obligation is conditional on the counterparty's exercise of its contractual right to cause such redemption, if the put option agreement
does not transfer to us any benefits incidental to ownership of the equity instrument (i.e. the we do not have a present ownership in
the shares concerned) then at the end of each reporting period the non-controlling interests (to which a portion of net profit attributable
to non-controlling interests is allocated) are classified as a financial liability, as if such put-able equity instrument was redeemed
on that date. The difference between the non-controlling interests carrying amount at the end of the reporting period and the present
value of the liability is recognized directly in our equity, under "Additional paid-in capital".
We remeasure the
financial liability at the end of each reporting period based on the estimated present value of the consideration to be transferred upon
the exercise of the put option.
If the option is
exercised in subsequent periods, the consideration paid upon exercise is treated as settlement of the liability. If the put option expires,
the liability is settled and a portion of the investment in the subsidiary disposed of, without loss of control therein.
If we have present
ownership of the non-controlling interests, these non-controlling interests are accounted for as if they are held by us, and changes in
the amount of the liability are carried to profit or loss.
Debentures:
We account for outstanding
principal amount of debentures as a long-term liability, in accordance with IFRS 9, with current maturities classified as a short-term
liability. We identify and separate equity components contained in convertible debentures by first determining the liability component,
in accordance with IAS 32, based on the fair value of an equivalent non-convertible liability. The conversion component valued is being
determined to be the residual amount. Debt issuance costs are capitalized and reported as deferred financing costs, which are amortized
over the life of the debentures using the effective interest rate method.
Leases
We account for 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 for consideration.
i.
We as lessee:
For leases in which
we are the lessee, we recognize on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases whose
term is up to twelve months and leases for which the underlying asset is of low value. For these excluded leases, we have elected to recognize
the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the lease liability, we
have elected to apply the practical expedient in the Standard and does not separate the lease components from the non-lease components
(such as management and maintenance services, etc.) included in a single contract.
Leases which entitle
employees to a company car as part of their employment terms are accounted for as employee benefits in accordance with the provisions
of IAS 19 and not as subleases.
On the commencement
date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be
readily determined, or otherwise using our incremental borrowing rate. After the commencement date, we measure the lease liability using
the effective interest rate method.
On the commencement
date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the
commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the
shorter of its useful life and the lease term.
134
Following are the
amortization periods of the right-of-use assets by class of underlying asset:
Years
Mainly
Land and Buildings
2–23
3
Motor vehicles
2–3
3
We test for impairment
of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36.
ii.
Variable lease payments that depend
on an index:
On the commencement
date, we use the index rate prevailing on the commencement date to calculate the future lease payments.
For leases in which
we are the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a change
in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the right-of-use asset,
only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease payments
takes effect).
iii.
Variable lease payments that depend on an index:
Variable lease payments
that do not depend on an index or interest rate but are based on performance or usage are recognized as an expense as incurred when we
are the lessee.
iv.
Lease extension and termination options:
A non-cancelable
lease term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option
will be exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will
not be exercised.
In the event of
any change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, we
remeasure the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations.
The total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions
are recognized in profit or loss.
v.
Lease modifications:
If a lease modification
does not reduce the scope of the lease and does not result in a separate lease, we remeasure the lease liability based on the modified
lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment to
the right-of-use asset.
If a lease modification
reduces the scope of the lease, we recognize a gain or loss arising from the partial or full reduction of the carrying amount of the right-of-use
asset and the lease liability. We subsequently remeasure the carrying amount of the lease liability according to the revised lease terms,
at the revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use
asset.
Share-based payment
transactions
Our employees and
certain service providers are entitled to remuneration in the form of equity-settled share-based payment transactions. The cost of equity-settled
transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined
using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of
the goods or services received as consideration for equity instruments granted.
The cost of equity-settled transactions is recognized in profit or
loss together with a corresponding increase in equity during the period which the performance and/or service conditions are to be satisfied
ending on the date on which the relevant employees become entitled to the award (the "vesting period"). The cumulative expense
recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the
vesting period has expired and our best estimate of the number of equity instruments that will ultimately vest.
No expense is recognized
for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are
satisfied.
135
If we modify the
conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total
fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification
date.
If a grant of an
equity instrument is canceled, it is accounted for as if it had vested on the cancelation date and any expense not yet recognized for
the grant is recognized immediately. However, if a new grant replaces the canceled grant and is identified as a replacement grant on the
grant date, the canceled and new grants are accounted for as a modification of the original grant, as described above.
Changes in accounting
policies - initial adoption of new financial reporting and accounting standards
1.
Amendment to IAS 16, "Property, Plant and Equipment":
In May 2020, the IASB issued
an amendment to IAS 16, "Property, Plant and Equipment" (the "Amendment"). The Amendment prohibits a company from
deducting from the cost of property, plant and equipment ("PP&E") consideration received from the sales of items produced
while the company is preparing the asset for its intended use. Instead, the company should recognize such consideration and related costs
in profit or loss.
The Amendment is effective
for annual reporting periods beginning on or after January 1, 2022. The Amendment is applied retrospectively, but only to items of PP&E
made available for use on or after the beginning of the earliest period presented in the financial statements in which the company first
applies the Amendment.
The cumulative effect of initially
applying the Amendment is recognized as an adjustment to the opening balance of retained earnings (or other component of equity, as applicable)
at the beginning of the earliest period presented.
The application of the Amendment
did not have a material impact on the Group's financial statements.
2.
Amendment to IAS 37, "Provisions, Contingent Liabilities and Contingent Assets":
In May 2020, the IASB issued an amendment to IAS 37, regarding which
costs a company should include when assessing whether a contract is onerous (the "Amendment").
According to the Amendment,
costs of fulfilling a contract include both the incremental costs (for example, raw materials and direct labor) and an allocation of other
costs that relate directly to fulfilling a contract (for example, depreciation of an item of property, plant and equipment used in fulfilling
the contract).
The Amendment is effective
for annual periods beginning on or after January 1, 2022 and applies to contracts for which all obligations in respect thereof have not
yet been fulfilled as of January 1, 2022. The application of the Amendment does not require the restatement of comparative data for property,
plant and equipment. Instead, the opening balance of retained earnings on the initial application date is adjusted for the cumulative
effect of the Amendment.
The application of the Amendments
did not have a material impact on the Group's financial statements.
136
3.
Amendments to IFRS 3, "Business Combinations":
In May 2020, the IASB
issued Amendments to IFRS 3, "Business Combinations – Reference to the Conceptual Framework", which are intended to replace
a reference to the Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework
for Financial Reporting, which was issued in March 2018, without significantly changing its requirements.
The IASB added an exception
to the recognition principle of IFRS 3 to avoid the issue of potential 'day 2' gains or losses arising for liabilities and
contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies,
if incurred separately.
The exception requires entities
to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine at the acquisition date whether
as a result of a past event, a present obligation exists or whether the event that creates an obligation to pay the levy occurred by the
acquisition date.
The Amendments also clarify
that contingent assets do not qualify for recognition at the acquisition date.
The Amendments are applied
prospectively for annual reporting periods beginning on or after January 1, 2022.
The application of the Amendments
did not have a material impact on the Group's financial statements.
4.
Annual improvements to IFRSs 2018-2020:
In May 2020, the IASB adopted
certain amendments in the context of the Annual Improvements to IFRSs 2018-2020 Cycle. The main amendment is to IFRS 9, "Financial
Instruments" (the "Amendment"). The Amendment clarifies which fees a company should include in the "10% test"
described in paragraph B3.3.6 of IFRS 9 when assessing whether the terms of a debt instrument that has been modified or exchanged are
substantially different from the terms of the original debt instrument.
According to the Amendment,
fees paid net of any fees received that are included in the cash flows are only those fees paid or received between the borrower and the
lender, including fees paid or received by either the borrower or lender on the other's behalf.
The Amendment is effective
for annual periods beginning on or after January 1, 2022. The Amendment is applied to financial liabilities that are modified or exchanged
on or after the beginning of the annual reporting period in which the entity first applies the Amendment, that is from January 1, 2022.
Disclosure of new
standards in the period prior to their adoption
1.
Amendment to IAS 1, "Presentation of Financial Statements":
In January 2020, the IASB
issued an amendment to IAS 1, "Presentation of Financial Statements" regarding the criteria for determining the classification
of liabilities as current or non-current (the "Original Amendment"). In October 2022, the IASB issued a subsequent amendment
(the "Subsequent Amendment").
According to the Subsequent
Amendment:
●
Only covenants with which an entity must comply on or before the reporting date will affect a liability's
classification as current or non-current.
●
An entity should provide disclosure when a liability arising from a loan agreement is classified as non-current
and the entity's right to defer settlement is contingent on compliance with future covenants within twelve months from the reporting date.
This disclosure is required to include information about the covenants and the related liabilities. The disclosures must include information
about the nature of the future covenants and when compliance is applicable, as well as the carrying amount of the related liabilities.
The purpose of this information is to allow users to understand the nature of the future covenants and to assess the risk that a liability
classified as non-current could become repayable within twelve months. Furthermore, if facts and circumstances indicate that an entity
may have difficulty in complying with such covenants, those facts and circumstances should be disclosed.
According to the Original
Amendment, the conversion option of a liability affects the classification of the entire liability as current or non-current unless the
conversion component is an equity instrument.
The Original Amendment and
Subsequent Amendment are both effective for annual periods beginning on or after January 1, 2024 and must be applied retrospectively.
Early application is permitted.
We estimate that the Amendments
are not expected to have a material impact on the Group's financial statements.
137
2.
Amendment to IAS 8, "Accounting Policies, Changes to Accounting Estimates and Errors":
In February 2021, the IASB
adopted an amendment to IAS 8, "Accounting Policies, Changes to Accounting Estimates and Errors" (the "Amendment"),
which introduces a new definition of "accounting estimates".
Accounting estimates are defined
as "monetary amounts in financial statements that are subject to measurement uncertainty". The Amendment clarifies the distinction
between changes in accounting estimates and changes in accounting policies and the correction of errors.
The Amendment is to be applied
prospectively for annual reporting periods beginning on or after January 1, 2023 and is applicable to changes in accounting policies and
changes in accounting estimates that occur on or after the start of that period. Early application is permitted.
3.
Amendment to IAS 12, "Income Taxes":
In May 2021, the IASB issued
an amendment to IAS 12, "Income Taxes" ("IAS 12"), which narrows the scope of the initial recognition exception under
IAS 12.15 and IAS 12.24 (the "Amendment").
According to the recognition
guidelines of deferred tax assets and liabilities, IAS 12 excludes recognition of deferred tax assets and liabilities in respect of certain
temporary differences arising from the initial recognition of certain transactions. This exception is referred to as the "initial
recognition exception". The Amendment narrows the scope of the initial recognition exception and clarifies that it does not apply
to the recognition of deferred tax assets and liabilities arising from transactions that are not a business combination and that give
rise to equal taxable and deductible temporary differences, even if they meet the other criteria of the initial recognition exception.
The Amendment applies for
annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. In relation to leases and decommissioning
obligations, the Amendment is to be applied commencing from the earliest reporting period presented in the financial statements in which
the Amendment is initially applied. The cumulative effect of the initial application of the Amendment should be recognized as an adjustment
to the opening balance of retained earnings (or another component of equity, as appropriate) at that date.
We estimate that the initial
application of the Amendment is not expected to have a material impact on the Group's financial statements.
4.
Amendment to IAS 1 - Disclosure of Accounting Policies:
In February 2021, the IASB
issued an amendment to IAS 1, "Presentation of Financial Statements" (the "Amendment"), which replaces the requirement
to disclose 'significant' accounting policies with a requirement to disclose 'material' accounting policies. One of the main reasons for
the Amendment is the absence of a definition of the term 'significant' in IFRS whereas the term 'material' is defined in several standards
and particularly in IAS 1.
The Amendment is applicable
for annual periods beginning on or after January 1, 2023. Early application is permitted.
We estimate that the Amendment
is not expected to have a material impact on the Group's financial statements.
5.
Amendment to IFRS 16, "Leases":
In September 2022, the IASB
issued an amendment to IFRS 16, "Leases" (the "Amendment"), which provides guidance on how a seller-lessee should
measure the lease liability arising in a sale and leaseback transaction with variable lease payments that do not depend on an index or
rate. The seller-lessee has to choose between two accounting policies for measuring the lease liability on the inception date of the lease.
The accounting policy chosen must be applied consistently.
The Amendment is applicable
for annual periods beginning on or after January 1, 2024. Early application is permitted. The Amendment is to be applied retrospectively.
We estimate that the Amendment
is not expected to have a material impact on the Group's financial statements.
138
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth
information about our directors and senior management as of April 30, 2023.
Name
Age
Position
Expiration of Current Term of Directorship/Office
Guy Bernstein
55
Chief Executive Officer
No formal arrangement regarding expiration of term of office
Asaf Berenstein
45
Chief Financial Officer
No formal arrangement regarding expiration of term of office
Maya Solomon-Ella
45
Chief Operational Officer
No formal arrangement regarding expiration of term of office
Marek Panek
53
Chairman of the Board of Directors
2023 annual shareholders meeting
Rafal Kozlowski
49
Director
2023 annual shareholders meeting
Ohad Melnik
(1) (3)
52
Director
2023 annual shareholders meeting
Tomer Jacob
(1) (2) (3)
51
External director
May 2025
Relly Danon
(1) (2) (3)
52
External director
May 2025
Karolina Rzonca-Bajorek
37
Director
2023 annual shareholders meeting
Gabriela Żukowicz
48
Director
2023 annual shareholders meeting
(1)
Serves on the audit committee of our board of directors.
(2)
Serves as an external director under the Companies Law. See "Item 6. Directors, Senior Management and Employees—Board Practices—External Directors under the Companies Law; Audit Committee; Internal Auditor; Approval of Certain Transactions under the Companies Law," below.
(3)
Serves on the compensation committee of our board of directors.
Guy Bernstein
has served
as our Chief Executive Officer since January 2008. Mr. Bernstein served as a member of our board of directors from November 2006 to December
2008. Mr. Bernstein served as a director of Emblaze Ltd., or Emblaze, our former controlling shareholder and a publicly traded company
listed on the London Stock Exchange, from April 2004 until February 2011. From December 2006 to November 2010, Mr. Bernstein also served
as chief executive officer of Emblaze, and, prior thereto, from April 2004 to December 2006, as the chief financial officer of Emblaze.
Mr. Bernstein serves as the chairman of the board of directors of each of Matrix and Sapiens and as chief executive officer and director
of Magic Software, where he served as the chief financial and operations officer from 1999 until 2004, when he joined Emblaze. He joined
Magic Software from Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, where he served as senior manager from 1994
to 1997. Mr. Bernstein also serves as a director of Michpal Micro Computers (1983) Ltd., a director at TSG IT Advanced Systems Ltd., and
is a director at InSync staffing, all of them are subsidiaries of Formula Systems Mr. Bernstein holds a B.A. degree in accounting and
economics from the College of Management Academic Studies and is a certified public accountant in Israel.
Asaf Berenstin
has
served as our Chief Financial Officer since November 2011. Mr. Berenstin also serves as the Chief Financial Officer of our subsidiary,
Magic Software, since April 2010. Prior to such time, beginning in August 2008, Mr. Berenstin served as Magic Software's corporate
controller. Mr. Berenstin also serves as a director of Michpal Micro Computers (1983) Ltd., a director at TSG IT Advanced Systems Ltd.,
and is a director at InSync staffing, all of them are subsidiaries of Formula Systems. Prior to joining our company, Mr. Berenstin served
as a controller at Gilat Satellite Networks Ltd. (Nasdaq: GILT), commencing in July 2007. From October 2003 to July 2007, Mr. Berenstin
practiced as a certified public accountant at Kesselman & Kesselman, a member of PriceWaterhouseCoopers. Mr. Berenstin holds a B.A.
degree in accounting and economics and an M.B.A. degree, both from Tel-Aviv University, and is a certified public accountant (CPA) in
Israel.
139
Maya Solomon-Ella
has
served as our Chief Operational Officer since September 2016. In her last position Maya served as the Transaction Support leader in Ernst
& Young Israel (Tel-Aviv branch). Maya served in Ernst & Young 13 years, three of which were with the Assurance Services team
(Hi Tech) and 10 of which have been spent in the Transaction Advisory Services (TAS) group. Since joining the TAS group at Ernst &
Young, Ms. Solomon-Ella has been involved in M&A transactions across the globe. Ms. Solomon-Ella holds a B.A. degree in Economics-Accounting
from Bar Ilan University and is a Certified Public Accountant (CPA) in Israel.
Marek Panek
has served
as one of our directors since November 2010. Since January 2007 he has been the Executive Board Member of Asseco Poland S.A. and he is
responsible for supervising the Capital Group Development Division and the EU Projects Office. Mr. Panek also holds and has held several
other positions at Asseco and its affiliates, including Executive Board Member in Asseco International, a.s. (since October 2017), Supervisory
Board Member of Asseco Central Europe, a.s. (since September 2011), Member of Board of Directors of Asseco Denmark (since March 2011)
and Peak Consulting Group ApS (since January 2016), Supervisory Board Member of Asseco Lietuva UAB (since June 2011), Chairman of GSTN
Consulting Sp. z o.o. (since November 2017), Supervisory Board Member of Asseco Innovation Fund Sp. z o.o. (since December 2018), Chairman
of the Supervisory Board of Nextbank Software (since March 2019) and Supervisory Board Member of adesso banking solutions GMBH (since
September 2020). Mr. Panek first joined Asseco in 1995, having served in the following positions for the following periods of time: Marketing
Specialist (from September 1995 to September 1996); Marketing Director (from October 1996 to March 2003); Sales and Marketing Director
(from April 2003 to March 2004); and Member of the Board, Sales and Marketing Director (from March 2004 to January 2007). Prior to joining
Asseco, Mr. Panek was employed at the ZE Gantel Sp. z o.o. from 1993 to 1995. Mr. Panek graduated from the Faculty of Mechanical Engineering
and Aeronautics of the Rzeszów University of Technology in 1994, having been awarded a master's degree in engineering.
Rafal Kozlowski
has
served as one of our directors since August 2012. From December 2020 Mr. Kozlowski has started as a President of the Management Board
of Asseco Enterprise Solutions. Since June 2012 to March 2021, Mr. Kozlowski has served as Vice President of the Management Board and
Chief Financial Officer of Asseco. Mr. Kozlowski but still is a member of the Asseco Group Board of Directors responsible for finance.
From May 2008 to May 2012, Mr. Kozlowski served as Vice President of Asseco South Eastern Europe S.A. responsible for the company's
financial management. Mr. Kozlowski was directly involved in the acquisitions of companies incorporated within the holding of Asseco South
Eastern Europe, as well as in the holding's IPO process at the Warsaw Stock Exchange From 1996 to 1998, he served as Financial Director
at Delta Software, and subsequently, from 1998 to 2003 as Senior Manager at Veraudyt. In the years 2004-2006, he was Head of Treasury
Department at Softbank S.A. where he was delegated to act as Vice President of Finance at the company's subsidiary Sawan S.A. From
2007 through June 2009, he served as Director of Controlling and Investment Division at Asseco Poland S.A. Mr. Kozlowski graduated of
the University of Warsaw, obtaining Master's degree at the Faculty of Organization and Management in 1998. He completed the Project
Management Program organized by PMI in 2004, the International Accounting Standards Program organized by Ernst & Young Academy of
Business in the years 2005-2006 and the Emerging CFO: Strategic Financial Leadership Program by Stanford GSB in 2019.
Ohad Melnik
was elected
to our board of directors in January 2019. Mr. Melnik has served as the director of the payment methods department and the finance compliance
department of IFOREX International Group since 2004. From 2002 through 2004, Mr. Melnik served as the security officer and logistic planner
of Danagis Ltd. In addition, from 2008 through 2015, Mr. Melnik served as a director of Peninsula Group Ltd. From 2012 through 2015, Mr.
Melnik served as a director of Jerusalem Technology Investments Ltd. Mr. Melnik holds a B.A. degree in business administration and an
M.B.A. degree (cum laude) from the College of Management. Mr. Melnik also graduated from the Executive MS Finance Program of the Baruch
College, City University of New York (with Honors).
Relly Danon
was
elected to our board of directors as an external director in May 2022. Ms. Danon currently serves as legal counsel at Netline Communications
Technologies (NCT) Ltd., a position held since 2000. In addition, Ms. Danon serves as an external director at Y.D. More Investments Ltd.,
a position held since 2017. From 2008 through 2017, Ms. Danon served as an external director as Mega Or Holdings Ltd. Ms. Relly also served
as an external director at Jerusalem Technology Investments Ltd. from 2012 through 2014. From 2007 through 2009, Ms. Relly served as a
director at Apex Portfolio Management Ltd. Mr. Relly holds a B.A. degree in law from Tel Aviv University.
140
Tomer Jacob
was
elected to our board of directors as an external director in May 2022. Mr. Jacob currently serves as a Managing Partner at Hanaco VC.
From 2000 to 2021 Mr. Jacob served as a Managing Director at UBS. Mr. Jacob also currently serves as a director of Max, Israel's
second largest credit card company. Mr. Jacob holds a B.A. degree in Economics & Management and a B.Sc degree in Computer Science
from the academic college of Tel Aviv–Jaffa.
Karolina Rzonca-Bajorek
was
elected to our board of directors in August 2022. Ms. Rzonca-Bajorek has served in various financial managerial capacities within
the Asseco Group since 2015, and during the period from 2012 to 2014. Since April 2021, Ms. Rzonca-Bajorek has served as Vice President
of Finance, and a member of the Management Board, of Asseco. Prior to that period, from 2019 through March 2021, Ms. Rzonca-Bajorek served
as
the Director of the Finance Division of the Asseco Group. Before that, from 2015 until
2019,
Ms. Rzonca-Bajorek
served as the Director of the Reporting Department of
the Asseco Group. From 2014 to 2015,
Ms. Rzonca-Bajorek
was the Stock Exchange
Reporting Expert at PHZ Baltona S.A. From 2012 to 2014
Ms. Rzonca-Bajorek
worked
at Asseco Poland S.A. as the Finance Specialist in the Reporting Department of the Asseco Group. She started her professional career in
2009 at Ernst & Young Audit Sp. z o.o. in the audit department, where she participated in audits of large corporate clients.
Ms.
Rzonca-Bajorek
is a graduate of the Warsaw School of Economics, the faculty of finance and
accounting (specialization: corporate finance and accounting).
Ms. Rzonca-Bajorek
holds
the FCCA title and a Certificate of the Minister of Finance of Poland authorizing her to provide accounting services, and is in the process
of becoming a certified auditor.
Gabriela Żukowicz
was
elected to our board of directors in August 2022. Ms. Żukowicz has served since October 1, 2017 as Vice President of the Management
Board of Asseco Poland S.A. responsible for the Legal Office and the Management Office, as well as the Human Resources Division, the Personnel
Administration Division, the Compliance Division, the Maintenance and Development of Internal Systems Division, the Administration Division
and the Purchasing Division of Asseco. Ms. Żukowicz has been working at Asseco Poland since 1998. Ms. Żukowicz served as the
Director of the Management Board Office (October 2004 - December 2009) and since January 2010 as the Director of the Legal and Organizational
Department. In addition, from August 2012 to September 2017, Ms. Żukowicz held the position of Asseco's Proxy. She is the Chairman
of the Supervisory Board of Park Wodny Sopot, the Vice Chairman of the Supervisory Board in Asseco Services and Asseco Innovation Fund,
and the Member of the Supervisory Boards in the companies Asseco Western Europe, Sintagma and Asseco Lietuva. In 1998, Ms. Żukowicz
graduated from the Faculty of Law of the Jagiellonian University in Kraków and completed her legal adviser's training in 2002.
Arrangements for the Election of Directors;
Family Relationships
The previously disclosed October
2017 shareholders agreement between Asseco, our largest shareholder, and our chief executive officer, Mr. Guy Bernstein, under which Mr.
Bernstein granted an irrecoverable proxy to vote an additional 1,797,973 of our ordinary shares to Asseco, was terminated on December
5, 2022. Asseco has significant influence over the election of the members of our board of directors (other than our external directors).
Other than as described immediately above, there are no arrangements or understandings with major shareholders, customers, suppliers or
others pursuant to which any of our directors or members of senior management were selected as such.
Mr. Guy Bernstein and Mr.
Asaf Berenstin are first cousins. Other than such relationship, there are no family relationships among our executive officers and directors.
141
Board Diversity Matrix
Board Diversity Matrix (as of March 15, 2023)
Country of Principal Executive Offices:
Israel
Foreign Private Issuer
Yes
Disclosure Prohibited under Home Country Law
No
Total Number of Directors
7
Female
Male
Non- Binary
Did Not Disclose Gender
Part I: Gender Identity
Directors
3
4
0
0
Part II: Demographic Background
Underrepresented Individual in Home Country Jurisdiction
0
LGBTQ+
0
Did Not Disclose Demographic Background
0
B.
Compensation
Aggregate Compensation Paid to Directors and
Executive Officers
Formula paid to its directors
and executive officers, consisting of the individuals listed above in the table under "—Directors and Senior Management",
direct remuneration and provided related benefits of approximately $12,726 million, in the aggregate, with respect to 2022. This aggregate
compensation amount includes amounts set aside or accrued to provide pension, retirement or similar post-employment benefits, which themselves
totaled $0.1 million in 2022. This aggregate compensation amount furthermore includes expenses recorded with respect to equity-based compensation
in a total amount of $8,104 million for 2022.
The above aggregate compensation
amount does not, however, include the following:
●
expenses, including business travel, professional and business association dues and expenses, for which Formula reimburses its officers; and
●
other fringe benefits that companies in Israel commonly reimburse or pay to their officers,
as amounts incurred for such
expenses and benefits in 2022 were paid in reimbursement of activities carried out by our directors and executive officers for strict
business purposes in carrying out their duties on behalf of Formula and were therefore not compensatory in nature.
The above aggregate compensation
amount includes payment of directors' fees. Formula compensates its external directors and other directors in accordance with the
regulations promulgated under the Companies Law.
Summary Compensation Table
For so long as we qualify
as a foreign private issuer, we are not required to comply with the executive compensation disclosure requirements applicable to U.S.
domestic companies, including the requirement to disclose information concerning the amount and type of compensation paid to our chief
executive officer, chief financial officer and the three other most highly compensated executive officers on an individual basis. Nevertheless,
regulations promulgated under the Companies Law require us to disclose the annual compensation of our five most highly compensated office
holders (as defined in the Companies Law) on an individual basis. Under the Companies Law regulations, this disclosure is required to
be included in the annual proxy statement for our annual meeting of shareholders, which we furnish to the SEC under cover of a Report
of Foreign Private Issuer on Form 6-K. Because of that disclosure requirement under Israeli law, we are also including that information
in this annual report, pursuant to the disclosure requirements of Form 20-F.
The table below reflects the
compensation paid to our five most highly compensated office holders (each of whom is a member of our management) during or with respect
to the year ended December 31, 2022. All amounts reported in the table reflect the cost to the Company, as recognized in our financial
statements for the year ended December 31, 2022.
142
Compensation of Management
(1)
Name and Position
(1) (2)
Salary
($, in thousands)
Benefits
And
Perquisites
($, in thousands)
(4)
Variable
Compensation
($, in thousands)
Equity Based
Compensation
($, in thousands)
(5)
Guy Bernstein – CEO
(6)
578
-
3,491
7,106
Asaf Berenstin – CFO
(3)
-
-
50
975
Maya Solomon-Ella – COO
173
39
71
23
(1)
All amounts reported in the table are in terms of cost to Formula, as recorded in Formula's financial statements. We have three office holders who are members of management who are compensated by Formula (CEO, CFO and COO). For disclosure concerning compensation paid by us to our remaining four most highly compensated office holders (all of whom are directors), please see the table under "Compensation of Directors" below.
(2)
The executive officers listed in the table serve as employees or consultants of Formula. Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into U.S. dollars at the average conversion rate for 2022.
(3)
Our Chief Financial Officer, Asaf Berenstin, also serves as the chief financial officer of our subsidiary Magic Software. Pursuant to an agreement between Magic Software and Formula, Mr. Berenstin allocates 40%-50% of his time to Formula. Because he is not regularly compensated by Formula, except for variable compensation and equity-based compensation, Mr. Berenstin salary is not listed in this table. As of January 1, 2021, for his role as our Chief Financial Officer and Magic Software chief financial officer Mr. Berenstin, is entitled to an annual bonus in an amount equal to 0.3% of our net profit (including capital gains).
(4)
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the executive officer, payments, contributions and/or allocations for savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accident), convalescence pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent with our guidelines.
(5)
Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2022 with respect to equity-based compensation. Assumptions and key variables used in the calculation of such amounts are described in Note 17(b) to our consolidated financial statements, contained elsewhere in this annual report.
(6)
Under his service agreement with us, our Chief Executive Officer, is entitled to an annual bonus in an amount equal to 3.3% of our net profit (including capital gains) after tax. Additionally, Mr. Bernstein's variable compensation includes payments due with respect to 611,771 RSUs granted to him by Formula in consideration of dividends that Formula distributes to its shareholders in an amount equal to the pro-rata portion of the overall dividend amount that the RSUs constitute out of the issued and outstanding share capital of the Company as of the date of the distribution. For the purpose of payment of the dividend amounts, the portion of the dividend amount to be released to Mr Bernstein, will in each case be based on the proportion of the number of fiscal quarters that have lapsed at the time of distribution of the dividend from January 1, 2020 until December 31, 2027. An advance of 70% of the estimated annual bonus with respect to each year is paid over the course of the year, divided into quarterly installments, which is estimated based on our quarterly financial statements and is subject to final adjustment at the end of the year.
Compensation of Directors
The following table sets forth
information with respect to compensation of our directors (none of whom served as an employee of our company) during fiscal year 2022.
The fees to the directors were paid by Formula.
Name and Principal Position
Total Fees Earned or
Paid in Cash ($)
(1)
Marek Panek – Chairman
41,400
Rafal Kozlowski – Director
41,400
Ohad Melnick – Director
51,800
Karolina Rzonca-Bajorek
9,950
Gabriela &Zdot;ukowicz
9,950
Tomer Jacob - External Director
58,450
Relly Danon - External Director
39,650
Eli Zamir – Former External Director
12,300
Iris Yahal- Former External Director
18,400
(1)
All amounts reported in the table are in terms of cost to Formula, as recorded in Formula's financial statements.
143
Option Grants to, and Service Agreement
with, Chief Executive Officer
Under his service agreement
with us, Mr. Guy Bernstein, as our Chief Executive Officer, is entitled to a monthly salary, as well as an annual bonus in an amount equal
to 3.3% of our net profit (including capital gains). An advance of 70% of the estimated bonus with respect to each year is paid over the
course of the year, divided into quarterly installments, which is estimated based on our quarterly financial statements and is subject
to final adjustment at the end of the year.
On November 3, and 4, 2020,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, re-approved an eight-year
equity-based award of compensation—in the form of 611,771 restricted share units, or RSUs— to our chief executive officer,
Mr. Guy Bernstein. The terms of the grant were described in Proposal 5 of the proxy statement for our November 2, 2020 annual general
meeting of shareholders (referred to as the Proxy Statement and Annual Meeting, respectively), which was attached as Exhibit 99.1 to our
Report of Foreign Private Issuer on Form 6-K furnished to the SEC on September 17, 2020 and available at the following link:
https://www.sec.gov/Archives/edgar/data/1045986/000121390020027121/ea127015ex99-1_formulasys.htm
The re-approved grant modified the composition of the RSUs being granted
to our chief executive officer from what was proposed in Proposal 5 at the Annual Meeting, adjusting the ratio between time-based-vesting
and performance-based-vesting RSUs from 80%-20% to 66.67%-33.33%.
As previously reported by
Formula in its Form 6-K furnished to the SEC on November 2, 2020, the originally-proposed grant was not approved pursuant to Proposal
5 at the Annual Meeting. In re-considering and re-approving the grant, our compensation committee and board of directors acknowledged
that the requisite majority of our shareholders for the approval of Proposal 5 had not been achieved at the Annual Meeting. The committee
and board nevertheless evaluated our Group's performance and achievements under the management of our chief executive officer, and
in view of his expected further contribution to the Group's success, determined that the proposed grant is strongly linked to the
Group's performance and the resulting increase in shareholders' value. Consequently, consistent with their authorities under
the Companies Law, the compensation committee and board of directors approved the modified (as described above) award of the RSUs.
In December 2020, a motion
to certify a derivative suit, referred to as the Motion, was filed against our Company by a shareholder, who is also referred to as the
Plaintiff, in the district court (economic division) of Tel Aviv-Jaffa, Israel, naming each of our then acting five directors, as well
as our chief executive officer and chief financial officer as defendants.
The suit challenged the
legality, under the Companies Law, of, among other things, compensation approved for the chief executive officer, including the re-approval
by our compensation committee and board of the subject eight-year RSU award to our chief executive officer.
On January 12, 2023, we held
a special general meeting of shareholders for our shareholders to re-approve the subject grant of RSUs (reflecting the adjusted 66.67%-33.33%
ratio of time-based-vesting to performance-based-vesting RSUs) to our chief executive officer. Although we believe that the legal challenge
to the original re-approval, in November 2020, by the compensation committee and the board of directors of this RSU grant were without
merit, we nevertheless brought the re-approval to our shareholders for the following primary reasons:
●
Changed circumstances
.
The voting agreement
between Asseco and our chief executive officer, which
covered
1,797,973
of our ordinary shares owned by the chief executive officer, and by virtue of which Asseco formerly possessed the right to vote those
shares– which stood at the heart of plaintiff's allegation in the motion– was
cancelled on December 5,
2022; and
●
Certainty
. We believed
that it was in the best interest of the Company and its shareholders to provide clarity and certainty regarding the CEO's compensation
and position in the Company by having his equity-based grant re-approved by the shareholders.
The January 12, 2023 special
general shareholders meeting did not re-approve the RSU grant. On January 15, and 16, 2023, our compensation committee and board of directors,
respectively, acting in accordance with the Companies Law, re-approved the RSUs grant once again.
Please see Item 8.A, "Legal
Proceedings" below for a description of the legal proceedings that have been brought in respect of the CEO's RSU grant.
144
The award, to be granted to
Emil Sharvit (2001) Consulting and Project Management Ltd., through which our chief executive officer, provides services to us grants
611,771 restricted stock units ("RSUs") in respect of ordinary shares of Formula Systems. 66.67% of the RSUs (i.e., 407,847
RSUs) are subject to time-based vesting that shall start as of the grant date and shall end at December 31, 2027 subject to the continued
engagement of our chief executive officer with us as of that date (the "Vesting Period"); and up to 33.33% of the RSUs (i.e.,
203,924 RSUs as of the date hereof) are subject to performance-based vesting, and shall vest at December 31, 2027 on a pro-rata basis
with respect to each fiscal year (starting as of January 1, 2020) during the Vesting Period in which the Target EBITDA (as defined below)
is achieved, subject to the continued engagement of our chief executive officer with us. At the end of the vesting period, the number
of performance based RSUs that vests shall be equal to (i) the number of fiscal years in which the Target EBITDA was achieved multiplied
by (ii) 25,490.50 RSUs (rounded to the nearest whole number, up to a cap of 203,924 RSUs in total).
The "Target EBITDA"
in a given fiscal year during the Vesting Period shall mean our EBITDA in that certain fiscal year (as reflected in the our annual audited
consolidated financial statements), excluding the cost attributed to the applicable portion of the RSUs in the our annual audited consolidated
financial statements for the applicable fiscal year (as to which the review of performance is made to determine whether one eighth of
the Performance Based RSUs (i.e., 25,490.50 RSUs) shall become vested at the end of the Vesting Period). The Target EBITDA shall be not
less than 105% of 75% of our consolidated EBITDA in the previous fiscal year, excluding the cost attributed to the applicable portion
of the RSUs in our annual audited consolidated financial statements for such previous fiscal year (the "Previous Year"). Such
examination of EBITDA shall be made on the basis of the our annual audited consolidated financial statements as reflected in our annual
report on Form 20-F, and in the event that we sells any of our operations, the Target EBITDA shall be adjusted as applicable for future
reference by removing the results of the operations that were sold.
In the event that with respect
to any specific fiscal year (the "Specific Year"), the Target EBITDA is not achieved, the Target EBITDA with respect to such
Specific Year will still be deemed to have been met for the purpose of vesting of RSUs in the event that either: (i) the EBITDA in the
fiscal year immediately following the Specific Year was at least 110.25% of 75% of our EBITDA in the year preceding the Specific Year,
or (ii) in case that the condition in the foregoing clause (i) was not met, then the EBITDA in the second fiscal year following the Specific
Year was at least 115.7625% of 75% of our EBITDA in the year preceding the Specific Year. Accordingly, in case that either clause (i)
or (ii) was met for a certain Specific Year, then the vesting with respect to such Specific Year shall be deemed to have been achieved,
and those RSUs shall become vested as of the end of the Vesting Period. In the event that neither of the conditions described in clauses
(i) or (ii) was met, the portion of RSUs for the applicable Specific Year shall automatically expire and terminate.
Notwithstanding the foregoing,
in case the Target EBITDA is met (in accordance with the above terms) in a certain fiscal year, yet the Target EBITDA is less than 105%
of 75% of the average EBITDA for the three fiscal years that consist of the subject fiscal year and the two preceding years (excluding
the cost attributed to the applicable portion of the RSUs in our annual audited consolidated financial statements for such applicable
fiscal years), then regardless of meeting the Target EBITDA, the number of performance-based RSUs that vests shall be reduced by 20%.
Total fair value of the grant was calculated based on Formula Systems
share price on the grant date and equaled to NIS 170.7 million (NIS 279 per share). The total compensation expense we recorded in our
statement of profit or loss, in accordance with accounting principles, for the year ended December 31, 2022, was NIS 23.8 million (approximately
$7.1 million).
In addition to the RSU grant
terms described above, our board of directors has approved, following the approval by Formula's compensation committee, an adjustment
to the above-described RSU grant based on dividends that we distribute to our shareholders. During the Vesting Period of the RSUs, in
the event that any dividend, in cash or in kind, is distributed to our shareholders, then in addition to the distribution to all shareholders,
there will be an equivalent payment to our chief executive officer with respect to all RSUs that were not converted into shares (whether
or not vested) in an amount equal to the pro-rata portion of the overall dividend amount that the RSUs constitute out of our issued and
outstanding share capital as of the date of the distribution. For those purposes, the RSUs will be counted as if they are already vested
and converted into shares. These special RSU dividend amounts shall be paid and/or set aside by us for the benefit of our chief executive
officer, all as described below.
145
For the purpose of payment
of the Dividend Amounts to our chief executive officer, the Vesting Period shall be regarded as if it has commenced on January 1, 2021
(other than with respect to distributions and any related dividend amount which were made prior to the grant of the RSUs and which are
explicitly excluded) and will be divided into 32 fiscal quarters (each, referred to as a Fiscal Quarter). The dividend amount within each
dividend distributed to our shareholders will be released to, or set aside for, our chief executive officer together with the distribution
of the dividend. The portion of the Dividend Amount to be released to our chief executive officer will in each case be based on the number
of Fiscal Quarters that have lapsed at the time of distribution of the dividend. The remainder of the Dividend Amount will be set aside
and paid to our chief executive officer on a pro-rata basis upon the expiration of each Fiscal Quarter until the Dividend Amount is released
in full at the end of the Vesting Period for the RSUs. The total expense we recorded in our statement of profit or loss, in accordance
with accounting principles, with respect to such dividend amounts for the year ended December 31, 2022 amounted to $0.5 million.
In the event of termination
of our chief executive officer services agreement, by us for Cause (as defined in the services agreement), the RSUs will immediately terminate
and become null and void, and all interests and rights of our chief executive officer in and to the same will expire. In case of termination
of our chief executive officer services agreement by us not for Cause, or due to the resignation of our chief executive officer for Good
Reason, all unvested RSUs that could have vested from the grant date until December 31, 2027, assuming all performance and time conditions
and future targets would have been fulfilled (including all targets that would have resulted in vesting with respect to any Previous Year
which could have still been met in future years), will accelerate and become immediately vested and exercisable, regardless of the actual
occurrence or failure to occur of any of the future performance targets relating to those RSUs.
In the event of resignation
by our chief executive officer not for Good Reason, our chief executive officer RSUs will vest, in an accelerated manner, in such portion
equal to the pro-rata portion of the Vesting Period that has already lapsed (based on the full number of Fiscal Quarters that have lapsed
from January 1, 2020 until the actual resignation date, including notice period). However, any Performance Based RSUs for which the applicable
target was not achieved up until the resignation date (including the notice period) will expire and terminate.
Restricted Share Grants
to Chief Financial Officer
On March 13, and 14, 2021,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, awarded our Chief Financial
Officer, Asaf Berenstin, 21,000 additional restricted shares under the 2021 Plan. These additional restricted shares vest on a quarterly
basis over approximately five-year period, with 3,750 restricted shares, approximately 18% of the grant, vesting on the grant date with
the remaining amount vested in 23 quarterly equal amounts of 750 restricted shares per quarter commencing on June 30, 2022 and concluding
on December 31, 2027, provided that during such time the Chief Financial Officer continues to serve as (i) an officer of the Company and/or
(ii) an officer in one of our directly held affiliates. If he fails to meet the service condition due to the request of the board of directors
of either Formula or any of its directly held affiliates (other than a termination of his provision of services which is based on actions
or omissions by him that will constitute "cause" under his grant agreement with Formula); then, the Chief Financial Officer
will be deemed to have complied with clauses (i) or (ii) above. Notwithstanding the foregoing, if a change of control of Formula occurs,
then all unvested additional restricted shares will immediately become vested. Total fair value of the grant was calculated based on the
Formula share price on the grant date and amounted to NIS 6.7 million (approximately $2.0 million), based on a share price of NIS 318.
Restricted Share Grants to Chief
Operational Officer
On November 11 and 13, 2014,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, awarded our Chief Operational
Officer, Maya Solomon, 10,000 restricted shares under the 2011 Plan. These restricted shares vested on an annual basis over a four-year
period, which commenced on November 19, 2018 and concluded on November 18, 2022, provided that during such time the Chief Operational
Officer continued to serve as (i) an officer of the Company and/or (ii) an officer in one of our directly held affiliates (we refer to
this as the Service Condition). The total fair value of the grant was calculated based on the Formula share price on the grant date and
amounted to $382,150 ($38.21 per share). As of April 30, 2023, all 10,000 restricted shares had vested and remained depositedwith the
trustee.
146
On January 15 and 16, 2023,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, awarded our Chief Operational
Officer, Maya Solomon, 15,000 restricted shares under the 2021 Plan. These restricted shares vest at certain points in time over a seven-year
period, which commenced on January 16, 2023 and concluding on December 31, 2029, provided that during such time the Chief Operational
Officer continued to serve as (i) an officer of the Company and/or (ii) an officer in one of our directly held affiliates (we refer to
this as the Service Condition). The total fair value of the grant was calculated based on the Formula share price on the grant date and
amounted to $1.2 million ($81.65 per share). As of April 30, 2023, none of the 15,000 restricted shares had vested.
For a description of our 2011
Share Incentive Plan and our 2021 Share Incentive Plan pursuant to which options or share awards may be granted from time to time to our
directors, executive officers, employees and consultants, see "Item 6.E. Share Ownership
—
Arrangements Involving the
Issuance or Grant of Equity Awards" below.
C.
Board Practices
Pursuant to our amended and
restated articles of association, or our articles, directors are generally elected at the annual general meeting of shareholders by a
vote of the holders of a majority of the voting power represented at the meeting. Our existing board of directors may also appoint a new
director to the board, assuming that the then-authorized size of the board, as last approved by our shareholders, exceeds the number of
directors then serving on the board, whether due to a resignation or otherwise, in which case the newly appointed director holds office
until the next annual general meeting of shareholders immediately following such appointment.
On July 19, 2022, our Board
received a request in writing from Asseco Poland S.A., or Asseco, the Company's largest shareholder, requesting the appointment
of two nominees as directors, Ms. Karolina Rzonca-Bajorek, and Ms. Gabriela Żukowicz. The Board held a meeting on July 20, 2022 to
discuss the request and concluded, due to the considerations described below, that the fulfillment of the request would serve the best
interest of the Company and its shareholders, and therefore resolved to bring the election of those nominees as additional directors (including
the accompanying increase in the authorized size of our Board), to our shareholders for approval at a special general meeting of shareholders.
The election of the nominees proposed by Asseco (and the accompanying increase in the authorized size of the Board), were presented to
our shareholders for approval at our August 25, 2022 special general meeting, and approved thereat.
As a result, our board is
currently comprised of seven persons, of which each of Ohad Melnik, Tomer Jacob and Relly Danon has been determined by the board to be
independent within the meaning of the Listing Rules of the Nasdaq Stock Market (or the Nasdaq listing rules), on which our ADSs are listed
for trading. Concurrently with the election of Ms. Karolina Rzonca-Bajorek and Ms. Gabriela Żukowicz to the board, we opted, as a
foreign private issuer under SEC rules, to follow Israeli law practice in lieu of the Nasdaq majority board independence requirement.
Please see Item 16G below. Mr. Jacob and Ms. Danon serve as our external directors (succeeding Ms. Iris Yahal and Mr. Eli Zamir, as of
May 2022, whose third three year term as external directors ended in April 2022) as mandated under Israeli law, and are therefore subject
to additional criteria to help ensure their independence. See "External Directors Under the Companies Law" below. Each of
our directors, except for the external directors, holds office until the next annual general meeting of shareholders and may then be re-elected.
Our officers are appointed by our board of directors.
Under the Companies Law, a
person who lacks the necessary qualifications and the ability to devote an appropriate amount of time to the performance of his or her
duties as a director shall not be appointed director of a publicly traded company. While determining a person's compliance with
such provisions, the company's special requirements and its scope of business shall be taken into consideration. Where the agenda
of a shareholders meeting of a publicly traded company includes the appointment of directors, each director nominee should submit a declaration
to the company confirming that he or she has the necessary qualifications and that he or she is able to devote an appropriate amount of
time to performance of his or her duties as a director. In the declaration, the director nominee should specify his or her qualifications
and confirm that the restrictions set out in the Companies Law do not apply.
Under the Companies Law, if
a director ceases to comply with any of the requirements provided in the Companies Law, such director must immediately notify the company,
and his or her term of service shall terminate on the date of the notice.
147
External Directors Under the Companies
Law
Under the Companies Law, companies
incorporated under the laws of Israel whose shares have been offered to the public in or outside of Israel, are required to appoint at
least two external directors. This law provides that a person may not be appointed as an external director if the person is a relative
of the controlling shareholder of the company or if that person or his or her relative, partner, employer, another person to whom he or
she was directly or indirectly subject, or any entity under the person's control, has, as of the date of the person's appointment
to serve as external director, or had, during the two years preceding that date: (a) any affiliation or other disqualifying relationship
with the company, with any person or entity controlling the company or a relative of such person, or with any entity controlled by or
under common control with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had
at the date of appointment as an external director, any affiliation or other disqualifying relationship with a person then serving as
chairman of the board or chief executive officer, a holder of 5% or more of the issued share capital or voting power in the company or
the most senior financial officer. The term "affiliation" and the similar types of prohibited relationships include:
●
an employment relationship;
●
a business or professional relationship,
even if not maintained on a regular basis (but excluding a
de minimis
level relationship);
●
control; and
●
service as an office holder.
The term "office holder"
is defined under the Companies Law as a general manager (i.e., chief executive officer), chief business manager, deputy general manager,
vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person's title,
a director and any other manager directly subordinate to the general manager.
No person may serve as an
external director if the person's position or other business activities create, or may create, a conflict of interest with the person's
responsibilities as an external director or may otherwise interfere with the person's ability to serve as an external director or
if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. A person may furthermore not continue
to serve as an external director if he or she received, during his or her tenure as an external director, direct or indirect compensation
from the company including amounts paid pursuant to indemnification or exculpation contracts or commitments and insurance coverage for
his or her service as an external director, other than as permitted by the Companies Law and the regulations promulgated thereunder. If,
at the time of election of an external director, all other directors who are not the company's controlling persons or their relatives
are of the same gender, the external director to be elected must be of the other gender. A director of one company may not be appointed
as an external director of another company if a director of the other company is acting as an external director of the first company at
such time.
External directors are elected
by a majority vote at a shareholders' meeting, provided that either:
●
such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a conflict of interest (referred to under the Companies Law as a "personal interest") in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority, or
●
the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director against the election of the external director does not exceed two percent (2%) of the aggregate voting rights in the company.
According to regulations promulgated
under the Companies Law, a person may be appointed as an external director only if he or she has professional qualifications or if he
or she has accounting and financial expertise (each, as defined below). In addition, at least one of the external directors must be determined
by our board of directors to have accounting and financial expertise. A director with "accounting and financial expertise"
is a director that due to his or her education, experience and skills has a high expertise and understanding in financial and accounting
matters and financial statements, in such a manner which allows him to deeply understand the financial statements of the company and initiate
a discussion about the presentation of financial data. A director is deemed to have "professional qualifications" if he or
she either (i) has an academic degree in economics, business management, accounting, law or public service, (ii) has an academic or other
degree or has completed other higher education, all in the field of business of the company or relevant for his/her position, or (iii)
has at least five years experience serving in one of the following capacities, or at least five years of cumulative experience serving
in two or more of the following capacities: (a) a senior business management position in a company with a significant volume of business;
(b) a senior position in the company's primary field of business; or (c) a senior position in public administration or service.
Our board of directors has determined that each of Mr. Jacob and Ms. Danon possesses requisite financial and accounting expertise, as
required of our external directors under the Companies Law.
148
An external director may be
removed from office only: (i) by a court, upon determination that the external director to be so removed ceased to meet the statutory
qualifications for his or her appointment or if he or she violated his or her duty of loyalty to the company or (ii) by the same percentage
of shareholders, acting through a shareholders meeting, as is required for his or her election, if the board of directors has determined
that the external director to be so removed has ceased to meet the statutory qualifications for his or her appointment or violated his
or her duty of loyalty to the company and has proposed the removal to the shareholders. An external director who ceases to meet the conditions
for his or her service as such must notify the company immediately and such service shall cease immediately upon such notification.
The initial term of an external
director is three years and may be extended by the general meeting of shareholders, for up to two additional three year terms, provided
that (i) his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company's
voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non-controlling,
disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company, provided that the external
director and certain of his or her related parties meet additional independence requirements; or (ii) his or her service for each such
additional term is recommended by the board of directors and is approved at a meeting of shareholders by the same majority required for
the initial election of an external director.
In May 2022, Mr. Jacob and
Ms. Danon were initially appointed for a three-year term as our external directors, each to hold office until May 2025. In accordance
with the regulations under the Companies Law (Relief for Public Companies Whose Shares are Listed on a Stock Exchange Outside of Israel,
2000), dual listed companies, like us, whose securities are listed on the Nasdaq Global Select Market or one of a number of other non-Israeli
stock exchanges, may re-appoint an external director for additional three-year terms, in excess of the nine years as described above,
if the audit committee and the board of directors confirm that, due to the expertise and special contribution of the external director
to the work of the board and its committees, his or her re-appointment is in the best interests of the company. The same special majority
is required for election of the external director for each additional three-year term.
Each committee of a company's
board of directors is required to include at least one external director and the audit committee must include all of the external directors.
An external director is entitled
to compensation as provided in regulations promulgated under the Companies Law and is otherwise prohibited from receiving any compensation,
directly or indirectly, in connection with services provided as an external director or otherwise to the company.
Following the termination
of an external director's service on a board of directors, such former external director and his or her spouse and children may
not be provided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder's
control, including engagement to serve as an executive officer or director of the company or a company controlled by its controlling shareholder
or employment by, or providing services to, any such company for consideration, either directly or indirectly, including through a corporation
controlled by the former external director. This restriction extends for a period of two years with regard to the former external director
and his or her spouse or child and for one year with respect to other relatives of the former external director.
Under regulations promulgated under the Companies Law, Israeli public
companies whose shares are traded on certain U.S. stock exchanges, such as the Nasdaq Global Select Market, and that lack a controlling
shareholder (as defined below) are exempt from the requirement to appoint external directors. Any such company is also exempt from the
Companies Law requirements related to the composition of the audit and compensation committees of the board. Eligibility for these exemptions
is conditioned on compliance with U.S. stock exchange listing rules related to majority board independence and the composition of the
audit and compensation committees of the board, as applicable to all listed domestic U.S. companies. Because we have a controlling shareholder
as determined under the Companies Law (Asseco), we are not eligible for these exemptions under the subject regulations.
149
Qualifications of Directors Generally
Under the Companies Law
Under the Companies Law, the
board of directors of a publicly traded company is required to make a determination as to the minimum number of directors (not merely
external directors) who must have accounting and financial expertise (according to the same criteria described above with respect to external
directors under "—External Directors Under the Companies Law"). In accordance with the Companies Law, the determination
of the board should be based on, among other things, the type of the company, its size, the volume and complexity of its activities and
the number of directors. Based on the foregoing considerations, our board determined that the number of directors with financial and accounting
expertise in our company shall not be less than one. As described above under "—External Directors Under the Companies Law,"
currently Mr. Tomer Jacob and Ms. Relly Danon have been determined by the board to possess such accounting and financial expertise.
Unaffiliated Directors Under the
Companies Law
Under the Companies Law, the
audit committee of a publicly traded company must consist of a majority of unaffiliated directors. An "unaffiliated director"
is defined as an external director or a director who meets the following criteria:
●
he or she meets the qualifications for being appointed as an external director, except for (i) the requirement that the director be an Israeli resident (which does not apply to companies whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications; and
●
he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.
Our audit committee complies
with the foregoing required majority of unaffiliated directors.
Audit Committee
In addition to the foregoing
requirement concerning the audit committee's unaffiliated director members, the Companies Law also requires more generally that
public companies such as ours must appoint an audit committee, comprised of at least three directors, including all of the external directors,
one of whom must serve as chairman of the committee. The chairman of the board of directors, or any director employed by or otherwise
providing services on a regular basis to the company or to a controlling shareholder or any entity controlled by a controlling shareholder,
may not be a member of the audit committee. Under the Companies Law, our audit committee is responsible for (i) determining whether there
are deficiencies in the business management practices of the company, including in consultation with the company's internal auditor
or the independent auditor, and making recommendations to the board of directors to improve such practices, (ii) determining whether to
approve certain related party transactions, including transactions in which an office holder has a personal interest and whether such
transaction is extraordinary or material, (iii) establishing the approval process (including, potentially, the approval of the audit committee)
for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (iv) where the
board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board and
propose amendments thereto, (v) examining the company's internal controls and internal auditor's performance, including whether
the internal auditor has sufficient resources and tools to dispose of his responsibilities (taking into consideration the company's
special needs and size), (vi) examining the scope of the company's auditor's work and compensation and submitting a recommendation
with respect thereto to the board of directors or the general meeting of shareholders, depending on which of them is considering the appointment
of our auditor and (vii) establishing procedures with respect to the handling of company employees' complaints as to the management
of the company's business and the protection to be provided to such employees. In compliance with regulations under the Companies
Law, our audit committee also approves our financial statements, thereby fulfilling the requirement that a board committee provide such
approval. An audit committee may not approve an action requiring its approval, unless at the time of approval a majority of the committee's
members are present, of whom a majority consist of unaffiliated directors and at least one of them is an external director.
The Nasdaq listing
rules and U.S. securities laws likewise require that we maintain an audit committee, all of whose members are independent of management.
In accordance with the Sarbanes-Oxley Act of 2002 and the Nasdaq requirements, our audit committee's direct responsibilities include
the appointment, compensation, retention and oversight of our independent auditors (which itself also requires shareholder ratification
under Israeli law). The committee's U.S. and Nasdaq mandated responsibilities also include assisting the board in monitoring our
financial statements and the effectiveness of our internal controls. We have adopted a formal audit committee charter that we have implemented,
embodying these responsibilities.
150
Our audit committee consists
of our two external directors, Mr. Tomer Jacob and Ms. Relly Danon, as well as Mr. Ohad Melnik. Each of Mr. Jacob, Ms. Danon and Mr. Melnik
qualifies as an independent director under both the Nasdaq listing rules and Rule 10A-3 of the Exchange Act. The board has furthermore
determined that Mr. Jacob is an "audit committee financial expert" as defined by applicable SEC regulations. See "Item
16A. Audit Committee Financial Expert."
Compensation Committee and Compensation
Policy
Under the Companies Law, the
board of directors of a public company must appoint a compensation committee. The compensation committee must be comprised of at least
three directors, including all of the external directors, who must constitute a majority of the members of the compensation committee.
Each compensation committee member who is not an external director must be a director whose compensation does not exceed an amount that
may be paid to an external director. The compensation committee is subject to the same Companies Law restrictions as the audit committee
as to who may not be a member of the compensation committee. As noted above (under "External Directors Under the Companies Law"),
Israeli companies whose securities are traded on stock exchanges such as the Nasdaq Global Select Market, and who do not have a controlling
shareholder, do not have to meet the compensation committee composition requirements under the Companies Law. Reliance on this leniency
is conditioned upon the compensation committee meeting the composition requirements of the jurisdiction where the company's securities
are traded. This leniency does not apply to our company, as we have a controlling shareholder (Asseco).
The duties of the compensation
committee include the recommendation to the company's board of directors of a policy regarding the terms of engagement of office
holders, to which we refer as a compensation policy. That policy must be adopted by the company's board of directors, after considering
the recommendations of the compensation committee, and will need to be brought for approval by the company's shareholders, which
approval requires what we refer to as a Special Majority Approval for Compensation. A Special Majority Approval for Compensation requires
shareholder approval by a majority vote of the shares present and voting at a meeting of shareholders called for such purpose, provided
that either:
●
such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a conflict of interest (referred to under the Companies Law as a "personal interest") in such compensation arrangement; or;
●
the total number of shares of non-controlling shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company's aggregate voting rights.
We initially adopted a compensation
policy during 2013. Our compensation policy was not re-approved at our Annual General Meeting of Shareholders that was held on December
21, 2016. In April 2018, in accordance with Section 276A(c) of the Companies Law, our compensation committee and the board determined
that the approval of the compensation policy is in the best interest of the company and exercised their right to adopt the compensation
policy notwithstanding it not having been approved by the shareholders at the Annual Meeting. In December 2022, our compensation committee
and board of directors re-approved our compensation policy and submitted it to our shareholders for approval at our January 12, 2023 special
general shareholders meeting. Our shareholders did not approve the compensation policy at that meeting. On January 15, and 16, 2023, our
compensation committee and board of directors, respectively, acting in accordance with the Companies Law, re-approved the compensation
policy notwithstanding that our shareholders had not approved it.
The compensation policy serves
as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance,
indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must
relate to certain factors, including advancement of the company's objectives, the company's business plan and its long-term
strategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the company's risk
management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
●
the knowledge, skills, expertise and accomplishments of the relevant office holder;
●
the office holder's roles and responsibilities and prior compensation agreements with him or her;
●
the relationship between the terms offered and the average compensation of the other employees of the company, including those employed through manpower companies;
●
the impact of disparities in salary upon work relationships in the company;
●
the possibility of reducing variable compensation at the discretion of the board of directors;
●
the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and
●
as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company's performance during that period of service, the person's contribution towards the company's achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.
151
The compensation policy must
also include the following principles:
●
the link between variable compensation and long-term performance and measurable criteria;
●
the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
●
the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company's financial statements;
●
the minimum holding or vesting period for variable, equity-based compensation; and
●
maximum limits for severance compensation.
The compensation committee
is responsible for (a) recommending the compensation policy to a company's board of directors for its approval (and subsequent approval
by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company's office holders as
well as functions previously fulfilled by a company's audit committee with respect to matters related to approval of the terms of
engagement of office holders, including:
●
recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three (3) years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years, or for a new public company, five years initially);
●
recommending to the board of directors periodic updates to the compensation policy;
●
assessing implementation of the compensation policy; and
●
determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders.
Our board of directors has
adopted a compensation committee charter setting forth the responsibilities of the compensation committee, which include:
●
the responsibilities set forth in the compensation policy;
●
reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and
●
reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.
Our compensation committee
consists of our two external directors Mr. Tomer Jacob and Ms. Relly Danon, as well as Mr. Ohad Melnik. Each of the members of our compensation
committee qualifies as an independent director under the Nasdaq listing rules.
Internal Auditor
Under the Companies Law, the
board of directors is required to appoint an internal auditor, nominated by the audit committee. The role of the internal auditor is to
examine, among other matters, whether the company's actions comply with the law and orderly business procedure. Under the Companies
Law, the internal auditor may be an employee of the company but not an office holder, or an interested party (i.e., a holder of 5% or
more of the voting rights in the company or of the issued share capital, the chief executive officer of the company or any of its directors,
or a person who has the authority to appoint the company's chief executive officer or any of its directors), or a relative of an
office holder or of an interested party. In addition, the company's independent auditor or its representative may not serve as the
company's internal auditor. Our internal auditor is Mr. Eyal Weitzman.
152
Nasdaq Exemptions for a Foreign Private
Issuer
We are a foreign private issuer
within the meaning of Nasdaq listing rule 5005(a)(18), since we are incorporated in Israel and we meet the other criteria set forth for
a "foreign private issuer" under Rule 3b-4(c) under the Exchange Act. Therefore, pursuant to Nasdaq listing rule 5615(a)(3),
we may follow home country practice in lieu of certain provisions of the Nasdaq listing rule 5600 series and certain other Nasdaq listing
rules. Please see "Item 16G. Corporate Governance" below for a description of the manner in which we rely upon home country
practice in lieu of complying with certain Nasdaq listing rules.
Exculpation, Insurance and Indemnification
of Directors and Officers
Our office holders consist
of the individuals listed in the table under "Directors and Senior Management," which is displayed under "Item 6. Directors,
Senior Management and Employees." Under the Companies Law, an Israeli company may not exempt an office holder from liability with
respect to a breach of his or her duty of loyalty, but may exempt in advance an office holder from his or her liability to the company,
in whole or in part, with respect to a breach of his duty of care, provided, however, that such a breach is not related to a distribution
of a dividend or any other distribution by the company.
Office Holders' Insurance.
Our articles provide that, subject to the provisions of the Companies Law, we may enter into a contract for the insurance of the liability
of any of our office holders imposed on the office holder in respect of an act performed in his or her capacity as an office holder, with
respect to:
●
a breach of his duty of care to us or to another person;
●
a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or
●
a financial liability imposed upon him in favor of another person.
We have obtained an insurance
policy covering the Formula Group's directors' and officers' liability. Certain of our subsidiaries (Magic Software
and its subsidiaries, Sapiens and its subsidiaries, Insync, Zap Group and its subsidiaries, Shamrad and Michpal and its subsidiaries)
participate in the premium payments of the insurance, on a proportional basis. The total premium we paid during 2022 was approximately
$2,300,000 for the entire Group. On a stand-alone basis, the portion allocated to Formula and its privately-held subsidiaries amounted
in 2022 to $279,000. For 2023, the total premium we paid as a Group amounted to $1,600,000. On a stand-alone basis, the portion allocated
to Formula and its privately-held subsidiaries with respect to 2023 amounted to $235,060.
Indemnification of Office
Holders.
Our articles provide that we may indemnify an office holder in respect of an obligation or expense imposed on or expended
by an office holder in respect of an act performed in his capacity as an office holder as specified below:
(i)
a financial obligation imposed on him in favor of another person by any judgment, including a settlement or an arbitrator's award approved by a court;
(ii)
reasonable litigation expenses, including attorney's fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him, and either (i) concluded without the imposition of any financial liability in lieu of criminal proceedings; or (ii) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent;
(iii)
reasonable litigation expenses, including attorneys' fees, expended by the office holder or charged to him by a court, in proceedings instituted against him by another person, or in a criminal charge from which he was acquitted or in any criminal proceedings of a crime which does not require proof of criminal intent;
153
(iv)
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder as a result of a proceeding instituted against such office holder in relation to (1) infringements that may impose financial sanction pursuant to the provisions of Chapter H'3 under the Israeli Securities Law, which we refer to as the Securities Law, or (2) administrative infringements pursuant to the provisions of Chapter H'4 under the Securities Law or (3) infringements pursuant to the provisions of Chapter I'1 under the Securities Law; and
(v)
payments made by the office holder to an injured party for damages suffered under Section 52(54)(a)(1)(a) of the Securities Law.
We may undertake to indemnify
an office holder as aforesaid, (a) prospectively, provided that in respect of (i) above, the undertaking is limited to categories of events
that in the opinion of our board of directors are foreseeable in light of our actual operations at the time that the undertaking to indemnify
is given, and to the amounts or criteria that our board of directors deems reasonable under the circumstances, and further provided that
such events and amount or criteria are set forth in the undertaking to indemnify, but in any event no more than 25% of Formula's
shareholders equity according to its most recent financial statements as of the date of the actual payment of indemnification; and (b)
retroactively.
Limitations on Exemption,
Insurance and Indemnification.
The Companies Law provides that a company may not indemnify an office holder, enter into an insurance
contract which would provide coverage for any monetary liability, or exempt an office holder from liability, with respect to any of the
following:
●
a breach by the office holder of his duty of loyalty unless the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
●
a breach by the office holder of his duty of care if the breach was done intentionally or recklessly, except for a breach that was made in negligence;
●
any act or omission done with the intent to derive an illegal personal benefit;
●
any fine levied against the office holder; or
●
a counterclaim made by the company or in its name in connection with a claim against the company filed by the office holder.
In addition, under the Companies
Law, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our
board of directors and, in specified circumstances, by our shareholders.
We have entered into undertakings
to indemnify our office holders in specified limited categories of events and in specified amounts, subject to the limitations set by
the Companies Law and our articles, as described above. For more information, see "Item 7.B. Related Party Transactions –
Indemnification of Office Holders."
Directors' Severance Benefits Upon Termination
of Employment
We have not entered into any
service contracts with any members of our board of directors that provide for specific benefits upon termination of employment, as none
of our directors is employed by us or otherwise subject to a consulting or similar contract with us that provides benefits upon termination
of employment or service. The only severance pay benefits that we provide are provided to employees as required under Israeli law and
are described below in the section titled "Employees".
D.
Employees
The table below sets forth
the average number of employees employed by us, as allocated among our eight subsidiaries in which we have effective control through December
31, 2022, during each of the last three fiscal years:
Year ended December 31,
2020
2021
2022
Matrix
10,658
10,820
11,200
Magic Software
3,039
3,677
4,161
Sapiens
3,438
4,044
4,754
TSG
468
419
442
Michpal
190
216
273
Ofek
92
94
90
Insync
572
762
788
Zap Group
-
301
311
Shamrad
-
-
40
Total
18,457
20,333
22,059
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The table below sets forth
the average number of employees employed by us, as allocated by geographical area of employment, during each of the last three fiscal
years:
Year ended December 31,
2020
2021
2022
Israel
12,473
13,074
13,629
United States and Canada
3,006
3,569
3,198
Europe
1,405
1,756
2,771
Asia (mainly India)
1,561
1.922
2,453
South Africa
12
12
8
Total
18,457
20,333
22,059
With respect to our employees
in Israel, we are subject to various Israeli labor laws and labor practices, and to administrative orders extending certain provisions
of collective bargaining agreements between the Histadrut (Israel's General Federation of Labor) and the Coordinating Bureau of
Economic Organizations (the Israeli federation of employers' organizations) to all private sector employees. For example, mandatory
cost of living adjustments, which compensate Israeli employees for a portion of the increase in the Israeli consumer price index, are
determined, from time to time, on a nationwide basis. Israeli law also requires the payment of severance benefits upon the termination,
retirement (in some instances) or death of an employee. We meet this requirement by (i) contributing on an ongoing basis towards "managers'
insurance" funds that combine pension, insurance and, if applicable, severance pay benefits and (ii) payment of differences, if
applicable. In addition, Israeli employers and employees are required to pay specified percentages of wages to the National Insurance
Institute. Other provisions of Israeli law or regulation govern matters such as the length of the workday, minimum wages, other terms
of employment and restrictions on discrimination.
We are also subject to the
labor laws and regulations of other jurisdictions in the world where we have employees.
E.
Share Ownership
As of April 30, 2023,
none of our directors or officers owned any shares of our company (whether actual ordinary shares or shares issuable upon exercise of
options), except for Mr. Guy Bernstein, our Chief Executive Officer, Mr. Asaf Berenstin, our Chief Financial Officer and Ms. Maya Solomon,
our Chief Operational Manager, as described under "Item 6. Directors, Senior Management & Employees— B. Compensation—
Option Grants to, and Service Agreement with, Chief Executive Officer" and "Item 6. Directors, Senior Management & Employees—
Restricted Share Grants to Chief Financial Officer" above. None of the ordinary shares beneficially owned by Messrs. Bernstein and
Berenstin or Ms. Solomon has voting rights different from those possessed by other holders of Formula's ordinary shares.
At the current time, based
on information that he has provided to us, Mr. Guy Bernstein beneficially owns 1,797,973 of Formula's ordinary shares, in the aggregate.
Please see "Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders" below for more information.
At the current time, based
on information that he has provided to us, Mr. Asaf Berenstin owns 31,833 of Formula's ordinary shares, consisting of 10,000 restricted
shares, 833 restricted shares and 21,000 restricted shares which were granted to him on November 13, 2014, August 17, 2017 and March 14,
2022, respectively (as described above under "Item 6. Directors, Senior Management and Employees— B. Compensation— Restricted
Share Grants to Chief Financial Officer" and in Note 18(b) to our consolidated financial statements contained elsewhere in this
annual report). As of April 30, 2023, 17,583 restricted shares were fully vested, with the remaining 14,250 restricted shares to be vested
over 19 equal quarterly periods, which commenced on April 1, 2023 and will conclude on December 31, 2027. All restricted shares, whether
vested or not, are held in the trust.
At the current time, based
on information that she has provided to us, Ms. Maya Solomon owns 25,000 of Formula's ordinary shares, consisting of 10,000 restricted
shares and 15,000 restricted shares which were granted to her on November 19, 2018 and on January 16, 2023, respectively (as described
above under "Item 6. Directors, Senior Management and Employees— B. Compensation— Restricted Share Grants to Chief Operational
Officer" and in Note 18(b) to our consolidated financial statements contained elsewhere in this annual report). Of those shares,
as of April 30, 2023, 10,000 restricted shares were fully vested, with the remaining 15,000 restricted shares to be vested at certain
points in time over a seven-year period, which commenced on January 16, 2023 and concluding on December 31, 2029. All restricted shares,
whether vested or not, are held in the trust.
155
Arrangements Involving the Issuance
or Grant of Equity Awards
Formula's 2011 Share
Incentive Plan
In March 2011, our board of
directors adopted Formula's 2011 Share Incentive Plan, which we refer to as the 2011 Plan. Pursuant to the 2011 Plan, we may grant
from time to time to our and our subsidiaries' employees, office holders (which are not Formula's controlling shareholders)
and consultants' options to purchase, share based awards or restricted shares with respect to, up to an aggregate of 545,000 ordinary
shares of Formula. The 2011 Plan is administered by our board of directors. The 2011 Plan provides that options, restricted shares or
other stock-based awards may be granted, from time to time, to such grantees to be determined by our board of directors, at such exercise
prices and with such vesting or other terms as shall be determined by the board at its sole and absolute discretion. Options may no longer
be granted under the 2011 Plan.
In March 2012, our board of
directors increased the amount of ordinary shares reserved for issuance under the 2011 Share Incentive Plan by 1,200,000 shares.
Of the options available for
grant under the 2011 Plan, we approved the grant, in March 2011, of options to purchase 543,840 ordinary shares to our Chief Executive
Officer, each to be exercisable for no consideration and, in March 2012, we approved the grant of options to purchase 1,122,782 ordinary
shares to our Chief Executive Officer, each to be exercisable for NIS 0.01 per share. Please see "Item 6. Directors, Senior Management
and Employees— B. Compensation— Option Grants to, and Service Agreement with, Chief Executive Officer" for a description
of those grants. We have also approved the grant of 10,000 restricted shares to our Chief Financial Officer on each of November 13, 2014
and August 17, 2017 and the grant of 10,000 restricted shares to our Chief Operational Officer on November 19, 2017, in each case under
the 2011 Plan. Please see "Item 6. Directors, Senior Management and Employees— B. Compensation— Restricted Share Grants
to Chief Financial Officer" for a description of those grants.
Formula's 2021 Share
Incentive Plan
In August 2021, our board
of directors adopted Formula's 2021 Share Incentive Plan, which we refer to as the 2021 Plan. Pursuant to the 2021 Plan, we may
grant from time to time to our and our subsidiaries' employees, office holders (which are not Formula's controlling shareholders)
and consultants' options to purchase, share based awards or restricted shares with respect to, up to an aggregate of 350,000 ordinary
shares of Formula (including 48,378 Ordinary shares that were reserved for issuance under the 2011 Plan and not subject to outstanding
grants and transferred to the 2021 Plan). The 2021 Plan is administered by our board of directors. The 2021 Plan provides that options,
restricted shares, or other stock-based awards may be granted, from time to time, to such grantees to be determined by our board of directors,
at such exercise prices and with such vesting or other terms as shall be determined by the board at its sole and absolute discretion.
Of the options available for
grant under the 2021 Plan, we approved the grant, in March 2022, of 21,000 restricted shares to our Chief Financial Officer and an aggregate
of 2,400 restricted shares to employees of the Company and the grant in January 2023, of 15,000 restricted shares to our Chief Operaion
Officer. Please see "Item 6. Directors, Senior Management and Employees— B. Compensation" for a description of those
grants.
Equity Incentive Plans
of Our Subsidiaries
Our subsidiaries generally
have equity incentive plans pursuant to which qualified directors, employees and consultants may be granted options or other share-based
awards consisting of securities of the subsidiaries.
F.  Disclosure of a registrant's action to recover erroneously
awarded compensation.
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
A.
Major Shareholders
The following table presents
information regarding the beneficial ownership (as defined in Form 20-F promulgated by the SEC) of Formula's ordinary shares (including
shares represented by ADSs) as of April 30, 2023 by each person known to us to be the beneficial owner of 5% or more of Formula's
ordinary shares, and by our directors and executive officers as a group, based on information provided to us by our shareholders or disclosed
in public filings with the SEC. None of the holders of the ordinary shares listed in the below table has voting rights different from
other holders of Formula's ordinary shares. Except where indicated otherwise, we believe, based on information furnished by these
owners, that each of the beneficial owners of Formula's ordinary shares listed below has sole investment and voting power with respect
to such shares.
156
Name
Number of Ordinary Shares
Beneficially Owned (1)
Percentage of
Ownership (2)
Asseco Poland S.A.(3)
3,958,154
25.8
%
Guy Bernstein(4)
1,797,973
11.7
%
Harel Insurance Investments & Financial Services Ltd. (5)
1,300,305
8.5
%
Menora Mivtachim Holdings Ltd.(6)
1,104,524
7.2
%
Meitav Dash Investments Ltd. (7)
1,168,940
7.6
%
The Phoenix Holdings Ltd.(8)
909,582
5.9
%
Yelin Lapidot Holdings Management Ltd. (9)
858,747
5.6
%
All directors and executive officers as a group (8 persons)(10)
1,825,556
11.9
%
(1)
Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting or investment power with respect to securities. Ordinary shares underlying options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the ownership percentage of the person holding such options but are not deemed outstanding for computing the ownership percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
(2)
The percentages shown are based on 15,332,667 ordinary shares (including shares represented by ADSs, and shares subject to restrictions and repurchase by us) issued and outstanding as of April 30, 2023.
(3)
Based on Amendment No. 5 to Schedule 13D filed by Asseco Poland S.A., or Asseco, with the SEC on December 7, 2022 and written notification received from Asseco on March 31, 2023. Due to the public ownership of its shares, Asseco is not controlled by any other corporation or any one individual or group of shareholders.
(4)
Based on Amendment No. 4 to Schedule 13D filed by Mr. Bernstein with the SEC on December 7, 2022. Consists of (a) (i) 1,362,822 ordinary shares held in trust for Mr. Bernstein, and (b) an additional 435,151 ordinary shares held by Mr. Bernstein. Asseco no longer possesses any voting rights to any such shares held by Mr. Bernstein due to the recent termination of the voting agreement that had been in effect between Asseco and Mr. Bernstein.
(5)
Based on Amendment No. 5 to Schedule 13G/A filed
    by Harel Insurance Investments & Financial Services Ltd., or Harel Insurance, on January 17, 2023. Harel Insurance is a publicly held
    Israeli company. Out of the 1,300,305 ordinary shares beneficially owned by Harel Insurance as of December 31, 2022: (i)
1,159,013
are held for members of the public through, among others, provident funds and/or mutual funds and/or pension funds and/or insurance policies
    and/or exchange traded funds, which are managed by subsidiaries of Harel Insurance, each of which subsidiaries operates under independent
    management and makes independent voting and investment decisions; and (ii) 141,292 ordinary shares are beneficially held for Harel
    Insurance's own account.
(6)
Based on written notification received from Menora Mivtachim Holdings Ltd., or Menora Holdings, on April 3, 2023. As of March 31, 2023, the subject ordinary shares are beneficially owned by Menora Holdings or by entities that are direct or indirect, wholly-owned or majority-owned, subsidiaries of Menora Holdings. Out of the 1,104,524 ordinary shares beneficially owned by Menora Holdings as of March 31, 2023: (i) 1,079,528 ordinary shares are held for members of the public through, among others, provident funds and/or mutual funds and/or pension funds and/or insurance policies and/or exchange traded funds, which are managed by subsidiaries of Menora Holdings, each of which subsidiaries operates under independent management and makes independent voting and investment decisions and (ii) 24,996 ordinary shares are beneficially held for Menora Holdings' own account.
(7)
Based on Amendment No. 7 to Schedule 13G/A filed by Meitav Dash Investments Ltd., or Meitav Dash, with the SEC on January 11, 2023. The ordinary shares held by Meitav Dash as of December 31, 2021, are beneficially owned by various direct or indirect, majority or wholly-owned, subsidiaries of Meitav Dash. The Meitav Dash subsidiaries operate under independent management and make independent investment decisions and have no voting power in the securities held in their clients' accounts. The subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded notes or members of pension or provident funds, unit holders of mutual funds, and portfolio management clients. Each of the subsidiaries operates under independent management and makes its own independent voting and investment decisions. Out of the
1,168,940
ordinary shares beneficially owned by Meitav Dash: (i)
812,717
are held by Meitav Dash Provident Funds and Pension Ltd. (ii) 149,636 ordinary shares are beneficially held for Meitav Dash Portfolio Management Ltd.; and (iii) 206,587 ordinary shares are beneficially held for Meitav Tachlit Mutual Funds Ltd.
157
(8)
Based on Amendment No. 3 to Schedule 13G filed by The Phoenix Holdings Ltd., or Phoenix Holdings, on February 14, 2023. The ordinary shares held by Phoenix Holdings are beneficially owned by various direct or indirect, majority or wholly-owned, subsidiaries of Phoenix Holdings, or the Phoenix Subsidiaries. The Phoenix Subsidiaries manage their own funds and/or the funds of others, including for holders of exchange-traded notes or various insurance policies, members of pension or provident funds, unit holders of mutual funds, and portfolio management clients. Each of the Phoenix Subsidiaries operates under independent management and makes its own independent voting and investment decisions. As of December 31, 2022, the subject ordinary shares were held as follows: (i) Excellence trust funds: 299,063; The Phoenix Nostro accounts: 6; The Phoenix Pension and Provident Funds: 207;
partnership for Israeli shares
: 603,688; and partnership for investing in shares indexes: 6,618. (All ownership rights in these partnerships belong to companies that are part of the Phoenix Group. The percentage ownership rights held by such companies in the partnership changes frequently according to a mechanism provided in the partnership agreement.)
(9)
Based on Amendment No. 4 to Schedule 13G filed by Yelin Lapidot on February 9, 2023. Out of the 858,747 ordinary shares beneficially owned by Yelin Lapidot as of December 31, 2022: (i) 472,439 are beneficially owned by provident funds managed by Yelin Lapidot Provident Funds Management Ltd., or Yelin Provident; and (ii) 386,308are beneficially owned by mutual funds managed by Yelin Lapidot Mutual Funds Management Ltd., or Yelin Mutual. Each of Yelin Provident and Yelin Mutual is a wholly-owned subsidiary of Yelin Lapidot. Each of Messrs. Dov Yelin and Yair Lapidot owns 24.38% of the share capital and 25.004% of the voting rights of Yelin Lapidot, and is responsible for the day-to-day management of Yelin Lapidot Holdings. The ordinary shares beneficially owned are held for the benefit of the members of the provident funds and the mutual funds managed by Yelin Provident and Yelin Mutual, respectively. Each of Yelin Lapidot, Yelin Provident, Yelin Mutual and Messrs. Yelin and Lapidot disclaims beneficial ownership of the subject ordinary shares.
(10)
Includes the shares beneficially owned by Guy Bernstein described in note (4) above, as well as 17,583 vested restricted shares granted to Asaf Berenstin, the Company's Chief Financial Officer, on each of November 13, 2014, on August 17, 2017 and on March 14, 2022, under the Company's 2011 and 2021 Employee and Officer Share Incentive Plans. Besides Mr. Bernstein, Mr. Berenstin, and Ms. Maya Solomon-Ella, the Company's Chief Operations Officer (who was granted 10,000 restricted shares in November 2018, all of which are vested), none of our other directors or executive officers beneficially owns any ordinary shares (whether actual ordinary shares or shares issuable upon exercise of options).
Recent Significant Changes in Holdings
of Major Shareholders
On March 22, 2020, Asseco
acquired an additional 37,755 of our ordinary shares, representing 0.25% of our outstanding share capital as of March 31, 2020, in the
open market.
On June 11, 2020, Mr. Guy
Bernstein sold 154,000 of our ordinary shares, representing 1% of our outstanding share capital, to an Israeli financial institution,
in privately negotiated sale transaction. The selling price in that transaction was NIS 260.00 per share.
On November 29, 2021, Mr.
Guy Bernstein sold 20,000 of our ordinary shares, representing 0.13% of our outstanding share capital, in the open market. The sales price
in that transaction was NIS 368.56 per share.
On December 5, 2022, Asseco
and Mr. Guy Bernstein
terminated a voting agreement that had been in effect between them and which
had granted Asseco certain voting rights with respect to the 1,797,973 ordinary shares owned by Mr. Bernstein. That termination reduced
Asseco's beneficial ownership of our ordinary shares from 37.3% to 25.6%.
On March 30, 2023, Asseco
acquired an additional 42,553 of our ordinary shares, representing 0.28% of our outstanding share capital as of March 31, 2023, in the
open market.
As of April 30, 2023, we had
two shareholders of record, one of which was a United States record holder. The number of record holders is not representative of the
number of beneficial holders of our ordinary shares, as the shares of all shareholders (including shares represented by ADSs) are recorded
in the name of our Israeli share registrar, Israel Discount Bank Limited's registrar company. All of our ordinary shares (including
shares represented by ADSs) have equal voting rights. However, under applicable Israeli law, the shares that we have repurchased and currently
hold have no voting rights and, therefore, are excluded from the number of our outstanding shares.
As of April 30, 2023, 127,670
ADSs were issued and outstanding pursuant to a depositary agreement with The Bank of New York Mellon, representing approximately 1% of
our outstanding ordinary shares. As of that date, there were approximately 15 registered holders of our ADSs, of whom approximately 13
record holders were United States residents. Such number of record holders is not representative of the actual number of beneficial holders
of our ADSs in the United States.
We are unaware of any arrangements
which may at a subsequent date result in a change in control of Formula.
158
B.
Related Party Transactions
Indemnification of Office Holders
We have undertaken to indemnify
each of our office holders. Our office holders' indemnification letters provide, among other things, that we will indemnify each
of our office holders to the maximum extent permitted by our articles. Advance payments for coverage of legal expenses in criminal proceedings
will be required to be repaid by an office holder to the company if such office holder is found guilty of a crime which requires proof
of criminal intent, or if it is determined that the office holder is not lawfully entitled to such indemnification.
All of the indemnification
letters granted to our office holders are identical, including indemnification letters granted to office holders who are or may be considered
"controlling persons" under the Companies Law.
The indemnification is limited
to the expenses and matters detailed in the indemnification letters insofar as they result from an office holder's actions in connection
with, among other things, the following matters: the offering of securities by us to the public or to private investors; the offer by
us to purchase securities from the public, private investors or other holders, whether pursuant to a prospectus, agreement, notice, report,
tender or any other proceeding; our labor relations and/or employment matters and our trade relations; the development or testing of products
developed by us, or the distribution, sale, license or use of such products; and occurrences in connection with investments made by us.
Our undertaking for indemnification
is limited to up to 25% of our shareholders' equity as it appears in our latest financial statements known at the date of indemnification,
calculated with respect to each director and officer of Formula.
Our undertaking for indemnification
does not apply to a liability incurred as a result of any of the following:
(i)
a breach by an office holder
of his or her fiduciary duty, except, to the extent permitted by law, for a breach while acting in good faith and having reasonable cause
to assume that the action was in our best interest;
(ii)
a grossly negligent or intentional
violation of the office holder's duty of care;
(iii)
an intentional action in which
the office holder intended to reap a personal gain illegally;
(iv)
a fine, civil fine or financial
sanction levied against and/or imposed upon the office holder;
(v)
a proceeding instituted against
the office holder pursuant to the provisions of Chapter H'3, H'4 or I'1 under the Securities Law, except as otherwise
permitted in the undertaking; or
(vi)
a counterclaim brought by us
or in our name in connection with a claim against us filed by the office holder, other than by way of defense or by way of third party
notice in connection with a claim brought against the office holder by us, or in specific cases in which our board of directors has approved
the initiation or bringing of such suit by the office holder, which approval shall not be unreasonably withheld.
We are not required to indemnify
an office holder if the office holder, or anyone on his or her behalf, already received payment in respect of a liability subject to indemnification,
under an effective insurance coverage or an effective indemnification arrangement with a third party. However, if that payment made to
the office holder does not cover the entire liability subject to the indemnification, we will indemnify the office holder in respect of
the difference between the amount paid to the office holder and the liability subject to the indemnification.
Office Holders' Insurance
We have obtained an insurance
policy covering the Formula Group's D&O liability. Our subsidiaries participate in the premium payments of the insurance policy,
on a proportional basis. The current coverage of that policy is up to a maximum of $40.0 million both per incident and in the aggregate,
plus $10.0 million of Side A DIC coverage, for a total annual premium of $2,300,000 for the period starting on February 14, 2022 and ending
on February 13, 2023. On February 14, 2023, we have renewed our insurance policy covering the Formula Group's D&O liability
for another year for a total annual premium of $1,679,000 million to be allocated between our subsidiaries excluding Matrix.
Service Agreement with our Chief Executive
Officer
We are party to a written
service agreement with our Chief Executive Officer, Mr. Guy Bernstein, which was entered into in December 2008 and was amended in March
2011 and in March 2012. This agreement provides for early termination by either side upon 180 days advance written notice, during which
time the Chief Executive Officer will continue to receive service fees. This agreement furthermore contains customary provisions regarding
nondisclosure, confidentiality of information and assignment of inventions.
159
RSU Grant to Chief Executive Officer
On November 3, and 4, 2020,
our compensation committee and board of directors, respectively, acting in accordance with the Companies Law, re-approved an eight-year
equity-based award of compensation—in the form of 611,771 restricted share units, or RSUs— to our chief executive officer,
Mr. Guy Bernstein. The terms of the grant were described in Proposal 5 of the proxy statement for Formula's November 2, 2020 annual
general meeting of shareholders (referred to as the Proxy Statement and Annual Meeting, respectively), which was attached as Exhibit 99.1
to Formula's Report of Foreign Private Issuer on Form 6-K furnished to the SEC on September 17, 2020 and available at the following
link:
https://www.sec.gov/Archives/edgar/data/1045986/000121390020027121/ea127015ex99-1_formulasys.htm
The re-approved grant modifies
the composition of the RSUs being granted to our chief executive officer from what was proposed in Proposal 5 at the Annual Meeting, adjusting
the ratio between time-based-vesting and performance-based-vesting RSUs from 80%-20% to 66.67%-33.33%.
As we have previously reported
in our Form 6-K furnished to the SEC on November 2, 2020, the originally-proposed grant was not approved pursuant to Proposal 5 at the
Annual Meeting. In re-considering and re-approving the grant, our compensation committee and board of directors acknowledged that the
requisite majority of our shareholders for the approval of Proposal 5 had not been achieved at the Annual Meeting. The committee and board
nevertheless evaluated our Group's performance and achievements under the management of Mr. Bernstein, and in view of his expected
further contribution to the Group's success, determined that the proposed grant is strongly linked to the Group's performance
and the resulting increase in shareholders' value. Consequently, consistent with their authorities under the Companies Law, the
compensation committee and board of directors approved the modified (as described above) award of the RSUs.
In December 2020, a motion
to certify a derivative suit, referred to as the Motion, was filed against our Company by a shareholder, who is also referred to as the
Plaintiff, in the district court (economic division) of Tel Aviv-Jaffa, Israel, naming each of our then acting five directors, as well
as our chief executive officer and chief financial officer as defendants.
The suit challenged the
legality, under the Companies Law, of, among other things, compensation approved for the chief executive officer, including the re-approval
by our compensation committee and board of the subject eight-year RSU award to our chief executive officer.
On January 12, 2023, we held
a special general meeting of shareholders for our shareholders to re-approve the subject grant of RSUs (reflecting the adjusted 66.67%-33.33%
ratio of time-based-vesting to performance-based-vesting RSUs) to our chief executive officer. Although we believe that the legal challenge
to the original re-approval, in November 2020, by the compensation committee and the board of directors of this RSU grant were without
merit, we nevertheless brought the re-approval to our shareholders for the following primary reasons:
●
Changed circumstances
.
The voting agreement
between Asseco and our chief executive officer, which
covered
1,797,973
of our ordinary shares owned by the chief executive officer, and by virtue of which Asseco formerly possessed the right to vote those
shares– which stood at the heart of plaintiff's allegation in the motion– was
cancelled on December 5,
2022; and
●
Certainty
. We believed
that it was in the best interest of the Company and its shareholders to provide clarity and certainty regarding the CEO's compensation
and position in the Company by having his equity-based grant re-approved by the shareholders.
The January 12, 2023 special
general shareholders meeting did not re-approve the RSU grant. On January 15, and 16, 2023, our compensation committee and board of directors,
respectively, acting in accordance with the Companies Law, re-approved the RSUs grant once again.
Please see Item 8.A, "Legal
Proceedings" below for a description of the legal proceedings that have been brought in respect of the CEO's RSU grant.
Services Obtained from
Asseco
During 2022, Asseco provided
back-office services, professional services and fixed assets to Sapiens' wholly-owned subsidiary, Sapiens Poland, in an amount totaling
approximately $0.2 million.
160
Services Provided to
Asseco
During 2022, Sapiens Poland
performed services as a sub-contractor on behalf of Asseco for clients of Asseco in a total amount of approximately $2.9 million. For
historical reasons, Asseco issues invoices to those clients and then Sapiens in turn invoices Asseco on a back-to-back basis (with no
margin to Asseco).
Fees Paid for Board Services
in Affiliates
Sapiens paid us approximately
$28,593 U.S. dollar in respect of their share of the director's fees of Guy Bernstein, their Chairman, for the year ended December
31, 2022.
Matrix paid us approximately
$33,195 in respect of their share of the director's fees of Guy Bernstein, their Chairman, for the year ended December 31, 2022.
Mr. Bernstein serves as
the Chief Executive Officer of Formula.
Other Transactions
As of December 31, 2022,
we had trade payables balances due to, and trade receivables balances due from, our related parties in amounts of approximately $2.9 million
and $1.1 million, respectively.
From time to time, in our
ordinary course of business, we engage in non-material transactions with our subsidiaries and affiliates where the amount involved in,
and the nature of, the transactions are not material to any party to the transaction. We believe that these transactions are made on an
arms' length basis upon terms and conditions no less favorable to us, our subsidiaries and affiliates, as we could obtain from unaffiliated
third parties. If we engage with our subsidiaries and affiliates in transactions which are not in the ordinary course of business, we
receive the approvals required under the Companies Law. These approvals include audit committee approval, board approval and, in certain
circumstances, shareholder approval. See "Item 6.C. Board Practices."
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
Financial Statements
Our consolidated financial
statements and other financial information are incorporated herein by reference to "Item 18. Financial Statements" below.
Export Sales
In 2022, 39% of our revenues
originated from customers located outside of Israel. For information on our revenues breakdown by geographic market for the past three
years, see "Item 4.—Information on the Company— Business Overview— Geographical Distribution of Revenues."
161
Legal Proceedings
From time to time, we are
subject to legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business, including
claims with respect to intellectual property, contracts, employment and other matters. In Accordance with IFRS, we accrue a liability
when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment
is required in the determination of both the probability and as to whether a loss is reasonably estimable. These accruals are reviewed
at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information
and events pertaining to a particular matter. We intend to vigorously defend ourselves against the above claims, and we generally intend
to vigorously defend any other legal claims to which we are subject. While for most litigation, the outcome is difficult to determine,
to the extent that there is a reasonable possibility that the losses to which we may be subject could exceed the amounts (if any) that
it has already accrued, we attempt to estimate such additional loss, if reasonably possible, and disclose it (or, if it is an immaterial
amount, indicate accordingly). The aggregate provision that we have recorded for all other legal proceedings (other than the particular
material proceedings described below) is not material. Furthermore, in respect of our ordinary course legal, administrative and regulatory
proceedings (i.e., other than the particular material proceeding described below), we estimate, in accordance with the procedures described
above, that as of the current time there is no reasonable possibility that we will incur material losses exceeding the non-material amounts
already recognized.
Legal Proceedings Related to Formula's
CEO's RSU Grant
On November 23, 2020, Olir
Trade and Industries Ltd. ("Olir") filed a derivative action and a motion to certify a derivative action, with the District
Court (Economic Division) of Tel Aviv-Jaffa, Israel (Derivative Action No. 58348-11-20) (the "Claim" and the "Motion
to Certify", respectively) (as reported in our Report of Foreign Private Issuer on Form 6-K furnished to the SEC on December 9,
2020). In the framework of the Motion to Certify, Olir requested permission to file the Claim, on our behalf, against each of our five
directors, as well as our chief executive officer, Mr. Guy Bernstein, and chief financial officer, Mr. Asaf Berenstin, as defendants.
We and the named defendants are all listed as respondents to the Motion to Certify. The Claim challenges the legality, under the
Companies Law, of compensation awarded to the our chief executive officer and chief financial officer, including past engagements with
our chief executive officer and our compensation committee and board of directors recent re-approval (as reported in our Report of Foreign
Private Issuer on Form 6-K furnished to the Securities and Exchange Commission on November 4, 2020), of the eight-year equity-based award
of compensation—in the form of 611,771 restricted share units— to our chief executive officer. The Claim includes allegations
of breaches of fiduciary duties (duty of care and duty of loyalty) and the oppression of minority shareholders and unjust enrichment.
The Claim seeks an accounting from the defendants as to the alleged harm caused to Formula Systems, as well as compensation to Formula
Systems for such harm. The Claim also seeks a declaratory order preventing the board of directors from using voting powers allegedly granted
to it under agreements related to 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 in accordance with the Companies Law, for Formula's benefit, and based upon advice of legal counsel.
All respondents intend to vigorously defend against the Motion to Certify, and on May 13, 2021, all respondents filed their responses
to the Motion to Certify.
On May 19, 2021, we filed
a motion asking the court to order Olir to deposit a guarantee for our costs in the proceedings. On June 23, 2021, Olir filed its response
to the motion. The parties held mediation meetings. The mediation meetings took place on February 16, 2022, May 17, 2022 and May 24, 2022.
The mediation ended without the parties reaching an agreement. On June 16, 2022, following the oral argument at the pre-trial hearing,
the district court accepted our request and ordered Olir to deposit a guarantee for the Formula's costs. Olir deposited the guarantee
and paid Formula the costs as ordered. in the proceedings in the amount of NIS 0.2 million. On January 24, 2023, we submitted a request
for dismissal in limine of the motion to certify due to a change in the factual grounds of the motion including, among other things, the
reapproval of the compensation given to our chief executive officer by a new and independent board of directors made on January 15, 2023.
The court asked the other parties to respond to the request for dismissal by March 1,2023. A cross examinations hearing was held on January
31, 2023. On March 1, 2023, the other respondents to the motion to certify submitted their responses to the request for dismissal in which
they supported the request. On March 8, 2023, Olir filed its objection to the dismissal in limine. On April 13, we submitted our response
to Olir's response. Olir should file its briefs by the beginning of July 2023. The respondents should file their briefs 60 days thereafter
and Olir has a right to respond 30 days thereafter. At this stage of the proceedings, we believe that the chances for the approval of
the motion to certify are low.
162
Legal Proceedings related to Zap Group:
On December 24, 2019, a motion
for the approval of a class action (#60508-02-20), in an amount of NIS 793.8 million (approximately $225.6 million), was filed against
Zap Group with the Israeli district court (central district), claiming that Zap Group had allegedly generated income illegally from paying
customers through the 'ZAP's price comparison' website. At the pre-trial hearing, it was decided that the plaintiffs
would 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
prohibited clicks on their competitor's websites through Zap Group's website. In addition, the plaintiffs were requested to
update whether they were willing to reduce the amount of the claim. On July 15, 2021, the plaintiffs filed a motion to reduce the amount
of the claim to NIS 63 million (approximately $17.9 million). On December 15, 2021, a pre-trial hearing took place, in which the court
clarified that it does not intend to interfere with Zap Group's business considerations regarding the click filtering mechanisms
that it operates. The court recommended that the plaintiffs reach an agreed solution with Zap Group on the issue of the necessary disclosure
that Zap Group should include in its contracts with customers (as available on its website). The parties were requested to file a joint
notice in accordance with the court's recommendation by January 15, 2022. The plaintiffs submitted a request for an extension to
file the notice. On April 5, 2022, the plaintiffs filed a notice with the court stating that they had not reached agreements with Zap
Group and therefore seek to set the case for evidentiary hearing. On December 12, 2022 the parties filed a joint notice with the court
stating their agreement to initiate a mediation process. A mediation meeting took place on February 6, 2023. The mediation ended without
the parties reaching an agreement. A date for a hearing has not yet been set. As this claim was filed against Zap Group prior to its acquisition
by Formula, any potential liability of Zap Group resulting from the proceedings is covered by the indemnification obligations of the former
shareholders of Zap Group to Formula.
On December 30, 2021, Ronen
Har Even, Galit Har Even and TV Center Ltd. (the "Plaintiffs") submitted a monetary claim in the sum of NIS 24.5 million (approximately
$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
Zap Group constitutes a monopoly in the provision of price comparison services in the online arena in Israel, and excluded the Plaintiffs'
business from the E-commerce arena in Israel. According to the Plaintiffs, Zap Group prevented price comparisons between the prices of
the Plaintiffs' televisions and the prices of the televisions of the official importers, by causing systemic manipulations aimed
at excluding the television models sold by the Plaintiffs and blurring the fact that they are cheaper in the search results. As mentioned
in the Statement of Claim, concurrent with submission of the Claim, on April 19, 2021, the Plaintiffs submitted a complaint against Zap
Group to the Israel Competition Authority, and on August 18, 2021 and October 21, 2021, submitted supplements to the aforesaid complaint.
On June 1, 2022, Zap Group submitted a statement of defense, denying the Plaintiffs' allegations and in particular the Plaintiffs'
argument that Zap Group has a monopoly in the provision of price comparison services in the online arena in Israel. On July 19, 2022,
a pre-trial hearing took place, at the end of which it was held that the Parties must conclude the discovery proceedings by September
10, 2022, and that should any of the Parties wish to submit a motion following receipt of the answers, they must do so by November 15,
2022. On November 15, 2022 the Plaintiffs submitted a motion for the grant of an order of discovery of documents and answer to interrogatories.
On December 20, 2022, Zap Group submitted its response to the motion, in which it rejected all of the Plaintiffs' demands. The Plaintiffs
provided Zap Group with the documents that had been disclosed by them in the case, without a suitable legend. On January 13, 2023, the
Plaintiffs submitted a response to the motion. On January 16, 2023, a pre-trial hearing took place, in which Zap Group insisted on the
receipt of a suitable legend for the documents that had been disclosed to it by the Plaintiffs. The Court held that the Plaintiffs would
deliver a suitable legend within 45 days, after which Zap Group would be entitled to submit a suitable motion in this regard within 30
days, should the need to do so arise. On March 5, 2023, the Plaintiffs submitted a new document file in the context of the discovery proceedings,
and an updated legend that was almost identical to the previous one. For that reason, on April 3, 2023, Zap Group submitted a motion to
strike out the Statement of Claim due to breach of the Court's decision to provide the discovery materials in a proper manner or,
alternatively, for the for the lack of performing the court's decision. The Plaintiffs are required to respond to the motion by May 21,
2023. An additional pre-trial proceeding has been scheduled for October 2023. As this claim was filed against Zap Group with respect to
the period prior to its acquisition by Formula, any liability resulting from it is covered by the indemnification provided to Formula
by the former shareholders of Zap Group.
Dividend Policy
Under Israeli law, dividends
may 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
recent financial statements or as accrued over a period of two years, whichever amount is greater, and provided that there is no reasonable
concern that payment of a dividend will prevent the company from satisfying its existing and foreseeable obligations as they become due.
See "Item 10. Additional Information—Memorandum and Articles of Association—Dividend and Liquidation Rights" below
(the content of which is incorporated by reference to Exhibit 2.2 to this annual report) for more information.
163
Formula
Under
Formula Systems' dividend policy adopted by our board of directors, sums that are not planned to be used for investments in the
near future may be distributed to its shareholders as a cash dividend, to the extent that our performance allows such distribution. In
the three most recent fiscal years (and in 2022 up to the date of this annual report), Formula has made the following distributions:
In
November 2022, Formula declared a cash dividend to its shareholders of NIS 2.16 per share (approximately $0.62 per share), which was
paid on December 20, 2022. The aggregate amount of the dividend was approximately NIS 33.1 million (approximately $9.6 million).
In
March 2022, Formula declared a cash dividend to its shareholders of NIS 2.56 per share (approximately $0.78 per share), which was paid
in April 2022. The aggregate amount distributed by Formula was approximately NIS 39.2 million (approximately $12.0 million).
In
August 2021, Formula declared a cash dividend to its shareholders of NIS 2.53 per share (approximately $0.78 per share), which was paid
in September 2021. The aggregate amount distributed by Formula was approximately NIS 38.7 million (approximately $11.9 million).
In
February 2021, Formula declared a cash dividend to its shareholders of NIS 2.16 per share (approximately $0.66 per share), which was
paid in March 2021. The aggregate amount distributed by Formula was approximately NIS 33.0 million (approximately $10.2 million).
Magic
Software
In August 2017, Magic Software's
board of directors amended its dividend distribution policy, whereas, each year Magic Software will distribute a dividend of up to 75%
of its annual net income attributable to its shareholders (previously 50%), subject to applicable law. Magic Software's board of
directors may at its discretion and at any time, change, whether as a result of a one-time decision or a change in policy, the rate of
dividend distributions or decide not to distribute a dividend. The dividend is to be distributed on a semi-annual basis.
In
March 2023, Magic Software declared a cash dividend to its shareholders of $0.3 per share (or approximately $14.7 million, in the aggregate),
which was paid during April 2023, of which $7.9 million was paid to non-controlling interests.
In
August 2022, Magic Software declared a cash dividend to its shareholders of $0.29 per share (or approximately $14.2 million, in the aggregate),
which was paid during September 2022, of which $7.7 million was paid to non-controlling interests.
In
March 2022, Magic Software declared a cash dividend to its shareholders of $0.216 per share (or approximately $10.6 million, in the aggregate),
which was paid during April 2022, of which $5.8 million was paid to non-controlling interests.
In
August 2021, Magic Software declared a cash dividend to its shareholders of $0.234 per share (or approximately $11.5 million, in the
aggregate), which was paid during September 2021, of which $6.3 million was paid to non-controlling interests.
In
March 2021, Magic Software declared a cash dividend to its shareholders of $0.21 per share (or approximately $10.3 million, in the aggregate),
which was paid during April 2021, of which $5.6 million was paid to non-controlling interests.
164
Matrix
In
August 2010, Matrix's board of directors decided to change Matrix's dividend distribution policy, whereby in every year,
Matrix will distribute a dividend at a rate of 75% (instead of 50% before) of its annual net income. The dividend is to be distributed
on a quarterly basis.
In
May 2023, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 45.1 million (approximately $12.4 million),
of which $6.4 million is due to non-controlling interests in June 2023.
In
March 2023, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 37.5 million (approximately $10.2 million),
of which $5.3 million was paid to non-controlling interests in April 2022.
In
November 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 34.6 million (approximately $10.2 million),
of which $5.3 million was paid to non-controlling interests in December 2022.
In
August 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 164.2 million (approximately $50.4 million),
of which $25.6 million was paid to non-controlling interests in August 2022.
In
May 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 44.7 million (approximately $12.9 million),
of which $6.6 million was paid to non-controlling interests in June 2022.
In
March 2022, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 40.9 million (approximately $12.7 million),
of which $6.5 million was paid to non-controlling interests in April 2022.
In
November 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 32.5 million (approximately $10.2 million),
of which $5.2 million was paid to non-controlling interests in November.
In
August 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 37.6 million (approximately $11.7 million),
of which $6.0 million was paid to non-controlling interests in September 2021.
In
May 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 36.3 million (approximately $11.1 million),
of which $5.7 million was paid to non-controlling interests in June 2021.
In
March 2021, Matrix declared a cash dividend to its shareholders in an aggregate amount of NIS 40.0 million (approximately $12.0 million),
of which $6.1 million was paid to non-controlling interests.
Sapiens
In
August 2019, Sapiens' board of directors adopted a dividend policy, and in May 2022, it updated that policy. Under that updated
policy, on a semi-annual basis, after publishing (i) its annual audited consolidated financial statements in its annual report on Form
20-F, and (ii) its financial statements for the quarter and six months ended June 30, Sapiens' board of directors will announce, and distribute, a semi-annual cash dividend in an aggregate amount (between both dividends in total) of up to 40% of its annual net
profit (on a non-GAAP basis). Sapiens' board of directors may change, whether as a result of a one-time decision or a change in
policy, the rate or frequency of dividend distributions and/or decide not to distribute a dividend. The distribution of dividends will
be made in compliance with Cayman Islands law, Sapiens' articles of association, as well as its contractual obligations. Since
the adoption of this dividend policy, Sapiens has declared cash dividends, initially on an annual basis and subsequently on a semi-annual
basis, most recently in amounts of $0.37 per share, $0.47 per share, $0.23 per share and $0.25 per share, or $20.2 million, $25.9 million,
$12.7 million and $13.8 million, in the aggregate, which were paid in May 2021, May 2022, August 2022 and April 2023, of which $11.4
million, $14.5 million, $7.1 million and $7.7 million were paid to non-controlling interests, respectively.
165
B.
Significant
    Changes
Since
the date of our consolidated financial statements included in this annual report, there has not been a significant change in our company.
ITEM
9. THE OFFER AND LISTING
A.
Offer
    and Listing Details
Our
ordinary shares have been trading on the TASE under the symbol "FORTY" since our initial public offering in 1991.
Our
ADSs are listed on the Nasdaq Global Select Market since October 1997 under the symbol "FORTY." Each ADS represents one ordinary
share.
For
a description of the ADSs, see "Item 12. Description of Securities Other Than Equity Securities— D. American Depositary Shares."
B.
Plan
    of Distribution
Not
applicable.
C.
Markets
Since
our initial public offering in 1991, our ordinary shares have been traded in Israel on the TASE under the symbol "FORT."
No U.S. trading market exists for the ordinary shares. Since October 1997, our ADSs have been traded on the Nasdaq Global Select Market,
under the symbol "FORTY." Each ADS represents one ordinary share and is evidenced by an American depositary receipt, or ADR.
The ADRs were issued pursuant to a Depositary Agreement entered into with the Bank of New York Mellon.
D.
Selling
    Shareholders
Not
applicable.
E.
Dilution
Not
applicable.
F.
Expenses
    of the Issue
Not
applicable.
ITEM
10. ADDITIONAL INFORMATION
A.
Share
    Capital
Not
applicable.
B.
Memorandum
    and Articles of Association
The
information called for by this Item 10.B of Form 20-F has been provided in Exhibit 2.2 to this annual report. The content of Exhibit
2.2 is incorporated by reference herein.
166
C.
Material
    Contracts
Please
see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Company Commitments"
for a description of the terms of the trust agreements to which we are party in connection with our Series A Secured Debentures and Series
C Secured Debentures, and Sapiens' Series B Debentures. Please see "Item 6. Directors, Senior Management and Employees—B.
Compensation—Option Grants to, and Service Agreement with, Chief Executive Officer" for a description of our service agreement
with our Chief Executive Officer, Mr. Guy Bernstein. Beyond those agreements, Formula is not party to, and has not been party to in the
last two years, any material contract entered into outside of its ordinary course of business. In addition, while our subsidiaries are
party and have been party in the last two years to numerous contracts with customers, resellers and distributors, such contracts are
entered into in the ordinary course of business. Furthermore, we do not deem any other individual contract entered into by any of our
subsidiaries outside of the ordinary course of business (such as investment or acquisition agreements) during the last two years to be
material to us on a consolidated basis.
D.
Exchange
    Controls
Under
current Israeli regulations, we may pay dividends or other distributions in respect of our ordinary shares either in Israeli or non-Israeli
currencies. If we make these payments in Israeli currency, they will be freely converted, transferred and paid in non-Israeli currencies
at the rate of exchange prevailing at the time of conversion. We expect, therefore, that dividends, if any, that we pay to holders of
ADSs, will be paid in dollars, net of conversion expenses, expenses of the depositary for our ADSs, the Bank of New York Mellon, and
Israeli income taxes (if applicable). Because exchange rates between the NIS and the dollar fluctuate continuously, a U.S. shareholder
will be subject to the risk of currency fluctuations between the date when we declare NIS-denominated dividends and the date when we
pay them in NIS. See "Item 3. Key Information—Risk Factors."
Non-residents
of Israel may freely hold and trade our ADSs or ordinary shares pursuant to the general permit issued under the Israeli Currency Control
Law, 1978. Neither our articles nor the laws of the State of Israel restrict in any way the ownership of our ordinary shares by non-residents,
except that these restrictions may exist with respect to citizens of countries that are in a state of war with Israel.
E.
Taxation
The
following is a short summary of the material provisions of the tax environment to which shareholders may be subject. This summary is
based on the current provisions of tax law. To the extent that the discussion is based on new tax legislation that has not been subject
to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the
appropriate tax authorities or the courts.
The
summary does not address all of the tax consequences that may be relevant to all holders of our ordinary shares and ADSs in light of
each holder's particular circumstances and specific tax treatment. For example, the summary below does not address the tax treatment
of residents of Israel and traders in securities who are subject to specific tax regimes. As individual circumstances may differ, holders
of our ordinary shares and ADSs should consult their own tax adviser as to the United States, Israeli or other tax consequences of the
purchase, ownership and disposition of ordinary shares and ADSs. The following is not intended, and should not be construed, as legal
or professional tax advice and is not exhaustive of all possible tax considerations. Each individual should consult his or her own tax
or legal adviser.
Israeli
Taxation Considerations for Our Shareholders
Tax
Consequences Regarding Disposition of Our ADSs or Ordinary Shares
Israeli
law generally imposes a capital gain tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes,
and on the sale of assets located in Israel, including shares of Israeli companies, by both residents and non-residents of Israel, unless
a specific exemption is available or unless a tax treaty between Israel and the shareholder's country of residence provides otherwise.
The Tax Ordinance distinguishes between "Real Capital Gain" and "Inflationary Surplus". The Inflationary Surplus
is a portion of the total capital gain which is equivalent to the increase of the relevant asset's purchase price which is attributable
to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date
of purchase and the date of sale. The Real Capital Gain is the excess of the total capital gain over the Inflationary Surplus.
167
Capital
gain
Israeli
Resident Individuals
As
of January 1, 2012, the tax rate applicable to Real Capital Gain derived by Israeli individuals from the sale of shares, whether or not
listed on a stock exchange, is 25%, unless such shareholder claims a deduction for interest and linkage differences expenses in connection
with the purchase and holding of such shares, in which case the gain will generally be taxed at a rate of 30%. However, if such shareholder
is considered a Substantial Shareholder (i.e., a person who holds, directly or indirectly, alone or together with another person who
collaborates with such person on a permanent basis, 10% or more of any of the company's "means of control" (including,
among other things, the right to receive profits of the company, voting rights, the right to receive the company's liquidation
proceeds and the right to appoint a director)) at the time of sale or at any time during the preceding 12-month period, such gain will
be taxed at the rate of 30%. Individual shareholders dealing in securities in Israel are taxed at their marginal tax rates applicable
to business income (up to 47% in 2018 and thereafter, excluding excess tax, if applicable, as described below).
Israeli
Resident Corporations
Under
current Israeli tax legislation, the tax rate applicable to Real Capital Gain derived by Israeli resident corporations from the sale
of shares of an Israeli company is the general corporate tax rate. As described above, the corporate tax rate since 2018 has been 23%.
Non-Israeli
Resident Shareholders
Israeli
capital gain tax is imposed on the disposal of capital assets by a non-Israeli resident if such assets are either (i) located in Israel;
(ii) shares or rights to shares in an Israeli resident company; or (iii) represent, directly or indirectly, rights to assets located
in Israel, unless a tax treaty between Israel and the seller's country of residence provides otherwise. As mentioned above, Real
Capital Gain is generally subject to tax at the corporate tax rate (23% in 2018 and thereafter) if generated by a company, or at the
rate of 25% if generated by an individual, or 30%, if generated by an individual who is a "substantial shareholder" (as defined
under the Tax Ordinance) , at the time of sale or at any time during the preceding 12-month period (or if the shareholder claims a deduction
for interest and linkage differences expenses in connection with the purchase and holding of such shares) . A "substantial shareholder"
is generally a person who alone or together with such person's relative or another person who collaborates with such person on a permanent
basis, holds, directly or indirectly, at least 10% of any of the "means of control" of the corporation. "Means of control"
generally include, among others, the right to vote, receive profits, nominate a director or an executive officer, receive assets upon
liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Individual and
corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate
for a corporation and a marginal tax rate of up to 47% for an individual in 2018 and thereafter (excluding excess tax as discussed below))
unless contrary provisions in a relevant tax treaty apply.
Notwithstanding
the foregoing, shareholders who are non-Israeli residents (individuals and corporations) generally should be exempt from Israeli capital
gain tax on any gains derived from the sale, exchange or disposition of shares publicly traded on the Tel Aviv Stock Exchange or on a
recognized stock exchange outside of Israel, provided, among other things, that (i) such gains are not generated through a permanent
establishment that the non-Israeli resident maintains in Israel, (ii) the shares were purchased after being listed on a recognized stock
exchange. However, non-Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (a) have a controlling
interest of more than 25% in such non-Israeli corporation, or (b) are the beneficiaries of or are entitled to 25% or more of the revenues
or profits of such non-Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person whose gains
from selling or otherwise disposing of the shares are deemed to be business income.
168
In
addition, a sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example,
under the U.S.-Israel Tax Treaty, or the U.S-Israel Treaty, the sale, exchange or disposition of shares of an Israeli company by a shareholder
who is a U.S. resident (for purposes of the U.S.-Israel Treaty) holding the shares as a capital asset is exempt from Israeli capital
gain tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting rights during
any part of the 12-month period preceding such sale, exchange or disposition; (ii) the shareholder, if an individual, has been present
in Israel for a period or periods of 183 days or more in the aggregate during the applicable taxable year; (iii) the capital gain arising
from such sale are attributable to a permanent establishment of the shareholder which is maintained in Israel; (iv) the capital gain
arising from such sale, exchange or disposition is attributed to real estate located in Israel; (v) the capital gain arising from such
sale, exchange or disposition is attributed to royalties; or (vi) the shareholder is a U.S. resident (for purposes of the U.S.-Israel
Treaty) and is not holding the shares as a capital asset. In each case, the sale, exchange or disposition of such shares would be subject
to Israeli tax, to the extent applicable; however, under the U.S.-Israel Treaty, a U.S. resident would be permitted to claim a credit
for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations
in U.S. laws applicable to foreign tax credits. The U.S-Israel Treaty does not provide such credit against any U.S. state or local taxes.
In
some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares and ADSs, the payment of the
consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt
from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving
a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the ITA may require from shareholders
who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the
ITA to confirm their status as non-Israeli resident, and, in the absence of such declarations or exemptions, may require the purchaser
of the shares to withhold taxes at source.
Taxes
Applicable to Dividends
Israeli
Resident Shareholders
Israeli
Resident Individuals
. Israeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our
ordinary shares (other than bonus shares or share dividends) at 25%, or 30% if the recipient of such dividend is a Substantial Shareholder
(as detailed above) at the time of distribution or at any time during the preceding 12-month period. Sapiens received a Tax Ruling, which
was extended, under which dividends paid by Sapiens to Israeli shareholders who are individuals will be subject to withholding tax at
source at the rate of 25% and in case of Israeli resident corporations— 0%, regardless the source of the dividends. We cannot guarantee
that the Tax Ruling will be extended beyond December 31, 2024.
Israeli
Resident Corporations
. Israeli resident corporations are generally exempt from Israeli corporate tax for dividends paid on shares
of Israeli resident corporations (like our ordinary shares and ADSs).
Non-Israeli
Resident Shareholders
Non-Israeli
residents (whether individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary
shares or ADSs, at the rate of 25% or 30% (if the dividend recipient is a Substantial Shareholder at the time of distribution or at any
time during the preceding 12-month period).
Sapiens
received a Tax Ruling according to which dividends paid by Sapiens to non-Israeli (individuals and corporations) will be subject to withholding
tax at source at a rate of 25%. We cannot guarantee that the Tax Ruling will be extended beyond December 31, 2024.
A
non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in
Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer,
(ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and (iii)
the taxpayer is not obliged to pay excess tax (as further explained below).
169
Excess
Tax
Individuals
who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an
additional tax at a rate of 3% on annual income exceeding NIS 663,240 for 2022 (approximately $0.2 million), which amount is linked to
the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain.
Estate
and gift tax
Israeli
law presently does not impose estate or gift taxes.
United
States Federal Income Tax Considerations
Subject
to the limitations described herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership
and disposition of our ordinary shares or ADSs to a U.S. holder. A U.S. holder is a holder of our ordinary shares or ADSs who is:
●
An individual
    who is a citizen or resident of the U.S. for U.S. federal income tax purposes
●
A corporation (or another
    entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any
    political subdivision thereof, or the District of Columbia
●
An estate, the income of
    which may be included in gross income for U.S. federal income tax purposes regardless of its source
●
A trust (i) if, in general,
    a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control
    all of its substantial decisions or (ii) an electing trust that was in existence on August 19, 1996 and was treated as a domestic
    trust on that date
Unless
otherwise specifically indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (which
we refer to as a non-U.S. holder) and considers only U.S. holders that will own our ordinary shares or ADSs as capital assets (generally,
for investment).
This
discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, or the Code, current and proposed Treasury
Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect and all
of which are subject to change, possibly with a retroactive effect. This discussion does not address all aspects of U.S. federal income
taxation that may be relevant to any particular U.S. holder based on the U.S. holder's particular circumstances. In particular,
this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers, insurance companies,
real estate investment trusts, regulated investment companies, grantor trusts, individual retirement and tax-deferred accounts, certain
former citizens or long-term residents of the U.S., tax-exempt organizations, financial institutions, "financial service entities"
or who own, directly, indirectly or constructively, 10% or more of the vote or value of the our outstanding shares, U.S. holders holding
our ordinary shares or ADSs as part of a hedging, straddle or conversion transaction, U.S. holders whose functional currency is not the
U.S. dollar, U.S. holders that acquired our ordinary shares or ADSs upon the exercise of employee stock options or otherwise as compensation,
and U.S holders who are persons subject to the alternative minimum tax, who may be subject to special rules not discussed below.
170
Additionally,
the tax treatment of persons who are, or hold our ordinary shares or ADSs through a partnership or other pass-through entity is not considered,
nor is the possible application of U.S. federal estate or gift taxes or any aspect of state, local or non-U.S. tax laws.
Furthermore,
unless otherwise indicated, this discussion assumes that our company is not, and will not become, a "passive foreign investment
company," or a PFIC, for U.S. federal income tax purposes. See "—Passive Foreign Investment Companies" below.
Prospective
investors should be aware that this discussion does not address the tax consequences to investors who are not U.S. holders. Prospective
investors should consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase,
ownership and disposition of ordinary shares or ADSs, including the applicability of U.S. federal, state and local tax laws and non-U.S.
tax laws
.
Taxation
of Distributions on our Ordinary Shares or ADSs
Subject
to the discussion below under "Tax Consequences if We Are a Passive Foreign Investment Company," a distribution paid by us
with respect to our ordinary shares or ADSs to a U.S. holder will be treated as dividend income to the extent that the distribution does
not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes.
Dividends
that are received by U.S. holders that are individuals, estates or trusts generally will be taxed at the rate applicable to long-term
capital gains, provided those dividends meet the requirements of "qualified dividend income." The maximum long-term capital
gains rate is 20% for individuals with annual taxable income that exceeds certain thresholds. In addition, under the Patient Protection
and Affordable Care Act, higher income taxpayers must pay an additional 3.8 percent tax on net investment income to the extent certain
threshold amounts of income are exceeded. See "Tax on Net Investment Income" in this Item below. For this purpose, qualified
dividend income generally includes dividends paid by a foreign corporation if certain holding period and other requirements are met and
either (a) the stock of the foreign corporation with respect to which the dividends are paid is "readily tradable" on an
established securities market in the U.S. (e.g., the Nasdaq Global Select Market) or (b) the foreign corporation is eligible for benefits
of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory
by the U.S. Secretary of the Treasury. Dividends that fail to meet such requirements and dividends received by corporate U.S. holders
are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend (i) if the U.S. holder held the
ordinary share or ADS with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date
that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section
246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made (and not closed)
a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk
of loss by holding other positions with respect to, such ordinary share or ADS (or substantially identical securities); or (ii) to the
extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions
in property substantially similar or related to the ordinary share and ADS with respect to which the dividend is paid. If we were to
be a "passive foreign investment company" (as such term is defined in the Code), or PFIC, for any taxable year, dividends
paid on our ordinary shares or ADSs in such year or in the following taxable year would not be qualified dividends. See the discussion
below regarding our PFIC status under "Tax Consequences if We Are a Passive Foreign Investment Company." In addition, a non-corporate
U.S. holder will be able to take qualified dividend income into account in determining its deductible investment interest (which is generally
limited to its net investment income) only if it elects to do so; in such case the dividend income will be taxed at ordinary income rates.
171
The
amount of any distribution which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing
the U.S. holder's tax basis in our ordinary shares or ADSs to the extent thereof, and then as capital gain from the deemed disposition
of the ordinary shares or ADSs. Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares
and ADSs.
Distributions
of current or accumulated earnings and profits paid in foreign currency to a U.S. holder will be includible in the income of a U.S. holder
in a U.S. dollar amount calculated by reference to the exchange rate on the day the distribution is received. A U.S. holder that receives
a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt may have foreign exchange gain
or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally
be U.S. source ordinary income or loss.
Taxation
of the Disposition of the Ordinary Shares or ADSs
Subject
to the discussion below under "Tax Consequences if We Are a Passive Foreign Investment Company," upon the sale, exchange
or other disposition of our ordinary shares or ADSs, a U.S. holder will recognize capital gain or loss in an amount equal to the difference
between the amount realized on the disposition and the U.S. holder's tax basis in our ordinary shares or ADSs. The gain or loss
recognized on the disposition of the ordinary shares or ADSs will be long-term capital gain or loss if the U.S. holder held the ordinary
shares or ADSs for more than one year at the time of the disposition and would be eligible for a reduced rate of taxation for certain
non-corporate U.S. holders. The maximum long-term capital gains rate is 20% for individuals with annual taxable income that exceeds certain
thresholds. In addition, under the Patient Protection and Affordable Care Act, higher income taxpayers must pay an additional 3.8 percent
tax on net investment income to the extent certain threshold amounts of income are exceeded. See "Tax on Net Investment Income"
in this Item below. Capital gain from the sale, exchange or other disposition of ordinary shares or ADSs held for one year or less is
short-term capital gain and taxed as ordinary income. Gain or loss recognized by a U.S. holder, who does not have a tax home outside
the United States, on a sale, exchange or other disposition of our ordinary shares or ADSs generally will be treated as U.S. source income
or loss. The deductibility of capital losses is subject to certain limitations.
A
U.S. holder that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that
the sale settles. However, a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds
of the sale as of the trade date and may therefore realize foreign currency gain or loss. A U.S. holder that uses the accrual method
may avoid realizing foreign currency gain or loss by electing to use the settlement date to determine the proceeds of sale for purposes
of calculating the foreign currency gain or loss. In addition, a U.S. holder that receives foreign currency upon disposition of its ordinary
shares or ADSs and converts the foreign currency into dollars after the settlement date or trade date (whichever date the U.S. holder
is required to use to calculate the value of the proceeds of sale) may have foreign exchange gain or loss based on any appreciation or
depreciation in the value of the foreign currency against the dollar, which will generally be U.S. source ordinary income or loss.
Tax
Consequences if We Are a Passive Foreign Investment Company
We
would be a passive foreign investment company, or PFIC, for a taxable year if either (1) 75% or more of our gross income in the taxable
year is passive income; or (2) the average percentage (by value determined on a quarterly basis) in a taxable year of our assets that
produce, or are held for the production of, passive income is at least 50%. Passive income for this purpose generally includes, among
other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale
or exchange of property that gives rise to passive income. If we own (directly or indirectly) at least 25% by value of the stock of another
corporation, we would be treated for purposes of the foregoing tests as owning our proportionate share of the other corporation's
assets and as directly earning our proportionate share of the other corporation's income. As discussed below, we believe that we
were not a PFIC for 2022.
172
If
we were a PFIC, each U.S. holder would (unless it made one of the elections discussed below on a timely basis) be taxable on gain recognized
from the disposition of our ordinary shares or ADSs (including gain deemed recognized if our ordinary shares or ADSs are used as security
for a loan) and upon receipt of certain excess distributions (generally, distributions that exceed 125% of the average amount of distributions
in respect to such shares received during the preceding three taxable years or, if shorter, during the U.S. holder's holding period
prior to the distribution year) with respect to our ordinary shares or ADSs as if such income had been recognized ratably over the U.S.
holder's holding period for the shares. The U.S. holder's income for the current taxable year would include (as ordinary
income) amounts allocated to the current taxable year and to any taxable year prior to the first day of the first taxable year for which
we were a PFIC. Tax would also be computed at the highest ordinary income tax rate in effect for each other taxable year to which income
is allocated, and an interest charge on the tax as so computed would also apply. The tax liability with respect to the amount allocated
to the taxable year prior to the taxable year of the distribution or disposition cannot be offset by any net operating losses. Additionally,
if we were a PFIC, U.S. holders who acquire our ordinary shares or ADSs from decedents (other than nonresident aliens) would be denied
the normally-available step-up in basis for such shares to fair market value at the date of death and, instead, would have a tax basis
in such shares equal to the lesser of the decedent's basis or the fair market value of such shares on the decedent's date
of death.
As
an alternative to the tax treatment described above, a U.S. holder could elect to treat us as a "qualified electing fund"
(a QEF), in which case the U.S. holder would be taxed, for each taxable year that we are a PFIC, on its pro rata share of our ordinary
earnings and net capital gain (subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge).
Special rules apply if a U.S. holder makes a QEF election after the first taxable year in its holding period in which we are a PFIC.
We have agreed to supply U.S. holders with the information needed to report income and gain under a QEF election if we were a PFIC. Amounts
includable in income as a result of a QEF election will be determined without regard to our prior year losses or the amount of cash distributions,
if any, received from us. A U.S. holder's basis in its ordinary shares or ADSs will increase by any amount included in income and
decrease by any amounts not included in income when distributed because such amounts were previously taxed under the QEF rules. So long
as a U.S. holder's QEF election is in effect with respect to the entire holding period for its ordinary shares or ADSs, any gain
or loss realized by such holder on the disposition of its ordinary shares or ADSs held as a capital asset generally will be capital gain
or loss. Such capital gain or loss ordinarily would be long-term if such U.S. holder had held such ordinary shares or ADSs for more than
one year at the time of the disposition and would be eligible for a reduced rate of taxation for certain non-corporate U.S. holders.
The maximum long-term capital gains rate is 20% for individuals with annual taxable income that exceeds certain thresholds. The QEF election
is made on a shareholder-by-shareholder basis, applies to all ordinary shares or ADSs held or subsequently acquired by an electing U.S.
holder and can be revoked only with the consent of the IRS. The QEF election must be made on or before the U.S. holder's tax return
due date, as extended, for the first taxable year to which the election will apply.
As
an alternative to making a QEF election, a U.S. holder of PFIC stock that is "marketable stock" (e.g., "regularly traded"
on the Nasdaq Global Select Market) may, in certain circumstances, avoid certain of the tax consequences generally applicable to holders
of stock in a PFIC by electing to mark the stock to market as of the beginning of such U.S. holder's holding period for our ordinary
shares or ADSs. Special rules apply if a U.S. holder makes a mark-to-market election after the first year in its holding period in which
we are a PFIC. As a result of such an election, in any taxable year that we are a PFIC, a U.S. holder would generally be required to
report gain or loss to the extent of the difference between the fair market value of the ordinary shares or ADSs at the end of the taxable
year and such U.S. holder's tax basis in such shares at that time. Any gain under this computation, and any gain on an actual disposition
of our ordinary shares or ADSs in a taxable year in which we are PFIC, would be treated as ordinary income. Any loss under this computation,
and any loss on an actual disposition of our ordinary shares or ADSs in a taxable year in which we are PFIC, would be treated as ordinary
loss to the extent of the cumulative net-mark-to-market gain previously included. Any remaining loss from marking our ordinary shares
or ADSs to market will not be allowed, and any remaining loss from an actual disposition of our ordinary shares or ADSs generally would
be capital loss. A U.S. holder's tax basis in its ordinary shares or ADSs is adjusted annually for any gain or loss recognized
under the mark-to-market election. There can be no assurances that there will be sufficient trading volume with respect to our ordinary
shares or ADSs for the ordinary shares or ADSs to be considered "regularly traded" or that our ordinary shares or ADSs will
continue to trade on the Nasdaq Global Select Market. Accordingly, there are no assurances that our ordinary shares or ADSs will be marketable
stock for these purposes. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis, applies to
all ordinary shares or ADSs held or subsequently acquired by an electing U.S. holder and can only be revoked with consent of the IRS
(except to the extent our ordinary shares or ADSs no longer constitute "marketable stock").
173
Based
on an analysis of our assets and income, we believe that we were not a PFIC for 2022. We currently expect that we will not be a PFIC
in 2023. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of future income
and assets, which are relevant to this determination. Accordingly, there can be no assurance that we will not become a PFIC in any future
taxable years. U.S. holders who hold our ordinary shares or ADSs during a period when we are a PFIC will be subject to the foregoing
rules, even if we cease to be a PFIC, subject to certain exceptions for U.S. holders who made QEF, mark-to-market or certain other special
elections. U.S. holders are urged to consult their tax advisors about the PFIC rules, including the consequences to them of making a
mark-to-market or QEF election with respect to our ordinary shares or ADSs in the event that we qualify as a PFIC.
U.S.
holders are urged to consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner
and advisability of making, the QEF election or the mark-to-market election.
Tax
on Net Investment Income
A
U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from the tax,
will be subject to a 3.8% tax on the lesser of (1) the U.S. holder's "net investment income" for the relevant taxable
year and (2) the excess of the U.S. holder's modified adjusted gross income for the taxable year over a certain threshold (which
in the case of individuals will be between $125,000 and $250,000, depending on the individual's circumstances). A U.S. holder's
net investment income generally will include its dividends on our ordinary shares or ADSs and net gains from dispositions of our ordinary
shares or ADSs, unless those dividends or gains are derived in the ordinary course of the conduct of trade or business (other than trade
or business that consists of certain passive or trading activities). Net investment income, however, may be reduced by deductions properly
allocable to that income. A U.S. holder that is an individual, estate or trust is urged to consult its tax adviser regarding the applicability
of the Medicare tax to its income and gains in respect of its investment in the ordinary shares or ADSs.
Non-U.S.
Holders of Ordinary Shares or ADSs
Except
as provided below, a non-U.S. holder of our ordinary shares or ADSs will not be subject to U.S. federal income or withholding tax on
the receipt of dividends on, or the proceeds from the disposition of, our ordinary shares or ADSs, unless, in the case of U.S. federal
income taxes, that item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States
and, in the case of a resident of a country which has an income tax treaty with the United States, such item is attributable to a permanent
establishment in the United States or, in the case of an individual, a fixed place of business in the United States. In addition, gain
recognized on the disposition of our ordinary shares or ADSs by an individual non-U.S. holder will be subject to tax in the United States
if the non-U.S. holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions
are met.
174
Information
Reporting and Backup Withholding
A
U.S. holder generally is subject to information reporting and may be subject to backup withholding at a rate of up to 28% with respect
to dividend payments on, or receipt of the proceeds from the disposition of, our ordinary shares or ADSs. Backup withholding will not
apply with respect to payments made to exempt recipients, including corporations and tax-exempt organizations, or if a U.S. holder provides
a correct taxpayer identification number, certifies that such holder is not subject to backup withholding or otherwise establishes an
exemption. Non-U.S. holders are not subject to information reporting or backup withholding with respect to dividend payments on, or receipt
of the proceeds from the disposition of, our ordinary shares or ADSs in the U.S., or by a U.S. payor or U.S. middleman, provided that
such non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption.
Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a holder,
or alternatively, the holder may be eligible for a refund of any excess amounts withheld under the backup withholding rules, in either
case, provided that the required information is furnished to the IRS.
Information
Reporting by Certain U.S. Holders
U.S.
citizens and individuals taxable as resident aliens of the United States that own "specified foreign financial assets" with
an aggregate value in a taxable year in excess of certain threshold (as determined under Treasury regulations) and that are required
to file a U.S. federal income tax return generally will be required to file an information report with respect to those assets with their
tax returns. IRS Form 8938 has been issued for that purpose. "Specified foreign financial assets" include any financial accounts
maintained by foreign financial institutions, foreign stocks held directly, and interests in foreign estates, foreign pension plans or
foreign deferred compensation plans. Under those rules, our ordinary shares or ADSs, whether owned directly or through a financial institution,
estate or pension or deferred compensation plan, would be "specified foreign financial assets". Under Treasury regulations,
the reporting obligation applies to certain U.S. entities that hold, directly or indirectly, specified foreign financial assets. Penalties
can apply if there is a failure to satisfy this reporting obligation. A U.S. Holder is urged to consult his tax adviser regarding his
reporting obligation.
The
above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition
of our Ordinary Shares or ADSs. You should consult your tax advisor concerning the tax consequences of your particular situation.
F.
Dividends and Paying
    Agents
Not
applicable.
G.
Statement by Experts
Not
applicable.
H.
Documents on Display
We
are currently subject to the information and periodic reporting requirements of the Exchange Act that are applicable to foreign private
issuers. Although as a foreign private issuer we are not required to file periodic information as frequently or as promptly as United
States companies, we generally do publicly announce our quarterly and year-end results promptly and file periodic information with the
United States Securities and Exchange Commission under cover of Form 6-K. As a foreign private issuer, we are also exempt from the rules
under the Exchange Act prescribing the furnishing and content of proxy statements and our officers, directors and principal shareholders
are exempt from the reporting and other provisions in Section 16 of the Exchange Act. Our SEC filings are filed electronically on the
EDGAR reporting system and may be obtained through that medium. The SEC also maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC. The address of that web site is http://www.sec.gov.
The Exchange Act file number for our Securities and Exchange Commission filings is 000-29442.
175
Copies
of our SEC filings and submissions are also submitted to the Israel Securities Authority, or ISA, and the TASE. Such copies can be retrieved
electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website (maya.tase.co.il).
A
copy of each report that we submit in accordance with applicable United States law is available for public review at our principal executive
offices, at 1 Yahadut Canada Street, Or Yehuda 6037501, Israel. Information about us is also available on our website at http://www.formulasystems.com.
Such information is not part of this annual report.
I.
Subsidiary Information
Not
applicable.
J.
Annual
Report to Security Holders
Not
applicable.
ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market
risks relating to our operations result primarily from changes in exchange rates, interest rates or weak economic conditions in the markets
in which we sell our products and services. We have been and we are actively monitoring these potential exposures. To manage the volatility
relating to these exposures, we may enter into various forward contracts or other hedging instruments. Our objective is to reduce, where
it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates
and interest rates.
Interest
Rate and Currency Exchange Rate Fluctuations; Impact of Inflation
In
light of the nature of our activities, we invest our cash and cash equivalents primarily in short-term and long-term deposits. As of
December 31, 2022, substantially all of the cash that we held was invested in dollar, Euro, Indian Rupee, and British Pound accounts
bearing interest based on SOFR, and NIS accounts bearing interest based on the Israeli prime rate. Given the current interest rates in
the financial markets, assuming a 10% interest rate decrease, the net decrease in our earnings from our financial assets would not be
material, holding other variables constant.
As
described above in this annual report (under "Item 3.D Risk Factors—Risks Related to Operations in Israel—Fluctuations
in foreign currency values may affect our business and results of operations" and "Item 5. Operating and Financial Review
and Prospects—Operating Results— Impact of Inflation and Currency Fluctuations on Results of Operations"), because
most of our software services revenues are received in NIS, a devaluation of the NIS against the dollar adversely impacts our dollar-recorded
software services revenues and operating profit, by reducing the dollar-recorded revenues for those software services. Accordingly, a
devaluation of the dollar against the NIS positively impacts our dollar-recorded software services revenues and operating profit.
At
the same time, a significant portion of our revenues from proprietary software products is currently denominated in dollars and other
currencies, particularly Euro and British pound, Indian rupee and to a lesser extent Japanese yen, while a substantial portion of our
expenses relating to the proprietary software products, principally salaries and related personnel expenses, is denominated in NIS. As
a result, the devaluation of the dollar relative to the NIS increases our operating costs (as denominated in dollars), and, therefore,
adversely affects the operational profitability of our proprietary software product reporting segment. An increase in the rate of Israeli
inflation compounds this negative impact by further increasing our NIS (and ultimately dollar-recorded) operating expenses, and, consequently,
reducing our operational profitability in that business line. Also, the devaluation of these other currencies—particularly Euro,
British pound and to a lesser extent Japanese yen—relative to the U.S. dollar reduces our dollar recorded revenues from sales of
our proprietary software products and thereby harms our results of operations.
176
The
net effect of these risks stemming from currency exchange rate fluctuations on our operating results can be quantified as follows:
A
hypothetical 10% devaluation or appreciation of foreign currencies (primarily the NIS, GBP, Euro, Japanese yen, PLN and INR) against
the US dollar, with all other variables held constant on the expected sales, would have resulted in a decrease or increase in 2022 sales
revenues of approximately $172 million or $203 million, respectively.
Depending
upon the circumstances, we will consider entering into currency hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rate of the dollar, Euro, Japanese yen and/or British Pound against the NIS, or the Euro, Japanese yen and/or
British pound against the dollar. There can be no assurance that these activities, or others that we may use from time to time, will
eliminate the negative financial impact of currency fluctuations and inflation. We do not—nor do we intend to in the future—engage
in currency speculation.
Inflation
Risk.
We and some of our subsidiaries are subject to inflation risk. Given that over recent years we have expanded our global
presence and offer our software solutions and services to new markets, particularly in the United States, the U.K. and Europe, inflationary
pressures have been adversely impacting our operations. The increased inflation in Europe and the U.S. have been leading to an increase
in certain of our operating costs and expenses, such as employee compensation and office operating expenses. In addition, the purchasing
power of our customers have been declining due to their rising other expenses, and customer demand for our software solutions and services
may be adversely impacted as a result, which could in turn negatively affect our results of operations, financial condition and prospects.
Market
Risk.
We currently do not invest in, or otherwise hold, for trading or other purposes, any financial instruments subject to market
risk.
Interest
Rate Risk
. We
and three of our subsidiaries (Sapiens, Matrix and Magic Software) account for the majority of the Group's
bank credits, loans and debentures, which are subject to interest rate risk. Sapiens and Formula pay interest on their debentures based
on a fixed interest rate which is denominated in NIS (and in the case of Sapiens is also linked to a fixed US dollar interest rate).
Because both Formula and Sapiens do not have any outstanding debt obligations other than with respect to their debentures, they have
not been materially impacted by the global rise in interest rates that began in 2022. Therefore, no quantitative tabular disclosures
are required. Additionally, as Matrix is impacted by interest rate risk with respect to its bank credits and loan, in an effort to hedge
the risk, Matrix conducted two series B bond issuances at a fixed interest rate of 4.1%. As a result, Matrix has not been materially
impacted by the global rise in interest rates that began in 2022. An increase of 1%  in interest rates would have increased Matrix
financial expenses by approximately $0.7 million.
Fluctuations
in Market Price of Securities We Hold
We
hold the securities of three subsidiaries— Magic Software, Sapiens and Matrix,— which are companies whose securities are
listed for trading on the Nasdaq Global Market, Nasdaq Global Select Market and/or the TASE. We consider these holdings as long-term
holdings. We are exposed to the risk of fluctuation of the price of these companies' securities. All of these publicly traded companies
have experienced significant historical volatility in their stock prices. Fluctuations in the market price of our holdings in these companies
may result in the fluctuation of the value of our assets. We typically do not attempt to reduce or eliminate our market exposure on these
securities.
177
ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities
Not
applicable.
B.
Warrants and Rights
Not
applicable.
C.
Other Securities
Not
applicable.
D.
American Depositary
    Shares
Fees
and charges payable by our ADS holders
The
Bank of New York Mellon, which we refer to as the Depositary, serves as the depositary for our ADS program. Pursuant to the deposit agreement
by and among our company, the Depositary and owners and holders of our ADSs, which we refer to as the Deposit Agreement, ADS holders
may be required to pay various fees to the Depositary. In particular, the Depositary may charge the following fees to any party depositing
or withdrawing ADSs, or to any party surrendering American Depositary Receipts (which we refer to as ADRs) that represent the ADSs, or
to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange
of stock involving the ADRs or any deposited ADSs underlying the ADRs or a distribution of ADRs pursuant to a distribution of underlying
shares), as applicable:
●
taxes and governmental
    charges;
●
such registration fees
    as may from time to time be in effect for the registration of transfers of shares generally on our share register and applicable
    to transfers of shares to the name of the Depositary or its nominee or agent in connection with making deposits or withdrawals under
    the Deposit Agreement;
●
such cable, telex and facsimile
    transmission expenses as are expressly provided for in the Deposit Agreement;
●
such expenses as are incurred
    by the Depositary in the conversion of foreign currency;
●
a fee of $5.00 or less
    per 100 ADSs (or portion thereof) for the execution and delivery of ADRs (including in connection with distributions of shares or
    rights by us) and in connection with the surrender of receipts and withdrawal of the underlying shares;
●
a fee of $0.02 or less
    per ADS (or portion thereof) for any cash distribution made pursuant to the Deposit Agreement, including in connection with distributions
    of shares or rights;
●
a fee for the distribution
    of securities in connection with certain distributions, such fee being in an amount equal to the fee for the execution and delivery
    of ADSs which would have been charged as a result of the deposit of such securities but which securities are instead distributed
    by the Depositary to ADR holders; and
●
any other charges payable
    by the Depositary or any of its agents in connection with the servicing of ADSs or other deposited securities underlying the ADRs.
Amounts
received from the Depositary
We
do not receive any fees directly or indirectly from the Depositary.
178
PART
II
ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM
15. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2022. Based on such
evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2022, the Company's
disclosure controls and procedures are effective.
Management's
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, including our Chief Executive Officer and our Chief Financial Officer,
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established
in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) as of the end of the period covered by this report.
Based
on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31,
2022. Notwithstanding the foregoing, there can be no assurance that our internal control over financial reporting will detect or uncover
all failures of persons within the Company to comply with our internal procedures, as all internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements.
Our management's assessment of and conclusion on the effectiveness
of internal control over financial reporting did not include the internal controls of the business of Shamrad Electronic (1997) Ltd.,
Bear Staffing Services Corporation, N.C Marketing and Advertising Ltd., Marcomit Ltd., Appush Ltd. (formerly known as Vidstart Ltd.),
Intrabases SAS and The GoodKind Group LLC, which were acquired during 2022 and included in our consolidated 2022 annual financial statements
and constituted 1.4% of total assets and 1.0% of the net assets as of December 31, 2022, and 1.0% and 1.9% of revenues and net income, respectively,
for the year then ended.
Attestation Report of the Registered Public Accounting Firm
The attestation report of Kost Forer Gabbay & Kasierer, a member
of EY Global, an independent registered public accounting firm in Israel, on our management's assessment of our internal control
over financial reporting as of December 31, 2022 is provided on page F-5, as included under Item 18 of this annual report.
Changes
in Internal Control over Financial Reporting
Based
on the evaluation conducted by our Chief Executive Officer and our Chief Financial Officer pursuant to Rules 13a-15(d) and 15d-15(d)
under the Exchange Act, our management has concluded that there was no change in our internal control over financial reporting that occurred
during the year ended December 31, 2022 that materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
179
ITEM
16. RESERVED
ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our
board of directors has determined that Mr. Tomer Jacob, who serves on the audit committee of our board of directors, qualifies as our
"audit committee financial expert," as defined under the rules and regulations of the SEC.
ITEM
16B. CODE OF ETHICS
We
have adopted a code of business conduct and ethics, or code of ethics, applicable to Formula's Chief Executive Officer and Chief
Financial Officer (who also serves as its principal accounting officer) and any person performing similar functions, as well as to its
directors and other employees. A copy of the code of ethics is available to all of Formula's employees, investors and others without
charge, upon request to the following address: Formula Systems (1985) Ltd., 1 Yahadut Canada St., Or Yehuda 6037501, Israel, Attn: Chief
Executive Officer.
The
chairman of our audit committee may approve a request by our Chief Executive Officer, Chief Financial Officer (who also serves as our
principal accounting officer) or any person performing similar functions for a waiver from the requirements of our code of ethics pertaining
to (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional
relationship; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we must file with, or submit
to, the SEC and in other public communications made by us; (iii) compliance with applicable governmental laws, rules and regulations;
(iv) the prompt internal reporting of violation of the code of ethics to the chairman of our audit committee; and (v) accountability
for adherence to the code of ethics; provided in each case that the person requesting such waiver provides to our audit committee a full
disclosure of the particular circumstances relating to such request. The chairman of our audit committee will first determine whether
a waiver of the relevant requirements of the code of ethics is required and, if such waiver is required, whether a waiver will be granted.
The person requesting such waiver may be required to agree to certain conditions before a waiver or a continuing waiver is granted.
Any
amendments to the code of ethics and all waivers from compliance with the code of ethics granted to our Chief Executive Officer, Chief
Financial Officer (who also serves as our principal accounting officer) or any person performing similar functions with respect to its
requirements described in the above paragraph will be publicly disclosed by us via a report on Form 6-K in accordance with the regulations
of the SEC. No such amendment was adopted, nor waiver provided, by us during the fiscal year ended December 31, 2022.
ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal
Accountant Fees and Services
Formula
and its subsidiaries and affiliate company paid the following fees for professional services rendered by Kost Forer Gabbay & Kasierer,
Certified Public Accountant, a member firm of Ernst & Young Global, independent registered public accounting firm (which we refer
to as Kost Forer), to the Company for the years ended December 31, 2021 and December 31, 2022, respectively:
Year Ended
December 31,
2021
2022
(US dollars in thousands)
Services Rendered
Audit
(1)
$
1,887
$
2,789
Tax and other
(2)
$
552
$
441
Total
$
2,439
$
3,230
(1)
The audit fees for the
    years ended December 31, 2021 and 2022 were for professional services rendered for: the audits of our annual consolidated financial
    statements; agreed-upon procedures related to the review of our consolidated quarterly information; statutory audits of Formula and
    its subsidiaries and affiliated companies; issuance of comfort letters and consents; and assistance with review of documents filed
    with the SEC.
(2)
Tax fees for the years
    ended December 31, 2021 and 2022 were for services related to tax compliance, including the preparation of tax returns and claims
    for refund, and tax advice.
180
Formula
paid the following fees for professional services rendered by Kost Forer to the Company (on a stand-alone basis, excluding services provided
to the subsidiaries and affiliates of the Company) for the years ended December 31, 2021 and December 31, 2022, respectively:
Year Ended
December 31,
2021
2022
(US dollars in thousands)
Services Rendered
Audit
(1)
$
96
$
205
Tax and other
(2)
$
41
$
16
Total
$
137
$
221
(1)
The audit fees for the
    years ended December 31, 2021 and 2022 were for professional services rendered for: the audits of our annual consolidated financial
    statements; agreed-upon procedures related to the review of our consolidated quarterly information; statutory audits of Formula and
    its subsidiaries and affiliated companies; issuance of comfort letters and consents; and assistance with review of documents filed
    with the SEC.
(2)
Tax fees for the years
    ended December 31, 2021 and 2022 were for services related to tax compliance, including the preparation of tax returns and claims
    for refund, and tax advice.
Policy
on Pre-Approval of Audit and Non-Audit Services of Independent Auditors
Our
audit committee is responsible for the oversight of our (and our subsidiaries') independent auditor's work. Our audit committee
has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public
accountants, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. Pre-approval of an audit or non-audit service may
be given as a general pre-approval, as part of the audit committee's approval of the scope of the engagement of our independent
auditor, or on an individual basis. Any proposed services that exceed general pre-approved levels also require specific pre-approval
by our audit committee. The policy prohibits retention of the independent public accountants to perform the prohibited non-audit functions
defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and also requires the audit committee to consider whether
proposed services are compatible with the independence of the public accountants.
ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not
applicable.
ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM
16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
181
ITEM
16G. CORPORATE GOVERNANCE
The
Nasdaq Global Select Market requires companies with securities listed thereon to comply with its corporate governance standards. As a
foreign private issuer, we are not required to comply with all of the rules that apply to listed domestic U.S. companies. Pursuant to
Nasdaq listing rule 5615(a)(3), we have notified Nasdaq that with respect to the corporate governance practices described below, we instead
follow Israeli law and practice and accordingly do not follow the Nasdaq listing rules. Except for the differences described below, we
do not believe there are any significant differences between our corporate governance practices and those that apply to a U.S. domestic
issuer under the Nasdaq corporate governance rules.
●
Majority
    Board Independence
: Under Israeli law, there is no requirement that the majority of the members of the board of directors be
    independent as under Nasdaq listing rule 5605(b)(1), so long as a company appoints at least two external directors pursuant to the
    Companies Law and fulfills the composition requirements for the audit and compensation committees of the board. We comply with Israeli
    law in lieu of that Nasdaq requirement.
●
Independent Director
    Oversight of Nominations
: Under Israeli law, there is no requirement to have an independent nominating committee or the independent
    directors of a company select (or recommend for selection) director nominees, as is required under Nasdaq listing rule 5605(e) for
    a U.S. domestic issuer. Our board of directors handles this process, as is permitted by our articles and the Companies Law. We also
    need not adopt a formal board resolution or charter addressing the director nominations process and such related matters as may be
    required under the U.S. federal securities laws, as Nasdaq requires for a U.S. issuer.
●
Shareholder Approval
:
    Pursuant to Israeli law, we seek shareholder approval for all corporate actions requiring such approval under the requirements of
    the Companies Law, which are different from, or in addition to, the requirements for seeking shareholder approval under Nasdaq listing
    rule 5635. See "Item 10. Additional Information— Memorandum and Articles of Association— Approval of Certain Transactions
    Under the Companies Law" in this annual report for a description of the transactions requiring shareholder approval under the
    Companies Law.
●
Quorums for Shareholders
    Meetings
. The quorum for a shareholders meeting, as stipulated in our articles, complies with the provisions of Israeli law,
    and requires the presence, in person or by proxy of holders of 25% of our outstanding ordinary shares, in lieu of the requirement
    specified in Nasdaq listing rule 5620(c) under which the quorum for any shareholders meeting shall not be less than 33 and 1/3;%
    of the outstanding voting shares of a listed company.
●
Required Timing for
    Annual Shareholders Meeting
s. Under the Companies Law, we are required to hold an annual shareholders meeting each calendar year
    and within 15 months of the last annual shareholders meeting, which differs from the corresponding requirement under Nasdaq listing
    rule 5620(a), which mandates that a listed company hold its annual shareholders meeting within one year of the company's fiscal
    year-end.
ITEM
16H. MINE SAFETY DISCLOSURES
Not
applicable.
ITEM
16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not
applicable.
182
PART
III
ITEM
17. FINANCIAL STATEMENTS
We
have elected to provide financial statements and related information pursuant to Item 18.
ITEM
18. FINANCIAL STATEMENTS
Our
consolidated financial statements and the report of our independent registered public accounting firm in connection therewith are filed
as part of this annual report, as noted on the pages below:
Reports of Independent Registered Public Accounting Firm (PCAOB ID 1281)
F-2 –
    F-6
Consolidated Statements of Financial Position
F-7 – F-8
Consolidated Statements of Profit or Loss
F-9
Consolidated Statements of Comprehensive Income
F-10
Consolidated Statements of Changes in Equity
F-11 – F-14
Consolidated Statements of Cash Flows
F-15 – F-18
Notes to Consolidated Financial Statements
F-19 – F-122
ITEM
19. EXHIBITS
EXHIBIT
INDEX
Exhibit
    No.
1.1
Memorandum
    of Association
(1)
1.2
Amended
    and Restated Articles of Association, as adopted by Formula Systems (1985) Ltd. on January 8, 2012
(2)
2.1
Depositary
    Agreement by and among Formula Systems (1985) Ltd., Bank of New York Mellon and the holders of the American Depositary Shares of
    Formula Systems (1985) Ltd.
(1)
2.2
Description
    of Ordinary Shares of Formula Systems (1985) Ltd.*
4.1
Form
    of Letter of Indemnification for officers and directors, adopted by Formula Systems (1985) Ltd. on January 8, 2012
(4)
4.2
English
    translation of Formula Systems (1985) Ltd. Employees and Office Holders Share Option Plan (2008)
(5)
4.3
Formula
    Systems (1985) Ltd. 2011 Share Incentive Plan, as amended
(6)
4.4
Formula
    Systems (1985) Ltd. Compensation Policy for Office Holders
(7)
8.1
List of Subsidiaries*
12.1
Certification
    of the Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act*
12.2
Certification
    of the Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act*
13.1
Certification
    of the Chief Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-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*
13.2
Certification
    of the Chief Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-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*
15.1
Consent
    of Kost, Forer, Gabbay & Kasierer, A Member of Ernst & Young Global*
15.2
Consent
    of KDA Audit Corporation*
101.INS
Inline
    XBRL Instance Document
101.SCH
Inline
    XBRL Taxonomy Extension Schema Document.
101.CAL
Inline
    XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline
    XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline
    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline
    XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover
    Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
Filed herewith.
(1)
Incorporated by reference
    to the Registration Statement on Form F-1 (File No. 333-8858).
(2)
Incorporated by reference
    to Exhibit 99.1 to the report on Form 6-K filed by the registrant with the Securities and Exchange Commission on January 18, 2012.
(3)
Incorporated by reference
    to Exhibit 2.2 to the annual report on Form 20-F for the year ended December 31, 2019, filed by the registrant with the Securities
    and Exchange Commission on June 29, 2020.
(4)
Incorporated by reference
    to Exhibit 99.2 to the report of foreign private issuer on Form 6-K filed by the registrant with the Securities and Exchange Commission
    on January 18, 2012.
(5)
Incorporated by reference
    to Exhibit 4.3 to the annual report on Form 20-F for the 2008 fiscal year filed by the registrant with the Securities and Exchange
    Commission on April 27, 2009.
(6)
Incorporated by reference
    to Exhibit 4.3 to the annual report on Form 20-F for the 2013 fiscal year filed by the registrant with the Securities and Exchange
    Commission on April 30, 2014.
(7)
Incorporated 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 Securities and Exchange
    Commission on December 8, 2022.
183
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.
FORMULA
SYSTEMS (1985) LTD.
By:
/s/
    Guy Bernstein
May
    15, 2023
Guy Bernstein
Date
Chief Executive Officer
184
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022
U.S. DOLLARS IN THOUSANDS
INDEX
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID
1281
)
F-2- F-6
Consolidated Statements of Financial Position
F-7 - F-8
Consolidated Statements of Profit or Loss
F-9
Consolidated Statements of Comprehensive Income
F-10
Consolidated Statements of Changes in Equity
F-11 - F-14
Consolidated Statements of Cash Flows
F-15 - F-18
Notes to Consolidated Financial Statements
F-19 - F-122
- - - - - - - - - - - - - - - - - - -
F-
1
Kost Forer Gabbay &
Kasierer
144 Menachem Begin St.
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Report of Independent Registered Public Accounting
Firm
To the Shareholders and the Board of Directors
of Formula Systems (1985) Ltd.
Opinion on the Financial
Statements
We have audited the accompanying
consolidated statements of financial position of Formula Systems (1985) Ltd. (the Company) as of December 31, 2022 and 2021, the related
consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for each of the three years in the period
ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). In our
opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
We did not audit the financial
statements of Magic Software Japan K.K., a wholly-owned subsidiary of Magic Software Enterprises Ltd., which reflect total assets of constituting
0.2% and 0.2% at December 31, 2022 and 2021, respectively, and total revenues constituting 0.4% in 2022, 0.5% in 2021 and 0.7% in 2020
of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Magic Software Japan K.K., is based solely on the report of the other auditors.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control
over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 15, 2023 expressed an unqualified
opinion thereon, based on our audit and the report of other auditors.
Basis for Opinion
These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
F-
2
Critical Audit Matter
The critical audit matter
communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Effective control
Description of the Matter
As described in Notes 2(3) to the consolidated
    financial statements, the Company consolidates various investees despite the lack of absolute majority of voting power at the general
    meetings of the investees. In a situation where the Company holds less than a majority of voting power in a given entity, but that power
    is sufficient to enable the Company to unilaterally direct the relevant activities of such entity, then the control is exercised, and
    the Company consolidates the entities based on effective control. As disclosed by management, the assessment of whether the Company has
    effective control over an investee involves management's judgment and analysis and considers factors such as the responsibility
    of the various organs, the composition of the board of directors, the shareholders structure and their level of activity, the attendance
    of the shareholders at the general meetings and the voting patterns.
Auditing the Company's assessment of effective
    control was complex and highly judgmental due to the significant judgment of management in determining whether the Company is enable to
    unilaterally direct the relevant activities of the entity and therefor controls the entity. This in turn led to a high degree of auditor
    judgment, subjectivity and effort in performing procedures relating to management's application of consolidation accounting, and
    significant auditor judgment in evaluating the audit evidence obtained relating to the responsibility of the various organs, the composition
    of the board of directors, the shareholders structure and their level of activity, the attendance of the shareholders at the general meetings
    and the voting patterns.
How We Addressed the Matter
in Our Audit
We obtained an understanding, evaluated the design
    and tested the effectiveness of controls over effective control, including controls addressing the completeness of the Company's
    investees evaluated for consolidation, as well as controls over the judgments and factors used to reach consolidation conclusions regarding
    these investees.
Our audit procedures to evaluate the significant
    judgments made by management to assess effective control included, among others, testing the completeness of the investees subject to
    the analysis, evaluating the responsibility of the various organs, the composition of the board of directors, the shareholders structure
    and their level of activity, the attendance of the shareholders at the general meetings and the voting patterns, evaluating management's
    assessment of the Company's ability to unilaterally direct the relevant activities of each entity, and the existence of effective
    control over each investee.
We also evaluated the appropriateness of the related
    disclosures included in Note 2(3) to the consolidated financial statements in relation to Effective control.
F-
3
/s/ KOST FORER GABBAY &
KASIERER
A Member of Ernst & Young
Global
We have served as the Company's
auditor since 2010.
Tel-Aviv, Israel
May 15, 2023
F-
4
Kost Forer Gabbay & Kasierer
144 Menachem Begin St.
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Report of Independent Registered Public Accounting
Firm
To the Shareholders and the Board of Directors
of Formula Systems (1985) Ltd
Opinion on Internal Control over Financial
Reporting
We have audited Formula
Systems (1985) Ltd.'s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Formula Systems (1985) Ltd. (the Company), based on our audit and the report of other auditors, maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We did not examine the effectiveness
of internal control over financial reporting of Magic Software Japan K.K, a wholly owned subsidiary of Magic Software Enterprises Ltd.,
whose financial statements reflect total assets and revenues constituting 0.2% and 0.4%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2022. The effectiveness of Magic Software Japan K.K.'s internal control
over financial reporting was audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to
the effectiveness of Magic Software Japan K.K.'s internal control over financial reporting, is based solely on the report of the
other auditors.
As indicated in the accompanying Management's Annual Report on
Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of the business Shamrad Electronic (1997) Ltd., Bear Staffing Services Corporation,
N.C Marketing and Advertising Ltd., Marcomit Ltd., Appush Ltd. (formerly known as Vidstart Ltd.), The Goodkind Group, LLC and Intrabases
SAS, which are included in the 2022 consolidated financial statements of the Company and constituted 1.4% and 1.0% of total and net assets,
respectively, as of December 31, 2022 and 1.0% and 1.9% of revenues and net income, respectively, for the year then ended. Our audit of
internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting
of the business of Shamrad Electronic (1997) Ltd., Bear Staffing Services Corporation, N.C Marketing and Advertising Ltd., Marcomit Ltd.,
Appush Ltd. (formerly known as Vidstart Ltd.), The Goodkind Group, LLC and Intrabases SAS.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of
financial position of the Company as of December 31, 2022 and 2021, the related consolidated statements of profit or loss, comprehensive
income, changes in equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and
our report dated May 15, 2023, expressed an unqualified opinion thereon, based on our audit and the report of the other auditors.
Basis for Opinion
The Company's management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects.
F-
5
Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit and the report of other auditors provides a reasonable basis for our opinion.
Definition and Limitations
of Internal Control Over Financial Reporting
A company's internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/
KOST FORER GABBAY &
KASIERER
A Member of Ernst & Young
Global
Tel-Aviv, Israel
May 15, 2023
F-
6
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands
December 31,
Note
2022
2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
4
$
544,342
$
485,391
Short-term deposits
23,976
25,924
Short-term investments
738
1,142
Trade receivables (net of allowances for credit losses of $
12,242
and $
12,855
as of December 31, 2022 and 2021, respectively)
702,727
696,321
Prepaid expenses and other accounts receivable
5
64,535
72,118
Inventories
35,181
21,221
Total
current assets
1,371,499
1,302,117
NON-CURRENT ASSETS:
Long-term investments and receivables
6
38,985
23,676
Investments in companies accounted for at equity
8
20,746
28,900
Property, plant and equipment
9
54,971
56,886
Right-of-use assets
17
116,840
115,833
Deferred taxes
23f
42,027
46,364
Intangible assets
10
222,726
241,936
Goodwill
11
926,161
932,854
Total
non-current assets
1,422,456
1,446,449
Total
assets
$
2,793,955
$
2,748,566
The accompanying notes are an integral part of
the consolidated financial statements.
F-
7
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
U.S. dollars in thousands (except share and
per share data)
December 31,
Note
2022
2021
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Credit from banks and others
12,14
$
157,882
$
175,696
Debentures
15
68,293
48,455
Current maturities of lease liabilities
17
45,497
41,655
Trade payables
222,482
205,835
Deferred revenues
131,639
140,660
Employees and payroll accrual
201,225
207,553
Other accounts payable
13
86,340
80,411
Liabilities in respect of business combinations
27,129
7,773
Put options of non-controlling interests
2(21)(H)
60,500
39,558
Total
current liabilities
1,000,987
947,596
LONG-TERM LIABILITIES:
Loans from banks and others
14
115,874
157,229
Debentures
15
305,632
205,035
Lease liabilities
17
78,966
84,839
Other long-term liabilities
14,101
12,183
Deferred taxes
23f
59,465
78,135
Deferred revenues
8,859
17,757
Liability in respect of business combinations
12,345
21,644
Put options of non-controlling interests
2(21)(H)
11,688
31,720
Employee benefit liabilities
19
9,116
12,641
Total
long-term liabilities
616,046
621,183
COMMITMENTS AND CONTINGENCIES
20
EQUITY
21
Formula Systems (1985) Ltd. Shareholders' equity:
Share capital:
Ordinary shares of NIS
1
par value - Authorized:
25,000,000
shares as of December 31, 2022 and 2021; Issued:
15,886,287
and
15,862,887
at December 31, 2022 and 2021, respectively; Outstanding:
15,317,667
and
15,294,267
at December 31, 2022 and 2021, respectively
4,347
4,340
Additional paid-in capital
145,369
153,048
Retained earnings
419,448
358,315
Accumulated other comprehensive income
(
17,030
)
25,516
Treasury shares (
568,620
shares as of December 31, 2021 and 2022)
(
259
)
(
259
)
Total equity attributable to Formula Systems shareholders
551,875
540,960
Non-controlling interests
23a
625,047
638,827
Total
equity
1,176,922
1,179,787
Total
liabilities and equity
$
2,793,955
$
2,748,566
The accompanying notes are an integral part of
the consolidated financial statements.
F-
8
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF PROFIT OR LOSS
U.S. dollars in thousands
(except share and per share data)
Year ended December 31,
Note
2022
2021
2020
Revenues:
Proprietary software products and related services
$
659,470
$
632,986
$
509,109
Software services and other
1,912,887
1,771,390
1,424,809
Total revenues
2(13),24c
2,572,357
2,404,376
1,933,918
Cost of revenues:
Proprietary software products and related services
344,374
350,788
284,325
Software services and other
1,605,518
1,489,729
1,202,160
Total cost of revenues
1,949,892
1,840,517
1,486,485
Gross profit
622,465
563,859
447,433
Research and development expenses, net
72,129
65,858
52,604
Selling, marketing, general and administrative expenses
317,956
289,985
224,188
Capital gain from realization of a Matrix IT's subsidiary
3(iv)a
44,260
-
-
Operating income
276,640
208,016
170,641
Financial expenses
23b
27,216
29,994
29,444
Financial income
23b
7,286
5,989
2,559
Pre-tax income before share of profits of companies accounted for at equity, net
256,710
184,011
143,756
Share of profits (loss) of companies accounted for at equity, net
8
(
1,808
)
505
1,535
Taxes on income
22h
55,235
42,614
31,269
Net income
$
199,667
$
141,902
$
114,022
Attributable to:
Equity holders of the Company
81,393
54,585
46,776
Non-controlling interests
118,274
87,317
67,246
$
199,667
$
141,902
$
114,022
Net earnings per share attributable to equity holders of The Company
23d
Basic earnings per share
$
5.31
$
3.57
$
3.05
Diluted earnings per share
$
5.21
$
3.50
$
3.01
The accompanying notes are an integral part of
the consolidated financial statements.
F-
9
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands
Year
ended December 31,
2022
2021
2020
Net income
$
199,667
$
141,902
$
114,022
Other comprehensive income (loss) net of tax effect:
Amounts that will not be reclassified subsequently to profit or loss:
Actuarial gain (loss) from defined benefit plans
2,717
3,007
840
Gain (loss) from investments in equity instruments measured at fair value through other comprehensive income
(
5,257
)
-
-
Share of net other comprehensive income (loss) of companies accounted for at equity
(
3,053
)
128
(
169
)
Adjustments arising from translating financial statements from functional currency to presentation currency
(
140,079
)
10,343
17,436
Amounts that will be or that have been reclassified to profit or loss when specific conditions are met:
Unrealized gain (loss) on debt instruments at fair value
    through other comprehensive income
-
-
(
2
)
Foreign exchange differences on translation of foreign operations
67,508
(
10,580
)
16,670
Total other comprehensive income (loss), net of tax
(
78,164
)
2,898
34,775
Total Comprehensive income
121,503
144,800
148,797
Total comprehensive income attributable to:
Equity holders of the Company
40,177
56,048
61,009
Non-controlling interests
81,326
88,752
87,788
$
121,503
$
144,800
$
148,797
The accompanying notes are an integral part of the consolidated financial
statements.
F-
10
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands (except share and
per share data)
Accumulated
Additional
Other
Treasury
Non-
Share Capital
paid-in
Retained
comprehensive
shares
controlling
Total
Number
Amount
capital
earnings
income (loss)
(cost)
interests
Equity
Balance as of January 1, 2022
15,294,267
$
4,340
$
153,048
$
358,315
$
25,516
$
(
259
)
$
638,827
$
1,179,787
Net income
-
-
-
81,393
-
-
118,274
199,667
Foreign currency translation
-
-
-
-
(
34,236
)
-
(
38,335
)
(
72,571
)
Actuarial gain from defined benefit plans
-
-
-
1,330
-
-
1,387
2,717
Share of other comprehensive income (loss) of companies accounted for at equity
-
-
-
-
(
3,053
)
-
-
(
3,053
)
Loss from investments in equity instruments measured at fair value through other comprehensive income
-
-
-
-
(
5,257
)
-
-
(
5,257
)
Total other comprehensive income (loss)
-
-
-
1,330
(
42,546
)
-
(
36,948
)
(
78,164
)
Total comprehensive income (loss)
-
-
-
82,723
(
42,546
)
-
81,326
121,503
Issuance of restricted shares to employees
23,400
7
(
7
)
-
-
-
-
-
Cost of share-based payment (Note 18)
-
-
8,161
-
-
-
6,729
14,890
Dividend to Formula's shareholders
-
-
-
(
21,590
)
-
-
-
(
21,590
)
Dividend to non-controlling interests in subsidiaries
-
-
-
-
-
-
(
96,630
)
(
96,630
)
Transactions with non-controlling interests due to
    holding changes, including exercise of employees' stock options
-
-
(
766
)
-
-
-
744
(
22
)
Acquisition of non-controlling interests
-
-
(
8,673
)
-
-
-
(
8,919
)
(
17,592
)
Settlement of put options over non-controlling interests
-
-
(
6,394
)
-
-
-
(
438
)
(
6,832
)
Non-controlling interests arising from initially consolidated companies
-
-
-
-
-
-
4,219
4,219
Deconsolidation of a Matrix IT's subsidiary
-
-
-
-
-
-
(
811
)
(
811
)
Balance as of December 31, 2022
15,317,667
$
4,347
$
145,369
$
419,448
$
(
17,030
)
$
(
259
)
$
625,047
$
1,176,922
The accompanying notes are an integral part of the consolidated financial
statements.
F-
11
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands (except share and
per share data)
Accumulated
Additional
other
Treasury
Non-
Share Capital
paid-in
Retained
comprehensive
shares
controlling
Total
Number
Amount
capital
earnings
income (loss)
(cost)
interests
Equity
Balance as of January 1, 2021
15,294,267
$
4,340
$
149,249
$
324,358
$
25,513
$
(
259
)
$
605,342
$
1,108,543
Net income
-
-
-
54,585
-
-
87,317
141,902
Foreign currency translation
-
-
-
-
(
125
)
-
(
112
)
(
237
)
Actuarial gain from defined benefit plans
-
-
-
1,460
-
-
1,547
3,007
Share of other comprehensive income (loss) of companies accounted for at equity
-
-
-
-
128
-
-
128
Total other comprehensive income (loss)
-
-
-
1,460
3
-
1,435
2,898
Total comprehensive income (loss)
-
-
-
56,045
3
-
88,752
144,800
Cost of share-based payment (Note 18)
-
-
7,434
-
-
-
7,405
14,839
Dividend to Formula's shareholders
-
-
-
(
22,088
)
-
-
-
(
22,088
)
Dividend to non-controlling interests in subsidiaries
-
-
-
-
-
-
(
62,662
)
(
62,662
)
Transactions with non-controlling interests due to holding changes, including exercise of employees' stock options
-
-
(
540
)
-
-
-
3,211
2,671
Acquisition of non-controlling interests
-
-
1,005
-
-
-
(
2,705
)
(
1,700
)
Settlement of put options over non-controlling interests
-
-
(
4,100
)
-
-
-
(
4,532
)
(
8,632
)
Non-controlling interests arising from initially consolidated companies
-
-
-
-
-
-
4,016
4,016
Balance as of December 31, 2021
15,294,267
$
4,340
$
153,048
$
358,315
$
25,516
$
(
259
)
$
638,827
$
1,179,787
The accompanying notes are an integral part of
the consolidated financial statements.
F-
12
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands (except share and
per share data)
Accumulated
Additional
other
Treasury
Non-
Share Capital
paid-in
Retained
comprehensive
shares
controlling
Total
Number
Amount
capital
earnings
income (loss)
(cost)
interests
Equity
Balance as of January 1, 2020
15,294,267
$
4,340
$
120,737
$
285,146
$
11,676
$
(
259
)
$
474,694
$
896,334
Net income
-
-
-
46,776
-
-
67,246
114,022
Foreign currency translation
-
-
-
-
14,007
-
20,099
34,106
Actuarial gain from defined benefit plans
-
-
-
396
-
-
444
840
Unrealized loss on debt instruments at fair value through other comprehensive income, net
-
-
-
-
(
1
)
-
(
1
)
(
2
)
Share of other comprehensive income (loss) of companies accounted for at equity
-
-
-
-
(
169
)
-
-
(
169
)
Total other comprehensive income (loss)
-
-
-
396
13,837
-
20,542
34,775
Total comprehensive income (loss)
-
-
-
47,172
13,837
-
87,788
148,797
Cost of share-based payment (Note 18)
-
-
1,310
-
-
-
6,546
7,856
Dividend to Formula's shareholders
-
-
-
(
7,960
)
-
-
-
(
7,960
)
Dividend to non-controlling interests in subsidiaries
-
-
-
-
-
-
(
39,056
)
(
39,056
)
Transactions with non-controlling interests due to holding changes, including exercise of
    employees' stock options
-
-
847
-
-
-
4,459
5,306
Acquisition of non-controlling interests
-
-
(
6,538
)
-
-
-
(
13,114
)
(
19,652
)
Dilution in Formula's share in Sapiens due to issuance of Sapiens' ordinary shares
-
-
34,462
-
-
-
74,275
108,737
Settlement of put options over non-controlling interests
-
-
(
1,569
)
-
-
-
(
4,137
)
(
5,706
)
Non-controlling interests arising from initially consolidated companies
-
-
-
-
-
-
13,887
13,887
Balance as of December 31, 2020
15,294,267
$
4,340
$
149,249
$
324,358
$
25,513
$
(
259
)
$
605,342
$
1,108,543
The accompanying notes are an integral part of the consolidated financial
statements.
F-
13
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands (except share and
per share data)
Accumulated other comprehensive income (loss):
Year ended December 31,
2022
2021
2020
Foreign currency translation reserve arising from translating financial statements of foreign operations
$
(
84,455
)
$
(
18,494
)
$
(
12,964
)
Adjustments arising from translating financial statements from functional currency to presentation currency
77,367
45,642
40,237
Reserve from financial assets measured at fair value through other comprehensive income
(
4,853
)
404
404
Share of other comprehensive income (loss) of companies accounted for at equity
(
5,089
)
(
2,036
)
(
2,164
)
Accumulated other comprehensive income (loss)
$
(
17,030
)
$
25,516
$
25,513
The accompanying notes are an integral part of the consolidated financial
statements.
F-
14
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year
ended December 31
,
2022
2021
2020
Cash flows from operating activities:
Net income
$
199,667
$
141,902
$
114,022
Adjustments to reconcile net income to net cash provided by operating
    activities:
Share of profits of companies accounted for at equity, net
1,808
(
505
)
(
1,535
)
Depreciation and amortization
115,308
122,184
95,507
Changes in value of debentures, net
517
(
624
)
(
42
)
Increase (decrease) in employee benefit liabilities
1,000
(
220
)
1,194
Gain from disposition of a subsidiary of Matrix IT
(
44,260
)
-
-
Loss (gain) from sale of property, plants and equipment
(
37
)
(
21
)
118
Loss from early termination of lease
80
-
-
Stock-based compensation expenses
14,953
14,767
7,779
Changes in value of short-term and long-term loans from banks and others and deposits, net
(
4,688
)
2,030
5,482
Changes in deferred taxes, net
(
18,142
)
(
7,997
)
(
6,348
)
Cash paid in respect of acquisitions of activities
(
4,060
)
(
556
)
-
Change in liability in respect of business combinations
(
2,971
)
5,296
(
643
)
Impairment of right-of-use asset
-
1,439
351
Change in fair value of financial assets measured at fair value through profit or loss
19
-
-
Amortization of premium and accrued interest on debt instruments at fair value through other comprehensive income
76
96
(
70
)
Gain from revaluation of dividend preference derivative in TSG
(
1,221
)
(
255
)
(
48
)
Effect of exchange rate on cash and cash equivalents held in currencies other than the functional currency
2,412
614
1,200
Working capital adjustments:
Decrease (increase) in inventories
(
13,756
)
4,642
(
10,966
)
Decrease (increase) in trade receivables
(
51,398
)
(
150,818
)
23,312
Decrease in other current and long-term accounts receivable
2,627
20,506
8,735
Increase in trade payables
25,330
40,076
10,954
Increase in other accounts payable and employees and payroll accrual
22,292
7,255
34,859
Increase (decrease) in deferred revenues
(
6,418
)
9,283
4,282
Net cash provided by operating activities
$
239,138
$
209,094
$
288,143
The accompanying notes are an integral part of the consolidated financial
statements.
F-
15
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31,
2022
2021
2020
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired (Appendix C)
(
52,262
)
(
77,155
)
(
141,364
)
Proceeds from sale of a subsidiary of Matrix IT (Appendix D)
42,928
-
-
Taxes paid in conjunction with sale of a subsidiary
(
8,424
)
-
-
Cash paid in conjunction with deferred payments and contingent liabilities related to business combinations
(
5,181
)
(
8,630
)
(
9,111
)
Payments to former shareholders of consolidated company
-
(
161
)
(
6,656
)
Purchase of intangible assets
(
3,142
)
(
872
)
(
2,852
)
Purchase of other investment
(
15,073
)
(
500
)
-
Purchase of property and equipment
(
22,063
)
(
17,352
)
(
16,651
)
Proceeds from maturity and sale net of investment in debt instruments at fair value through other comprehensive income or loss, net
309
-
5,429
Proceeds from sale of property and equipment
633
2,283
693
Receipt (grant) of short-term loans
-
303
(
283
)
Restricted deposit on account of acquisition
-
-
22,890
Dividend from companies accounted for at equity
48
83
3,000
Change in short-term and long-term deposits
2,042
4,641
(
22,822
)
Capitalization of software development and other costs
(
14,110
)
(
12,832
)
(
9,305
)
Net cash used in investing activities
$
(
74,295
)
$
(
110,192
)
$
(
177,032
)
Cash flows from financing activities:
Exercise of employees' stock options in subsidiaries
-
2,079
5,306
Proceeds from issuance of ordinary shares in subsidiaries
-
-
108,737
Dividend paid to non-controlling interests
(
96,530
)
(
62,993
)
(
40,519
)
Dividend to Formula's shareholders
(
21,778
)
(
22,081
)
(
14,939
)
Short-term bank credit, net
(
7,315
)
36,261
(
29,630
)
Repayment of long-term loans from banks and others
(
87,894
)
(
84,241
)
(
79,348
)
Receipt of long-term loans from banks and others
65,678
62,707
91,024
Proceeds from issuance of debentures, net
199,051
50,295
60,346
Repayment of long-term liabilities to IIA
(
642
)
(
825
)
(
457
)
Repayment of debentures
(
53,105
)
(
46,981
)
(
29,844
)
Purchase of non-controlling interests
(
16,795
)
(
1,700
)
(
6,330
)
Repayment of lease liabilities
(
49,702
)
(
44,086
)
(
33,583
)
Cash paid due to exercise of put option by non-controlling interests
(
1,854
)
(
2,565
)
(
21,030
)
Redemption of capital note of non-controlling interests in subsidiaries
(
95
)
-
-
Net cash provided (used) by financing activities
$
(
70,981
)
$
(
114,130
)
$
9,733
Effect of exchange rate changes on cash and cash equivalents
(
34,910
)
(
1,030
)
12,140
Increase (decrease) in cash and cash equivalents
58,952
(
16,258
)
132,984
Cash and cash equivalents at beginning of year
$
485,392
$
501,650
$
368,666
Cash and cash equivalents at end of year
$
544,344
$
485,392
$
501,650
The accompanying notes are an integral part of
the consolidated financial statements.
F-
16
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31,
2022
2021
2020
A
Supplemental cash flow information:
Cash paid (received) in respect of:
Interest paid
$
17,573
$
15,344
$
16,571
Interest received
$
2,325
$
459
$
511
Taxes paid (received), net
$
51,259
$
38,393
$
44,659
B.
Non-cash activities:
Purchase of property and equipment
$
930
$
1,627
$
-
Dividend payable to non-controlling interests
$
111
$
331
$
216
Right-of-use asset recognized with corresponding lease liability
$
52,319
$
39,116
$
20,495
C.
Acquisition of newly-consolidated subsidiaries and activities, net of cash acquired:
Assets and liabilities of subsidiaries consolidated as of acquisition date:
Working capital (other than cash and cash equivalents)
(
5,457
)
1,623
(
604
)
Inventories
(
3,536
)
-
-
Short-term investments
(
752
)
-
-
Short-term deposits
(
191
)
-
-
Property and equipment
(
1,433
)
(
1,507
)
(
13,152
)
Goodwill and intangible assets
(
87,905
)
(
108,048
)
(
197,258
)
Right-of-use assets
(
2,754
)
(
2,401
)
(
2,324
)
Other long-term assets
(
123
)
(
187
)
(
8,773
)
Liabilities to banks and others
5,142
6,431
10,598
Long-term liabilities
1,240
1,306
13,739
Lease liabilities
2,754
2,769
2,324
Deferred tax liability, net
5,692
9,662
18,626
Liability to formerly shareholders
7,327
1,518
7,596
Deferred payments and contingent consideration
23,515
7,663
4,536
Non-controlling interests at acquisition date
4,219
4,016
23,328
Total
$
(
52,262
)
$
(
77,155
)
$
(
141,364
)
The accompanying notes are an integral part of the consolidated financial
statements.
F-
17
FORMULA SYSTEMS (1985) LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31,
2022
2021
2020
D.
Proceeds from sale of investment in previously
consolidated subsidiary:
Assets and liabilities of the subsidiary at date of sale:
Working capital (other than cash and cash equivalents)
(
6,798
)
-
-
Short-term investments
5,004
-
-
Property and equipment
782
-
-
Goodwill and intangible assets
439
-
-
Other long-term assets
67
-
-
Long-term liabilities
(
15
)
-
-
Non-controlling interests at the sale date
(
811
)
-
-
Gain from realization of a subsidiary
44,260
-
-
Total
$
42,928
-
-
The accompanying notes are an integral part of the consolidated financial
statements.
F-
18
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
1:-	 GENERAL
a.
General:
Formula Systems (1985)
Ltd. ("Formula" or the "Company") was incorporated in Israel and began its business operations in 1985. Since
1991, Formula's ordinary shares, par value NIS
1
per share, have been traded on the Tel-Aviv Stock Exchange ("TASE"),
and, in 1997, began trading through American Depositary Shares ("ADSs") under the symbol "FORTY" on the Nasdaq
Global Market in the United States until January 3, 2011, at which date the listing of Formula's ADSs was transferred to the Nasdaq
Global Select Market ("Nasdaq"). Each ADS represents one ordinary share of Formula. The Company is considered an Israeli resident.
The controlling shareholder of the Company is Asseco Poland S.A. ("Asseco"), a Polish public company, whose shares are traded
on the Warsaw Stock Exchange, that offers comprehensive, proprietary IT solutions for all sectors of the economy.
b.
Formula is a global information technology group providing software services, proprietary and non-proprietary
software solutions, software product marketing and support, computer infrastructure and integration solutions and training, integration
and digital advertising solutions (the "Group"). The Group manages and operates its businesses through eight directly held
subsidiaries; Matrix IT Ltd. ("Matrix"), Sapiens International Corporation N.V ("Sapiens"), Magic Software Enterprises
Ltd. ("Magic Software"), Zap Group Ltd. ("ZAP Group"), Insync Staffing Solutions, Inc. ("Insync"),
Michpal Micro Computers (1983) Ltd. ("Michpal"), Ofek Aerial Photography Ltd. ("Ofek") and Shamrad Electronic
(1997) Ltd ("Shamrad") and one jointly controlled entity: TSG IT Advanced Systems Ltd. ("TSG").
c.
The following table presents the ownership of the Company's eight directly held subsidiaries and
one jointly controlled entity directly held as of the dates indicated (the list consists only of active companies):
Percentage of ownership
December 31,
2022
2021
Matrix IT
48.69
48.92
Sapiens
44.10
43.64
Magic Software
46.26
45.59
Insync
90.09
90.09
Michpal
100.00
100.00
TSG
(1)
50.00
50.00
Ofek
80.00
80.00
ZAP Group
100.00
100.00
Shamrad
100.00
-
(1)
TSG's results of operations are reflected in the Company's
results of operations using the equity method of accounting.
F-
19
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
1:-	general (C
ont
.)
d.
Definitions:
In these financial
statements:
The Company or Formula
-
Formula Systems (1985) Ltd.
The Group
-
Formula Systems (1985) Ltd. and its investees.
Subsidiaries
-
Companies that are controlled by the Company (as defined in IFRS 10) and whose accounts are consolidated with those of the Company.
Jointly controlled entities
-
Companies owned by various entities that have a contractual arrangement for joint control and are accounted for using the equity method of accounting.
Associates
-
Companies 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.
Investees
-
Subsidiaries, jointly controlled entities, and associates.
Interested parties and controlling shareholder
-
As defined in the Israeli Securities Regulations (Annual Financial Statements), 2010.
Related parties
-
As defined in IAS 24.
NOTE
2:-	SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies
have been applied consistently in the financial statements for all periods presented, unless otherwise stated.
1)
Basis of presentation of the financial statements
These financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board ("IFRS").
The Company's
financial statements have been prepared on a cost basis, except for certain assets and liabilities such as: financial assets measured
at fair value through other comprehensive income; liabilities with respect to business combination; and other financial assets and liabilities
(including derivatives) which are presented at fair value through profit or loss.
F-
20
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
The Company has elected
to present the profit or loss items using the function of expense method.
2)
Use of estimates, judgments and assumptions:
The preparation of
the consolidated financial statements requires management to make estimates, judgments, and assumptions, that have an effect on the application
of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses in the financial statements. Such
judgments, estimates and assumptions are related, but not limited to, effective control, liabilities with respect to business combination,
goodwill and identifiable intangible assets and their subsequent impairment analysis, determination of fair value of put options of non-controlling
interests, legal contingencies, research and development capitalization, classification of leases, income tax uncertainties, deferred
taxes, share-based compensation, as well as the determination of revenue recognition from contracts accounted for based on the estimate
of percentage of completion. The Company's management believes that the estimates, judgments, and assumptions used, are reasonable
based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Changes
in accounting estimates are reported in the period of the change in estimate.
3)
Consolidated financial statements:
The consolidated financial
statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when
the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to unilaterally
affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has
control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.
The financial statements
of the Company and of the investees, after being adjusted to comply with IFRS, are prepared for the same reporting period and using consistent
accounting treatment of similar transactions and economic activities. Any discrepancies in the applied accounting policies are eliminated
by making appropriate adjustments. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions
are eliminated in full in the consolidated financial statements.
Effective control:
In a situation where
the Company holds less than a majority of voting power in a given entity, but that power is sufficient to enable the Company to unilaterally
direct the relevant activities of such entity, then control is exercised. When assessing whether voting rights held by the Company are
sufficient to give it power, the Company considers all facts and circumstances, including: the amount of those voting rights relative
to the amount and dispersion of other vote holders; potential voting rights held by the Company and other shareholders or parties; rights
arising from other contractual arrangements; significant personal ties; and any additional facts and circumstances that may indicate that
the Company has, or does not have, the ability to direct the relevant activities when decisions need to be made, inclusive of voting patterns
observed at previous meetings of shareholders.
F-
21
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
The Company's
management has concluded that despite the lack of absolute majority of voting power at the general meetings of shareholders of Matrix
IT, Sapiens and Magic Software, in accordance with IFRS 10, these investees are controlled by the Company. The conclusion regarding the
existence of control during the years ended December 31, 2022, 2021 and 2020 with respect to Matrix, Sapiens and Magic Software, in accordance
with IFRS 10, was made in accordance with the following factors:
Matrix IT
:
As of December 31,
2022, the Company held
48.69
% of the outstanding ordinary shares of Matrix. The conclusion regarding the existence of control in Matrix,
in line with IFRS 10, was made considering the following additional factors:
i)
Governing bodies of Matrix:
Decisions of Matrix's shareholders
general meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general meeting adopts
resolutions to elect individual directors, appoint Matrix's independent auditors for the next year, as well as approve Matrix's
financial statements and management's report on operations; in accordance with Matrix's articles of association, the board
of directors of Matrix is responsible for managing its current business operations and is authorized to take substantially all decisions
which are not specifically reserved to Matrix's shareholders by its articles of association, including the decision to pay out dividends;
Matrix's board of directors is composed of 5 members, 2 of whom are external directors as required by the Israeli Companies Law,
5759-1999, another one of whom is an independent director, while the remaining two directors are associated with Formula, including Formula's
chief executive officer who serves as the chairman of Matrix's board of directors.
ii)
Shareholders structure of Matrix IT:
Matrix's shareholders'
structure may be considered dispersed because, apart from
the Company, only two shareholders (both Israeli institutional investors) held
more than 5% of Matrix's voting power during the reporting period (one holding approximately 11% and the second one holding approximately
5%); there is no evidence that any of the shareholders has or had granted to any other shareholder a voting proxy at the general meeting;
over the last seven years (i.e., 2016-2022), Matrix's general meetings were attended by shareholders representing between 76% and
82% of its voting power, including the Company's voting power. Bearing in mind that the Company presently holds approximately 48.69%
of the total voting power, this means that the level of activity of Matrix's other shareholders is relatively moderate or low. The
attendance by Matrix's other shareholders would have to be higher than 97.38% in order to deprive the Company of an absolute majority
of votes at the general meeting. In accordance with voting patterns at Matrix's shareholders' meetings in recent years, it
is the Company's management's belief that achieving such a high attendance seems unlikely.
F-
22
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Therefore, it is management's
opinion that despite the lack of an absolute majority of shares held by it in Matrix, the Company is still able to influence the appointment
of directors at Matrix and therefore may affect Matrix's direction of development as well as its current business operations.
Sapiens
:
As of December 31,
2022, the Company held
44.1
% of the outstanding common shares of Sapiens. The conclusion regarding the existence of control in Sapiens,
in line with IFRS 10, was made considering the following factors:
i)
Governing bodies of Sapiens:
Decisions of Sapiens' shareholders
general meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general meeting adopts
resolutions to appoint individual directors, choose Sapiens' independent auditors for the next year, as well as approve the company's
financial statements and management's report on operations; in accordance with Sapiens' articles of association, the board
of directors of Sapiens is responsible for managing its current business operations and is authorized to take substantially all decisions
which are not specifically reserved to Sapiens' shareholders by its articles of association, including the decision to pay out dividends.
Sapiens' board of directors is composed of 6 members, 3 of whom are independent directors, and one being Formula's chief executive
officer who serves as the chairman of Sapiens' board of directors.
ii)
Shareholders structure of Sapiens:
Sapiens' shareholders structure
is dispersed because no other shareholder except for
the Company's controlling shareholder, held as of December 31, 2022 more than
5% of the voting rights at the general meeting (Harel Insurance Investments & Financial Services Ltd., which increased its percentage
ownership of Sapiens' common shares from 5.4% to 5.6%, and from 5.6% to 5.7% during the years ended December 31, 2020 and 2021,
respectively, decreased its percentage interest to 4.6% over the course of 2022; and Phoenix Holdings Ltd. which increased its percentage
ownership of Sapiens' common shares from 5.1% to 5.7% from December 31, 2020 to December 31, 2021 decreased its percentage interest
to 4.3% over the course of 2022); there is no evidence that any shareholder has or had granted to any other shareholder a voting proxy
at the general meeting; and, over the last six years from 2017 to 2022, Sapiens' general meetings were attended by shareholders
representing in total between 70% and 82% of the total voting power, including the Company's voting power. Bearing in mind that
the Company presently holds approximately 44.1% of total voting rights, this means that the level of activity of Sapiens' other
shareholders is relatively moderate or low. As of December 31, 2022, the attendance by shareholders would have to be higher than 88.2%
in order to deprive the Company of an absolute majority of votes at the general meeting.
In accordance with voting patterns at Sapiens'
shareholders' meetings in recent years, it is the Company's management's belief that achieving such a high attendance
seems unlikely.
F-
23
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Therefore it is management's
opinion that despite the lack of an absolute majority of shares in Sapiens, the Company is still able to influence the appointment of
directors at Sapiens and therefore may affect Sapiens' directions of development as well as its current business operations.
Magic Software
:
As of December 31,
2022, the Company held
46.26
% of the outstanding ordinary shares of Magic Software. The conclusion regarding the existence of control
in Magic Software, in line with IFRS 10, was made considering the following factors:
i)
Governing bodies of Magic Software:
Decisions of Magic Software's
shareholders general meeting are taken by a simple majority of votes represented at the general meeting; the annual (ordinary) general
meeting adopts resolutions to elect individual directors, appoint Magic Software's independent auditors for the next year, as well
as to approve Magic Software's financial statements and the management's report on operations; in accordance with Magic Software's
articles of association, the board of directors of Magic Software is responsible for managing Magic Software's current business
operations and is authorized to take substantially all decisions which are not specifically reserved to Magic Software's shareholders
by its articles of association, including the decision to pay out dividends; and, Magic Software's board of directors is composed
of 5 members, 2 of whom are external directors as required by the Israeli Companies Law, 5759-1999, another one of whom is an independent
director and a fourth of whom is Formula's chief executive officer, who also serves as Magic Software's chief executive officer.
ii)
Shareholders structure of Magic Software:
Magic Software's shareholders
structure is dispersed because, apart from
the Company, as of December 31, 2022, there were just two shareholders (Israeli institutional
shareholders) holding more than 5% of Magic Software's voting power (representing 9.4% and 10.1%, and 7.0% and 7.0%, of the votes
as of December 31, 2022 and March 31, 2023, respectively); there is no evidence that any of the shareholders have or had granted to any
other shareholder a voting proxy at the general meeting; and, over the last six years from 2017 to 2022, Magic Software's general
meetings were attended by shareholders representing between 65%-87% of the total voting rights. Bearing in mind that the Company presently
holds approximately 46.26% of total voting right, this means that the level of activity of Magic Software's other shareholders is
relatively moderate or low. As of December 31, 2022, the attendance by shareholders would have to be higher than 92.52% in order to deprive
the Company of an absolute majority of votes at the general meeting.
In accordance with voting patterns at Magic Software's shareholders'
meetings in recent years, it is the Company's management's belief that achieving such a high attendance seems unlikely.
Therefore, it is management's
opinion that despite the lack of an absolute majority of shares in Magic Software, the Company is still able to influence the appointment
of directors at Magic Software and therefore may affect Magic Software's directions of development as well as its current business
operations.
F-
24
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
4)
Non-controlling interests
Non-controlling interests
in subsidiaries, represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests
are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of
other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests
even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. A change in
the ownership interest 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 interests with a corresponding adjustment of the equity attributable to equity holders of the Company less / plus
the consideration paid or received.
5)
Business combinations and goodwill:
Business combinations
are accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred
on the acquisition date with the addition of non-controlling interests in the acquiree. In each business combination, the Company determines
whether to measure the non-controlling interests in the acquiree based on their fair value on the acquisition date or at their proportionate
share in the fair value of the acquiree's net identifiable assets.
Direct acquisition
costs are carried to the statement of profit or loss as incurred.
In a business combination
achieved in stages, equity interests in the acquiree that had been held by the acquirer prior to obtaining control are measured at the
acquisition date fair value while recognizing a gain or loss resulting from the revaluation of the prior investment on the date of achieving
control.
Contingent consideration
is recognized at fair value on the acquisition date and classified as a financial asset or liability in accordance with IFRS 9, "Financial
Instruments". Subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If the contingent
consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement.
Goodwill is initially
measured at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net
identifiable assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognizes the resulting gain
on the acquisition date.
6)
Investment in joint arrangements:
Joint arrangements
are arrangements in which the Company has joint control. Joint control is the contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
F-
25
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
i.
Joint ventures:
In joint ventures
the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted
for by using the equity method.
ii.
Joint operations:
In joint operations
the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement.
The Company recognizes in relation to its interest its share of the assets, liabilities, revenues and expenses of the joint operation.
The acquisition of interests in a
joint operation which represents a business, as defined in IFRS 3, is accounted for using the acquisition method, including the
measurement of the identifiable assets and liabilities at fair value, the recognition of deferred taxes arising from this
measurement, the accounting treatment of the related transaction costs and the recognition of goodwill or bargain purchase gains.
This applies to the acquisition of the initial interest and additional interests in a joint operation that represents a
business.
7)
Investments in associates:
Associates are companies
in which the Group has significant influence over the financial and operating policies without having control. The investment in an associate
is accounted for using the equity method.
8)
Investments accounted for using the equity method:
The Group's
investments in associates and joint ventures are accounted for using the equity method.
Under the equity method,
the investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in the Group's
share of net assets, including other comprehensive income of the associate or the joint venture. Gains and losses resulting from transactions
between the Group and the associate or the joint venture are eliminated to the extent of the interest in the associate or in the joint
venture.
Goodwill relating
to the acquisition of an associate or a joint venture is presented as part of the investment in the associate or the joint venture, measured
at cost and not systematically amortized. Goodwill is evaluated for impairment as part of the investment in the associate or in the joint
venture as a whole.
The financial statements
of the Company and of the associate or joint venture are prepared as of the same dates and periods. The accounting policies applied in
the financial statements of the associate or the joint venture are uniform and consistent with the policies applied in the financial statements
of the Group.
F-
26
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Upon the acquisition
of an associate or a joint venture achieved in stages when the former investment in the acquiree was accounted for pursuant to the provisions
of IFRS 9, the Group adopts the principles of IFRS 3 regarding business combinations achieved in stages. Consequently, equity interests
in the acquiree that had been held by the Group prior to achieving significant influence or joint control are measured at fair value on
the acquisition date and are included in the acquisition consideration while recognizing a gain or loss resulting from the fair value
measurement.
The equity method
is applied until the loss of significant influence in the associate or loss of joint control in the joint venture or classification as
investment held for sale.
On the date of loss
of significant influence or joint control, the Group measures any remaining investment in the associate or the joint venture at fair value
and recognizes in profit or loss the difference between the fair value of any remaining investment plus any proceeds from the sale of
the investment in the associate or the joint venture and the carrying amount of the investment on that date.
9)
Functional currency, presentation currency and foreign currency:
i.
Functional currency and presentation currency:
The presentation currency of these
consolidated financial statements of the Group is the U.S. dollar (the "dollar"), since the Company believes that financial
statements in U.S. dollars provide more relevant information to its investors and users of the financial statements. The functional currency
applied by Formula, on a stand-alone basis. Since January 1, 2019 is the NIS. The functional currencies applied by Formula's subsidiaries
and associates are the currencies of the primary economic environment in which each one of them operates.
Assets, including fair value adjustments
upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each reporting date.
Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences are recognized
in other comprehensive income (loss).
Intragroup loans for which settlement
is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in the foreign operation
and, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded in other comprehensive income (loss).
Upon the full or partial disposal of
a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which
had been recognized in other comprehensive income is transferred to profit or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is
reattributed to non-controlling interests.
F-
27
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
ii.
Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign
currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary
assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at the exchange
rate at that date. Exchange rate differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign
currency and measured at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities
denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing
at the date when the fair value was determined.
iii.
Index-linked monetary items:
Monetary assets and liabilities linked
to the changes in the Israeli Consumer Price Index ("Israeli CPI") are adjusted at the relevant index at the end of each reporting
period according to the terms of their agreement.
10)
Cash and cash equivalents:
Cash equivalents are
considered highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less
from the date of investment or with a maturity of more than three months, but which are redeemable on demand without penalty and which
form part of the Group's cash management. Cash and cash equivalents include amounts held primarily in New-Israeli Shekel, dollars,
Euro, Indian Rupee, British Pound and Japanese Yen.
11)
Short-term deposits and restricted deposits:
Short-term deposits
are deposits with an original maturity of more than three months from the date of investment and which do not meet the definition of cash
equivalents. The deposits are presented according to their terms of deposit. Restricted deposits include deposits used to secure certain
subsidiaries' ongoing projects, as well as security deposits with respect to leases, and are classified under other short-term and
long-term receivables.
12)
Inventories:
Inventories are measured
at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the
inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business
less estimated costs of completion and estimated costs necessary to make the sale. Inventories are mainly comprised of purchased merchandise
and products which consist of educational software kits, computers, peripheral equipment and spare parts. Cost is determined on the "first
in – first out" basis. The Group periodically evaluates the condition and aging of its inventories and makes provisions for
slow-moving inventories accordingly. No such impairments have been recognized in any period presented.
F-
28
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
13)
Revenue recognition:
Revenue from contracts
with customers is recognized when the control over the goods or services is transferred to the customer. The transaction price is the
amount of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third
parties (such as taxes).
In determining the
amount of revenue from contracts with customers, the Group evaluates whether it is a principal or an agent in the arrangement. The Group
is a principal when the Group controls the promised goods or services before transferring them to the customer. In these circumstances,
the Group recognizes revenue for the gross amount of the consideration. When the Group is an agent, it recognizes revenue for the net
amount of the consideration, after deducting the amount due to the principal.
Sale of software
licensing, maintenance services and post implementation consulting services
A software licensing
transaction that does not require significant implementation services is considered a distinct performance obligation, as the customer
can benefit solely from the software on its own or together with other readily available resources.
The Group recognizes
revenue from software licensing transactions at a point in time when the Group provides the customer a right to use the Group's
intellectual property as it exists at the point in time at which the license is granted to the customer. The Group recognizes revenue
from software licensing transactions over time when the Group provides the customer a right to access the Group's intellectual property
throughout the license term.
The Group may generate
revenue from sale of software licensing which includes significant implementation and customization services. In such contracts the Group
is normally committed to provide the customer with a functional IT system and the customer can only benefit from such functional system,
being the final product that would normally be comprised of proprietary licenses and significant related services. Revenues from these
contracts are based on either fixed price or time and material.
Software licensing
transactions which involve significant implementation, customization, or integration of the Group's software license to customer-specific
requirements, are considered as one performance obligation satisfied over-time. The underlying deliverable is owned and controlled by
the customer and does not create an asset with an alternative use to the Group. In addition, the Group has an enforceable right to payment
for performance completed throughout the duration of the contract.
Accordingly, the Group
recognizes revenue from such contracts over time, using the percentage of completion accounting method. The Group recognizes revenue and
gross profit as the work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract.
Provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined, in the
amount of the estimated loss for the entire contract.
F-
29
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:-	SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
When post implementation
and consulting services do not involve significant customization, the Group accounts for such services as performance obligations satisfied
over time and revenues are recognized as the services are provided.
Revenue from maintenance
is recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Group's
performance. When payments from customers are made before or after the service is performed, the Group recognizes the resulting contract
asset or liability.
Sale of hardware
and infrastructure
Revenue from the sale
of hardware and infrastructure is recognized in profit or loss at the point in time when the control of the goods is transferred to the
customer, generally upon delivery of the goods to the customer.
Sale of training
and implementation services
Revenues from training
and implementation services are recognized when the service is provided. Revenue from training services in respect of public courses whose
operating range is up to 3 months is recognized at the end of the course period. Revenues from training services in respect of long-term
courses will be recognized over the term of the course. Revenues from implementation projects ordered by organizations is recognized according
to actual inputs (actually worked hours).
Revenue of contracts
according to actual inputs
Revenue from framework
agreements for the performance of work according to actual inputs is recognized according to the hours invested.
Revenue of fixed
price contracts
Revenue from fixed
price contracts is recognized according to the completion rate method when all the following conditions are met: the revenue is known
or can be estimated reliably, the collection of income is expected, the costs involved in performing the work are known or can be estimated,
there is no material uncertainty about the Group's ability to complete the work, and the customer and the completion rate can be
reliably estimated.
The Group applies
a cost-based input method for measuring the progress of performance obligations that are satisfied over time. In applying this cost-based
input method, the Group estimates the costs to complete contract performance in order to determine the amount of the revenue to be recognized.
These estimated costs include the direct costs and the indirect costs that are directly attributable to a contract based on a reasonable
allocation method.
In certain circumstances,
the Group is unable to measure the outcome of a contract, but the Group expects to recover the costs incurred in fulfilling the contract
as of the reporting date. In such circumstances, the Group recognizes revenue to the extent of 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 from a contract, the loss is recognized
in full regardless of the percentage of completion.
F-
30
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
When appropriate,
the Group also applies a practical expedient permitted under IFRS 15 whereby if the Group has a right to consideration from a customer
in an amount that corresponds directly with the value to the customer of the Group's performance completed to date (for example,
a service contract in which an entity bills a fixed amount for each hour of service provided), the Group may recognize revenue in the
amount it is entitled to invoice. Deferred revenues, which represent a contract liability, include unearned amounts received under maintenance
and support (mainly) and amounts received from customers for which revenues have not yet been recognized.
Allocating the
transaction price
For contracts that
consist of more than one performance obligation, at contract inception the Group allocates the contract transaction price to each performance
obligation identified in the contract on a relative stand-alone selling price basis. The stand-alone selling price is the price at which
the Group would sell the promised goods or services separately to a customer. The Group determines the stand-alone selling price for the
purposes of allocating the transaction price to each performance obligation by considering several external and internal factors including,
but not limited to, transactions where the specific performance obligation is sold separately, historical actual pricing practices and
geographies in which the Group offers its products and services. If a specific performance obligation, such as the software license, is
sold 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
that 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),
the Group applies the residual approach whereby all other performance obligations within a contract are first allocated a portion of the
transaction price based upon their respective stand-alone selling prices, with any residual amount of transaction price allocated to the
remaining specific performance obligation.
Variable consideration
The Group determines
the transaction price separately for each contract with a customer. When exercising this judgment, the Group evaluates the effect of each
variable amount in the contract, taking into consideration discounts, penalties, variations, claims, and non-cash consideration. In determining
the effect of the variable consideration, the Group normally uses the "most likely amount" method described in the Standard.
Pursuant to this method, the amount of the consideration is determined as the single most likely amount in the range of possible consideration
amounts in the contract. According to the Standard, variable consideration is included in the transaction price only to the extent that
it is highly probable that a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated with
the variable consideration is subsequently resolved.
Costs of obtaining
a contract
In order to obtain
certain contracts with customers, the Group incurs incremental costs in obtaining the contract (such as sales commissions which are contingent
on making binding sales). Costs incurred in obtaining the contract with the customer which would not have been incurred if the contract
had not been obtained and which the Group expects to recover are recognized as an asset and amortized on a systematic basis that is consistent
with the provision of the services under the specific contract.
F-
31
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
An impairment loss
in respect of capitalized costs of obtaining a contract is recognized in profit or loss when the carrying amount of the asset exceeds
the remaining amount of consideration that the Group expects to receive for the goods or services to which the asset relates, less the
costs that relate directly to providing those goods or services and that have not been recognized as expenses.
The Group has elected
to apply the practical expedient allowed by IFRS 15 according to which incremental costs of obtaining a contract are recognized as an
expense when incurred if the amortization period of the asset is one year or less.
A significant benefit
of financing
In certain contracts,
the Group provides the customer with financing for a period exceeding one year. In such circumstances, the Group recognizes revenue based
on the amount that reflects the price that would have been paid by the customer in cash on the date of receipt of the goods or services,
and the balance is recognized in finance income.
When long-term advances
are received for services which the Group is to provide in the future, the Group accrues interest on the advances and recognizes finance
expense over the expected period of the contract, provided that the contract contains a significant financing component. As the advances
are recognized in revenue, the Group also recognizes the accrued interest as part of revenue from services.
The Group has elected
to apply the practical expedient allowed by IFRS 15 according to which the Group does not separate the financing component in transactions
for which the period of financing is one year or less and recognizes revenue in the amount of the consideration stated in the contract
even if the customer pays for the goods or services before or subsequent to their receipt.
Revenues that include
warranty services
In certain cases,
the Group also provides a warranty for goods and services sold (i.e., extended warranties when the Group contractually undertakes to repair
any errors in the delivered software within a strictly specified time limit and/or when the scope of which is broader than just an assurance
to the customer that the product/service complies with agreed-upon specifications). The Group has ascertained that such warranties granted
by the Group meet the definition of service. The conclusion regarding the extended nature of a warranty is made whenever the Group contractually
undertakes to repair any errors in the delivered software within a strictly specified time limit and/or when such warranty is more extensive
than the minimum required by law. Under IFRS 15, the fact of granting an extended warranty indicates that the Group provides an additional
service. As such, the Group recognizes an extended warranty as a separate performance obligation and allocates a portion of the transaction
price to such service. In all cases where an extended warranty is accompanied by a maintenance service, which is even a broader category
than the extended warranty itself, revenues are recognized over time because the customer consumes the benefits of such service as it
is performed by the provider. If this is the case, the Group continues to allocate a portion of the transaction price to such maintenance
service. Likewise, in cases where a warranty service is provided after the project completion and is not accompanied by any maintenance
service, then a portion of the transaction price and analogically recognition of a portion of contract revenues will have to be deferred
until the warranty service is actually fulfilled.
F-
32
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Disaggregation
of revenue
Service revenue includes
contracts primarily for the provision of supplies and services other than design, development, customization, implementation, software
maintenance and support and software updates associated with delivery of products or proprietary software. It may be a stand-alone service
contract or a service performance obligation which is distinct from a contract or performance obligation for design, development, customization,
support and upgrade or delivery of product. The Group's service contracts include contracts in which the customer simultaneously
receives and consumes the benefits provided as the performance obligations are satisfied. The Group's service contracts primarily
include operation-type contracts, outsourcing, consulting, remote development services, digital advertising management, training and similar
activities.
Revenue by products
and services was as follows:
Year ended December 31,
2022
2021
2020
Proprietary software and related services
$
659,470
$
632,986
$
509,109
Other products and third party
494,344
472,045
312,315
Services
1,418,543
1,299,345
1,112,494
$
2,572,357
$
2,404,376
$
1,933,918
Revenue by timing
of revenue recognition was as follows:
Year ended December 31,
2022
2021
2020
Products and services transferred over time
$
2,251,416
$
2,072,841
$
1,697,312
Products transferred at a point in time
320,941
331,535
236,606
$
2,572,357
$
2,404,376
$
1,933,918
14)
Government grants:
Government grants
are recognized when there is reasonable assurance that the grants will be received, and the Group will comply with the attached conditions.
Government grants received from the Office of the Israel Innovation Authority ("IIA"), are recognized upon receipt as a liability
if future economic benefits are expected from the research project that will result in royalty-bearing sales.
A liability for the
loan is first measured at fair value using a discount rate that reflects a market participant rate of interest. The difference between
the amount of the grant received and the fair value of the liability is accounted for as a government grant and recognized as a reduction
of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest
method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected from the research activity,
the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation
is treated as a contingent liability in accordance with IAS 37.
F-
33
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
At each reporting
date, the Group evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid
(since the Group will not be required to pay royalties) based on the best estimate of future sales and using the original effective interest
method, and if so, the appropriate amount of the liability is derecognized against a corresponding reduction in research and development
expenses. Amounts paid as royalties are recognized as settlement of the liability.
15)
Debentures:
The Group accounts
for outstanding principal amount of debentures as a long-term liability, in accordance with IFRS 9, with current maturities classified
as a short-term liability. The Group identifies and separates equity components contained in convertible debentures by first determining
the liability component, in accordance with IAS 32, based on the fair value of an equivalent non-convertible liability. The conversion
component valued is being determined to be the residual amount. Debt issuance costs are capitalized and reported as deferred financing
costs, which are amortized over the life of the debentures using the effective interest rate method.
16)
Income tax:
Current or deferred
taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income
or equity.
●
Current taxes:
The current tax
liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as
adjustments required in connection with the tax liability in respect of previous years.
●
Deferred taxes:
Deferred taxes
are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed
for tax purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability
is settled, based on tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are
reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Deductible
carryforward losses and temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting
date and a respective deferred tax asset is recognized to the extent that their utilization is probable.
Taxes that would
apply in the event of the disposal of investments in investees have not been considered in computing deferred taxes, as long as the disposal
of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution
of earnings by investees as dividends have not been considered in computing deferred taxes, since the distribution of dividends does not
involve an additional tax liability or since it is the Group's policy not to initiate distribution of dividends from a subsidiary
that would trigger an additional tax liability.
F-
34
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Taxes on income that
relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted for pursuant to IAS 12.
Deferred taxes are
offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate
to the same taxpayer and the same taxation authority.
17)
Leases:
The Group accounts
for 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
for consideration.
i)
The Group as lessee
:
For leases in which
the Group is the lessee, the Group recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding
leases whose term is up to twelve months and leases for which the underlying asset is of low value. For these excluded leases, the Group
has elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring
the lease liability, the Group has elected to apply the practical expedient in the Standard and does not separate the lease components
from the non-lease components (such as management and maintenance services, etc.) included in a single contract.
Leases which entitle
employees to a company car as part of their employment terms are accounted for as employee benefits in accordance with the provisions
of IAS 19 and not as subleases.
On the commencement
date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be
readily determined, or otherwise using the Group's incremental borrowing rate. After the commencement date, the Group measures the
lease liability using the effective interest rate method.
On the commencement
date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the
commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the
shorter of its useful life and the lease term.
Following are the
amortization periods of the right-of-use assets by class of underlying asset:
Years
Mainly
Land and Buildings
2
-
23
3
Motor vehicles
2
-
3
3
The Group tests
for impairment of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36.
F-
35
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
ii)
Variable lease payments that depend on an index:
On the commencement
date, the Group uses the index rate prevailing on the commencement date to calculate the future lease payments.
For leases in which
the Group is the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a
change in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the right-of-use
asset, only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease
payments takes effect).
iii)
Variable lease payments
:
Variable lease payments
that do not depend on an index or interest rate but are based on performance or usage are recognized as an expense as incurred when the
Group is the lessee.
iv)
Lease extension and termination options
:
A non-cancelable lease
term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be
exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be
exercised.
In the event of any
change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Group
remeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations.
The total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions
are recognized in profit or loss.
v)
Lease modifications:
If a lease modification
does not reduce the scope of the lease and does not result in a separate lease, the Group remeasures the lease liability based on the
modified lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment
to 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 partial or full reduction of the carrying amount
of the right-of-use asset and the lease liability. The Group subsequently remeasures the carrying amount of the lease liability according
to the revised lease terms, at the revised discount rate as of the modification date and records the change in the lease liability as
an adjustment to the right-of-use asset.
F-
36
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
18)
Property, plant and equipment, net:
Property, plant and equipment
are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any
related investment grants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are
used in connection with plant and equipment. The cost of an item of property, plant and equipment comprises the initial estimate of
the costs of dismantling and removing the item and restoring the site on which the item is located.
Depreciation is calculated
on a straight-line basis over the useful life of the assets at annual rates as follows:
%
Land and Buildings
2.5
Computers, software, and peripheral equipment
20
–
33
Office furniture and equipment
6 – 33 (mainly 7)
Motor vehicles
13 – 15 (mainly 15)
Leasehold improvements
are amortized using the straight-line method over the term of the lease (including option terms that are deemed to be reasonably assured)
or the estimated useful life of the improvements, whichever is shorter.
The useful life, the
depreciation 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
accounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset
is classified as held for sale and the date that the asset is derecognized. For impairment testing of property, plant and equipment, see
Note 2(20) below.
19)
Intangible assets:
Separately acquired
intangible assets are measured on initial recognition at cost, including directly attributable costs. Intangible assets acquired in a
business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets,
excluding capitalized development costs, are recognized in profit or loss when incurred.
Intangible assets
with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset
may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end.
Research and development
expenditures
Research expenditures
incurred in the process of software development are recognized in profit or loss when incurred. An intangible asset arising from a software
development project or from the development phase of an internal project is recognized if the Group can demonstrate the technical feasibility
of completing the intangible asset so that it will be available for use or sale; the Group's intention to complete the intangible
asset and use or sell it; the ability to use or sell the intangible asset; how the intangible
asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible
asset; and the ability to measure reliably the respective expenditure asset during its development. The Group establishes technological
feasibility upon completion of a detailed program design or a working model.
F-
37
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Capitalized software
costs are measured at cost less any accumulated amortization and any accumulated impairment losses on a product-by-product basis. Amortization
of capitalized software costs begin when development is complete, and the product is available for use or for sale. The Group considers
a product to be available for use when the Group completes its internal validation of the product that is necessary to establish that
the product meets its design specifications including functions, features, and technical performance requirements. Internal validation
includes the completion of coding, documentation and testing that ensure bugs are reduced to a minimum. The internal validation of the
product takes place a few weeks before the product is made available to the market. In certain instances, the Group enters into a short
pre-release stage, during which the product is made available to a selected number of customers as a beta program for their own review
and familiarization. Subsequently, the release is made generally available to customers. Once a product is considered available for use,
the capitalization of costs ceases and amortization of such costs to "cost of sales" begins.
Capitalized software
costs are amortized on a product-by-product basis by the straight-line method over the estimated useful life of the software product (between
5
-
7
years).
Research and development
costs incurred in the process of developing product enhancements are generally charged to expenses as incurred.
The Group assesses
the recoverability of its capitalized software costs on a regular basis by assessing the net realizable value of these intangible assets
based on the estimated future gross revenues from each product reduced by the estimated future costs of completing and disposing of it,
including the estimated costs of performing maintenance and customer support over its remaining economical useful life using internally
generated projections of future revenues generated by the products, cost of completion of products and cost of delivery to customers over
its remaining economical useful life.
During the years ended
December 31, 2022, 2021 and 2020, no such unrecoverable amounts were identified.
Other intangible
assets
Intangible assets
excluding capitalized development costs are comprised mainly of customer-related intangible assets, backlogs, distribution rights, brand
names, acquired technology and patent, and are amortized over their useful lives using a method of amortization that reflects the pattern
in which the economic benefits of the intangible assets are consumed or otherwise used up. The useful life of intangible assets is as
follows:
Years
Customer relationship, backlog and
distribution rights
3
–
15
Brand names
5
Acquired technology
2
–
8
Patents
10
F-
38
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Gains or losses arising
from the derecognition of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount
of the asset, and are recognized in profit or loss.
The useful life of
these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and
circumstances do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted
for prospectively as a change in accounting estimate, and on that date the asset is tested for impairment. Commencing from that date,
the asset is amortized systematically over its useful life.
20)
Impairment of non-financial assets:
The Group evaluates
the need to record an impairment of non-financial assets (property, plant and equipment, capitalized software costs and other intangible
assets, goodwill, investments in joint venture) whenever events or changes in circumstances indicate that the carrying amount is not recoverable.
If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The
recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash
flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that
does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are
recognized in profit or loss.
An impairment loss
of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable
amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower
of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for
the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit
or loss.
The following criteria are applied in assessing impairment
of these specific assets:
i.
Goodwill in respect of subsidiaries:
For the purpose
of impairment testing, goodwill acquired in a business combination is allocated, at the acquisition date, to each of our cash-generating
units that are expected to benefit from the synergies of the combination. The Group reviews goodwill for impairment once a year, on December
31, or more frequently if events or changes in circumstances indicate that there is an impairment.
F-
39
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Goodwill is tested
for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill
has been allocated.
An impairment loss
is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated
is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first
to goodwill. Impairment losses recognized for goodwill cannot be reversed in subsequent periods.
ii.
Investment in associate or joint venture using the equity
method:
After application
of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the investment
in associates or joint ventures. The Group determines at each reporting date whether there is objective evidence that the carrying amount
of the investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire
investment, including the goodwill attributed to the associate or the joint venture.
iii.
Intangible assets with an indefinite useful life / capitalized
development costs that have not yet been systematically amortized:
The impairment test
is performed annually, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment.
During the years ended
December 31, 2022, 2021 and 2020, no impairment indicators were identified.
21)
Financial instruments:
A.
Financial assets:
Financial assets
are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial
assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in
profit or loss.
The Group classifies
and measures the debt instruments in its financial statements on the basis of the following criteria:
●
the Group's business model for the management of financial
assets; and
●
the contractual cash flow characteristics of the financial asset.
i.
The Group measures debt instruments at amortized cost
when
:
The Group's business model is to
hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give rise
on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial
recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate
method, less any provision for impairment. On the date of initial recognition, the Group may irrevocably designate a debt instrument as
measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency,
such as when a related financial liability is also measured at fair value through profit or loss.
F-
40
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
ii.
The Group measures debt instruments at fair value through
other comprehensive income when
:
The Group's business model is to
hold the financial assets in order to both collect their contractual cash flows and to sell the financial assets, and the contractual
terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding. Subsequent to the initial recognition, the instruments in this category are measured at fair value. Gains or losses
from fair value adjustments, excluding interest and exchange rate differences, are recognized in other comprehensive income.
iii.
The Group measures debt instruments at fair value through
profit or loss when
:
A financial asset which is a debt instrument
does not meet the criteria for measurement at amortized cost or at fair value through other comprehensive income. After initial recognition,
the financial asset is measured at fair value and gains or losses from fair value adjustments are recognized in profit or loss.
iv.
Equity instruments and other financial assets held for
trading
:
Investments in equity instruments do
not meet the above criteria and accordingly are measured at fair value through profit or loss. Other financial assets held for trading
such as derivatives, including embedded derivatives separated from the host contract, are measured at fair value through profit or loss
unless they are designated as effective hedging instruments. In respect of certain equity instruments that are not held for trading, on
the date of initial recognition, the Company made an irrevocable election to present subsequent changes in fair value in other comprehensive
income, which changes would have otherwise been recorded in profit or loss. These changes will not be reclassified to profit or loss in
the future, even when the investment is disposed of. Dividends from investments in equity instruments are recognized in profit or loss
when the right to receive the dividends is established.
F-
41
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
B.
Impairment of financial assets:
The Group evaluates
at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit
or loss. The Company distinguishes between two types of loss allowances:
i.
Debt instruments whose credit risk has not increased significantly
since initial recognition, or whose credit risk is low – the loss allowance recognized in respect of this debt instrument is measured
at an amount equal to the expected credit losses within 12 months from the reporting date; or
ii.
Debt instruments whose credit risk has increased significantly
since initial recognition, and whose credit risk is not low – the loss allowance recognized is measured at an amount equal to the
expected credit losses over the instrument's remaining term.
The Group has short-term
financial assets such as trade receivables in respect of which the Group applies a simplified approach in IFRS 9 and measures the loss
allowance in an amount equal to the lifetime expected credit losses.
An impairment loss
on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from
the carrying amount of the financial asset, whereas the impairment loss on debt instruments measured at fair value through other comprehensive
income is recognized in profit or loss with a corresponding loss allowance that is recorded in other comprehensive income and not as a
reduction of the carrying amount of the financial asset in the statement of financial position.
The Group applies
the low credit risk simplification in IFRS 9, according to which the Group assumes the debt instrument's credit risk has not increased
significantly since initial recognition if on the reporting date it is determined that the instrument has a low credit risk, for example
when the instrument has an external rating of "investment grade".
C.
Derecognition of financial assets:
The Group derecognizes
a financial asset when and only when:
i.
The contractual rights to the cash flows from the financial
asset expire; or
ii.
The Group has transferred substantially all the risks and
rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control of the asset; or
iii.
The Group has retained its contractual rights to receive
cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to
a third party.
F-
42
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
D.
Financial liabilities:
i.
Financial liabilities measured at amortized cost:
Financial liabilities
are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, the Group measures all financial liabilities at amortized cost using the effective interest rate method, except
for:
●
Financial liabilities at fair value through profit or loss,
such as derivatives;
●
Financial liabilities that arise when a transfer of a financial
asset does not qualify for derecognition or when the continuing involvement approach applies;
●
Financial guarantee contracts; and
●
Contingent consideration recognized by an acquirer in a business
combination as to which IFRS 3 applies.
ii.
Financial liabilities measured at fair value through profit
or loss:
At initial recognition,
the Group measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit
or loss. After initial recognition, changes in fair value are recognized in profit or loss.
E.
Derecognition of financial liabilities:
A financial liability is
derecognized when it is extinguished, that is, when the obligation is discharged or cancelled or expires. A financial liability is
extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services or is legally
released from the liability.
When there is a modification to the
terms of an existing financial liability, the Group evaluates whether the modification is substantial.
If the terms of an existing financial
liability are substantially modified, such modification is accounted for as an extinguishment of the original liability and the recognition
of a new liability. The difference between the carrying amounts of the above liabilities is recognized in profit or loss.
If the modification is not substantial,
the Group recalculates the carrying amount of the liability by discounting the revised cash flows at the original effective interest rate
and any resulting difference is recognized in profit or loss.
F.
Offsetting financial instruments:
Financial assets and financial liabilities
are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the
recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The right of set-off must be legally enforceable not only during the ordinary course of business of the
parties to the contract but also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to
be currently available, it must not be contingent on a future event, there may not be periods during which the right is not available,
or there may not be any events that will cause the right to expire.
F-
43
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
G.
Compound financial instruments:
i)
Convertible debentures which contain both an equity component
and a liability component are separated into two components. This separation is performed by first determining the liability component
based on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined to be the residual
amount. Directly attributable transaction costs are apportioned between the equity component and the liability component based on the
allocation of proceeds to the equity and liability components.
ii)
Convertible debentures that are denominated in foreign currency
contain two components: the conversion component and the debt component. The liability conversion component is initially recognized as
a financial derivative at fair value. The balance is attributed to the debt component. Directly attributable transaction costs are allocated
between the liability conversion component and the liability debt component based on the allocation of the proceeds to each component.
H.
Put option granted to non-controlling interests:
When the Group grants to non-controlling
interests a put option to sell part or all of their interests in a subsidiary, during a certain period, even if such purchase obligation
is conditional on the counterparty's exercise of its contractual right to cause such redemption, if the put option agreement does
not transfer to the Group any benefits incidental to 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 reporting period the non-controlling interests (to which a portion of net profit attributable
to non-controlling interests is allocated) are classified as a financial liability, as if such put-able equity instrument was redeemed
on that date. The difference between the non-controlling interests carrying amount at the end of the reporting period and the present
value of the liability is recognized directly in equity of the Group, under "Additional paid-in capital".
The Group remeasures the financial
liability at the end of each reporting period based on the estimated present value of the consideration to be transferred upon the exercise
of the put option.
If the option is exercised in subsequent
periods, the consideration paid upon exercise is treated as settlement of the liability. If the put option expires, the liability is settled
and a portion of the investment in the subsidiary disposed of, without loss of control therein.
If the Group has present ownership
of the non-controlling interests, these non-controlling interests are accounted for as if they are held by the Group, and changes in the
amount of the liability are carried to profit or loss.
F-
44
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
22)
Hedge accounting:
Derivative financial
instruments designated as hedges
:
From time to time,
the Group enters into contracts for derivative financial instruments such as forward currency contracts and interest rate swaps to hedge
risks associated with foreign exchange rate and interest rate fluctuations. Any gains or losses arising from changes in the fair values
of derivatives that do not qualify for hedge accounting are recorded immediately in profit or loss.
Hedges qualify for
hedge accounting, among others, when at inception of the hedging relationship there is a formal designation and documentation of the hedging
relationship and of the Group's risk management objective and strategy for undertaking the hedge. Hedges are assessed on an ongoing basis
to determine whether they are highly effective during the reporting period for which the hedge is designated. Hedges are accounted for
as follows:
i)
Fair value hedges:
The change in the
fair value of the derivative (the hedging item) and the hedged item is recognized in profit or loss. For fair value hedges relating to
hedged items carried at amortized cost, the adjustment to the carrying amount is amortized to profit or loss over the remaining term to
maturity. Any adjustment of the hedged financial instrument for which the effective interest rate method is used, is recognized in profit
or loss. If the hedged item is derecognized, the unamortized changes to fair value are recognized immediately in profit or loss.
ii)
Cash flow hedges:
The effective portion
of the change in the fair value of the hedging instrument is recognized in other comprehensive income (loss) while any ineffective portion
is recognized immediately in profit or loss.
Amounts recognized
as other comprehensive income (loss) are reclassified to profit or loss when the hedged transaction affects profit or loss, such as when
interest income or expense is recognized or when a forecasted transaction occurs. Where the hedged item is a non-financial asset or liability,
their cost also includes the gain (loss) from the hedging instrument.
The Company discontinues
hedge accounting prospectively only when the hedge relationship, in whole or in part, ceases to meet the qualifying criteria (after taking
into account any rebalancing of hedge relationship, if applicable), including instances when the hedging instrument expires or is sold,
terminated or exercised (or if the hedge designation is reversed). When the Company discontinues hedge accounting, amounts accumulated
in the cash flow hedge reserve remain in the cash flow hedge reserve until the future cash flows occur or are reclassified to profit or
loss if the hedged future cash flows are no longer expected to occur.
23)
Fair value measurement:
Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset's or the
liability's principal market, or in the absence of a principal market, in the most advantageous market.
F-
45
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
The fair value of
an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming
that market participants act in their economic best interest. Fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market
participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the
use of unobservable inputs.
All assets and liabilities
measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest
level input that is significant to the entire fair value measurement:
Level 1
-
quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
-
inputs other than quoted prices included within Level 1 that are observable directly or indirectly.
Level 3
-
inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data).
24)
Treasury shares:
Company shares held
by the Company and/or by investees are recognized at cost of purchase and presented as a deduction from equity. Any gain or loss arising
from a purchase, sale, issue or cancellation of treasury shares is recognized directly in equity.
25)
Provisions:
A provision in accordance
with IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made
of the amount of the obligation. If the effect is material, provisions are measured according to the estimated future cash flows discounted
using a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks specific
to the liability. When the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement
is recognized as a separate asset but only when the reimbursement is virtually certain. The expense is recognized in the statement of
profit or loss net of any reimbursement.
Following are the
types of provisions included in the financial statements:
i.
Legal claims:
A provision for claims is recognized
when 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
of resources embodying economic benefits will be
required by the Group to settle the obligation and a reliable estimate can be made of the amount of the obligation.
F-
46
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
ii.
Contingent liability recognized in a business combination:
A contingent liability in a business
combination is measured at fair value upon initial recognition. In subsequent periods, it is measured at the higher of the amount initially
recognized less, when appropriate, cumulative amortization, and the amount that would be recognized at the end of the reporting period
in accordance with IAS 37.
26)
Derivative financial instruments and hedging:
From time to time,
the Group enters into contracts for derivative financial instruments such as forward currency contracts and options contracts to hedge
risks associated with foreign exchange rates resulting from international activities and interest rate fluctuations. The derivative instruments
primarily hedge or offset exposures to Euro, New Israeli Shekel ("NIS"), British Pound and Japanese Yen and exchange rate
fluctuations.
The Group's
options and forward contracts do not qualify for hedging accounting. Any gains or losses arising from changes in the fair values of the
derivatives are recorded immediately in profit or loss as financial income or expense.
27)
Employee benefit liabilities:
The Group maintains
several employee benefit plans:
i.
Short-term employee benefits:
Short-term employee
benefits are benefits that are expected to be settled wholly before twelve (12) months after the end of the annual reporting period in
which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social
security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing
plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by
an employee and a reliable estimate of the amount can be made. The short-term employee benefit liability in the statement of financial
position is measured on an undiscounted basis.
ii.
Post-employment benefits:
The plans are normally
financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.
Formula's and
its Israeli subsidiaries and associates accounted for at equity (as defined with respect to their Israeli employee contribution plans
pursuant to section 14 of Israel's Severance Pay Law, 1963 (the "Severance Pay Law")) pay fixed contributions to those
plans and will have no legal or constructive obligation to pay further contributions if the fund into which those contributions are paid
does not hold sufficient amounts to pay all employee benefits relating to employee service
in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognized
as an expense when contributed concurrently with performance of the employee's services.
F-
47
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Formula and its Israeli
subsidiaries and companies accounted for at equity also operate a defined benefit plan in respect of severance or retirement pay to their
Israeli employees pursuant to the Severance Pay Law. According to the Severance Pay Law, employees are entitled to severance pay upon
dismissal or retirement. The liability for termination of employment is measured using the projected unit credit method. The actuarial
assumptions include rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented
based on discounted expected future cash flows using a discount rate determined by reference to market yields at the reporting date on
high quality corporate bonds that are linked to Israel's Consumer Price Index with a term that is consistent with the estimated
term of the severance pay obligation.
In respect of its
severance pay obligation to certain of its employees, the Group makes current deposits in pension funds and insurance companies (the "plan
assets"). Plan assets comprise assets held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are
not available to the Group's own creditors and cannot be returned directly to the Group.
The liability for
employee benefits shown in the statement of financial position reflects the present value of the defined benefit obligation, less the
fair value of the plan assets. Remeasurements of the net liability are recognized in other comprehensive income in the period in which
they occur.
Severance expenses
for the years 2022, 2021 and 2020 were $
51,897
, $
48,331
and $
35,897
, respectively.
iii.
Other long-term employee benefits:
Certain employees
of the Group are entitled to benefits in respect of adaptation grants. These benefits are accounted for as other long-term benefits since
the Group estimates that these benefits will be utilized and the Group's respective obligation will be settled during the employment
period and more than twelve months after the end of the annual reporting period in which the employees rendered the related service.
The Group's
net obligation for other long-term employee benefits, which is computed based on actuarial assumptions, is for the future benefit due
to employees for services rendered in the current period and in prior periods and considering expected salary increases. The amount of
these benefits is discounted to its present value. The discount rate is determined by reference at the reporting date to market yields
on high quality corporate bonds that are linked to the Consumer Price Index and whose term is consistent with the term of the Group's
obligation.
Remeasurement of
the net obligation is recognized in the statement of comprehensive income in the incurred period.
F-
48
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
28)
Share-based payment transactions:
The Group's
employees and certain service providers are entitled to remuneration in the form of equity-settled share-based payment transactions. The
cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The
fair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured
at the fair value of the goods or services received as consideration for equity instruments granted.
The cost of equity-settled
transactions is recognized in profit or loss together with a corresponding increase in equity during the period which the performance
and/or service conditions are to be satisfied ending on the date on which the relevant employees become entitled to the award (the "vesting
period"). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting
date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments
that will ultimately vest.
No expense is recognized
for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are
satisfied
.
If the Group modifies
the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total
fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification
date
.
If a grant of an equity
instrument is canceled, it is accounted for as if it had vested on the cancelation date and any expense not yet recognized for the grant
is recognized immediately. However, if a new grant replaces the canceled grant and is identified as a replacement grant on the grant date,
the canceled and new grants are accounted for as a modification of the original grant, as described above.
29)
Earnings per share:
Earnings per
share are calculated by dividing the net income attributable to equity holders of the Company by the weighted number of ordinary
shares outstanding during the period. Potential ordinary shares are included in the computation of diluted earnings per share if
their conversion decreases earnings per share from continuing operations. Potential ordinary shares that are converted during the
period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. The
Company's share of earnings of subsidiaries is included based on its share of earnings per share of the subsidiaries
multiplied by the number of shares held by the Company.
F-
49
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
30)
Concentration of credit risk:
Financial instruments
that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term deposits,
restricted cash, trade receivables and foreign currency derivative contracts.
The majority of the
Group's cash and cash equivalents, deposits, marketable securities and other financial instruments are invested with major banks
in Israel, the United States and across Europe. Management believes that these financial instruments are held in financial institutions
with high credit standing, and accordingly, minimal credit risk exists with respect to these investments. Cash and cash equivalents and
short-term deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these
banks deposits may be redeemed upon demand and therefore bear minimal risk.
The Group's
trade receivables are generally derived from sales to large organizations located mainly in Israel, North America, Europe and Asia Pacific.
The Group performs ongoing credit evaluations of its customers using a reliable outside source to determine payment terms and credit limits
which are approved based on the size of the customer and to date has not experienced any material losses. In certain circumstances, Formula
and its subsidiaries and companies accounted for at equity may require letters of credit, other collateral or additional guarantees. From
time to time, the Group's subsidiaries sell certain of their accounts receivable to financial institutions, within the normal course
of business.
The Group maintains
an allowance for credit losses based upon management's experience and estimate of collectability of each outstanding invoice. The
allowance for credit losses is determined with respect to specific debts or which collection is doubtful. The risk of collection associated
with accounts receivable is mitigated by the diversity and number of customers.
Bad debt expense,
net for the years ended December 31, 2022, 2021 and 2020 was $
3,022
, $
1,333
and $
3,188
respectively.
From time to time,
the Group enters into foreign exchange forward and option contracts intended to protect against the changes in value of forecasted non-dollar
currency cash flows. These derivative instruments are designed to offset a portion of the Group's non-dollar currency exposure (see
Note 2 (26) above).
31)
Liquidity risk:
Liquidity risk arises
from managing the Group's working capital as well as from financial expenses and principal payments of the Group's debt instruments.
Liquidity risk consists of the risk that the Group will have difficulty in fulfilling obligations relating to financial liabilities. The
Group's policy is to ascertain constant cash adequacy needed for settling its liabilities when due. For this purpose, the Group
aims to hold cash balances (or adequate credit lines) that will meet anticipated demands.
F-
50
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
Formula and its subsidiaries
and companies accounted for at equity examine cash flow forecasts on a monthly basis as well as information regarding cash balances. As
of the reporting date, these forecasts indicate that the Group can expect sufficient liquid sources for covering its entire liabilities
under reasonable assumptions.
32)
Changes in accounting policies – initial adoption of
new financial reporting and accounting standards:
1.
Amendment to IAS 16, "Property, Plant and Equipment":
In May 2020, the IASB issued an amendment
to IAS 16, "Property, Plant and Equipment" (the "Amendment"). The Amendment prohibits a company from deducting from
the cost of property, plant and equipment ("PP&E") consideration received from the sales of items produced while the company
is preparing the asset for its intended use. Instead, the company should recognize such consideration and related costs in profit or loss.
The Amendment is effective for annual
reporting periods beginning on or after January 1, 2022. The Amendment is applied retrospectively, but only to items of PP&E made
available for use on or after the beginning of the earliest period presented in the financial statements in which the company first applies
the Amendment.
The cumulative effect of initially
applying the Amendment is recognized as an adjustment to the opening balance of retained earnings (or other component of equity, as applicable)
at the beginning of the earliest period presented.
The application of the Amendment did
not have a material impact on the Company's financial statements.
2.
Amendment to IAS 37, "Provisions, Contingent Liabilities
and Contingent Assets":
In May 2020, the IASB issued an amendment
to IAS 37, regarding which costs a company should include when assessing whether a contract is onerous ("the Amendment").
According to the Amendment, costs of
fulfilling a contract include both the incremental costs (for example, raw materials and direct labor) and an allocation of other costs
that relate directly to fulfilling a contract (for example, depreciation of an item of property, plant and equipment used in fulfilling
the contract).
The Amendment is effective for annual
periods beginning on or after January 1, 2022 and applies to contracts for which all obligations in respect thereof have not yet been
fulfilled as of January 1, 2022. The application of the Amendment does not require the restatement of comparative data for property, plant
and equipment. Instead, the opening balance of retained earnings on the initial application date is adjusted for the cumulative effect
of the Amendment.
F-
51
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
The application of the Amendment did
not have a material impact on the Company's financial statements.
3.
Amendments to IFRS 3, "Business Combinations":
In May 2020, the IASB issued Amendments
to IFRS 3, "Business Combinations – Reference to the Conceptual Framework", which are intended to replace a reference
to the Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework for Financial
Reporting, which was issued in March 2018, without significantly changing its requirements.
The IASB added an exception to the
recognition principle of IFRS 3 to avoid the issue of potential 'day 2' gains or losses arising for liabilities and contingent
liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred
separately.
The exception requires entities to
apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine at the acquisition date whether
as a result of a past event, a present obligation exists or whether the event that creates an obligation to pay the levy occurred by the
acquisition date.
The Amendments also clarify that contingent
assets do not qualify for recognition at the acquisition date.
The Amendments are applied prospectively
for annual reporting periods beginning on or after January 1, 2022.
The application of the Amendments did
not have a material impact on the Company's financial statements.
4.
Annual improvements to IFRSs 2018-2020:
In May 2020, the IASB adopted certain
amendments in the context of the Annual Improvements to IFRSs 2018-2020 Cycle. The main amendment is to IFRS 9, "Financial Instruments"
(the "Amendment"). The Amendment clarifies which fees a company should include in the "10% test" described in paragraph
B3.3.6 of IFRS 9 when assessing whether the terms of a debt instrument that has been modified or exchanged are substantially different
from the terms of the original debt instrument.
According to the Amendment, fees paid
net of any fees received that are included in the cash flows are only those fees paid or received between the borrower and the lender,
including fees paid or received by either the borrower or lender on the other's behalf.
The Amendment is effective for annual
periods beginning on or after January 1, 2022. The Amendment is applied to financial liabilities that are modified or exchanged on or
after the beginning of the annual reporting period in which the entity first applies the Amendment, that is from January 1, 2022.
F-
52
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
33)
Disclosure of new standards in the period prior to their
adoption:
i.
Amendment to IAS 1, "Presentation of Financial Statements":
In January 2020, the IASB issued an amendment
to IAS 1, "Presentation of Financial Statements" regarding the criteria for determining the classification of liabilities as
current or non-current (the "Original Amendment"). In October 2022, the IASB issued a subsequent amendment (the "Subsequent
Amendment").
According to the Subsequent Amendment:
●
Only covenants with which an entity must comply on or before
the reporting date will affect a liability's classification as current or non-current.
●
An entity should provide disclosure when a liability arising from a loan agreement is classified as non-current
and the entity's right to defer settlement is contingent on compliance with future covenants within twelve months from the reporting date.
This disclosure is required to include information about the covenants and the related liabilities. The disclosures must include information
about the nature of the future covenants and when compliance is applicable, as well as the carrying amount of the related liabilities.
The purpose of this information is to allow users to understand the nature of the future covenants and to assess the risk that a liability
classified as non-current could become repayable within twelve months. Furthermore, if facts and circumstances indicate that an entity
may have difficulty in complying with such covenants, those facts and circumstances should be disclosed.
According to the Original Amendment,
the conversion option of a liability affects the classification of the entire liability as current or non-current unless the conversion
component is an equity instrument.
The Original Amendment and Subsequent
Amendment are both effective for annual periods beginning on or after January 1, 2024 and must be applied retrospectively. Early application
is permitted.
The Company estimates that the Amendments
are not expected to have a material impact on its financial statements.
ii.
Amendment to IAS 8, "Accounting Policies, Changes to
Accounting Estimates and Errors":
In February 2021, the IASB adopted an
amendment to IAS 8, "Accounting Policies, Changes to Accounting Estimates and Errors" (the "Amendment"), which introduces
a new definition of "accounting estimates".
Accounting estimates are defined as "monetary
amounts in financial statements that are subject to measurement uncertainty". The Amendment clarifies the distinction between changes
in accounting estimates and changes in accounting policies and the correction of errors.
F-
53
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
The Amendment is to be applied prospectively
for annual reporting periods beginning on or after January 1, 2023 and is applicable to changes in accounting policies and changes in
accounting estimates that occur on or after the start of that period. Early application is permitted.
The Company estimates that the Amendment
is not expected to have a material impact on its financial statements.
iii.
Amendment to IAS 12, "Income Taxes":
In May 2021, the IASB issued an amendment
to IAS 12, "Income Taxes" ("IAS 12"), which narrows the scope of the initial recognition exception under IAS 12.15
and IAS 12.24 (the "Amendment").
According to the recognition guidelines
of deferred tax assets and liabilities, IAS 12 excludes recognition of deferred tax assets and liabilities in respect of certain temporary
differences arising from the initial recognition of certain transactions. This exception is referred to as the "initial recognition
exception". The Amendment narrows the scope of the initial recognition exception and clarifies that it does not apply to the recognition
of deferred tax assets and liabilities arising from transactions that are not a business combination and that give rise to equal taxable
and deductible temporary differences, even if they meet the other criteria of the initial recognition exception.
The Amendment applies for annual reporting
periods beginning on or after January 1, 2023, with earlier application permitted. In relation to leases and decommissioning obligations,
the Amendment is to be applied commencing from the earliest reporting period presented in the financial statements in which the Amendment
is initially applied. The cumulative effect of the initial application of the Amendment should be recognized as an adjustment to the opening
balance of retained earnings (or another component of equity, as appropriate) at that date.
The Company estimates that the initial
application of the Amendment is not expected to have a material impact on its financial statements.
iv.
Amendment to IAS 1 - Disclosure of Accounting Policies:
In February 2021, the IASB issued an
amendment to IAS 1, "Presentation of Financial Statements" (the "Amendment"), which replaces the requirement to
disclose 'significant' accounting policies with a requirement to disclose 'material' accounting policies. One of the main reasons for
the Amendment is the absence of a definition of the term 'significant' in IFRS whereas the term 'material' is defined in several standards
and particularly in IAS 1.
The Amendment is applicable for annual
periods beginning on or after January 1, 2023. Early application is permitted.
The Company estimates that the Amendment
is not expected to have a material impact on its financial statements.
F-
54
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 2:- SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
v.
Amendment to IFRS 16, "Leases":
In September 2022, the IASB issued
an amendment to IFRS 16, "Leases" (the "Amendment"), which provides guidance on how a seller-lessee should measure
the lease liability arising in a sale and leaseback transaction with variable lease payments that do not depend on an index or rate. The
seller-lessee has to choose between two accounting policies for measuring the lease liability on the inception date of the lease. The
accounting policy chosen must be applied consistently.
The Amendment is applicable for annual
periods beginning on or after January 1, 2024. Early application is permitted. The Amendment is to be applied retrospectively.
The Company estimates that the Amendment
is not expected to have a material impact on its financial statements.
34)
Certain amounts in the prior years' financial statements
have been reclassified to conform to the current year's presentation.
F-
55
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS
i.
Formula
a.
Acquisition of Shamrad Electronic (1997) Ltd ("Shamrad")
On October 2, 2022,
the Company directly acquired all of the share capital of Shamrad. Shamrad is an Israeli private company, engaged in the supply, integration
and installation of computer communication infrastructures, announcement and alarm systems and electronic security systems. Shamrad represents
several companies in the field of security: ATI systems – sirens, Garrett – Metal detectors, Kopp – Ferro Magnetic detectors
for MRI rooms. The total consideration to be paid for the acquisition amounted to approximately NIS
9,412
(approximately $
2,657
),
with NIS
7,065
(approximately $
1,994
) paid in cash, or approximately NIS
8,555
(approximately $
2,415
) net of acquired cash. Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's
consolidated statement of profit or loss. The results of Shamrad's operations have been included in the consolidated financial statements
since October 2022.
The following table
summarizes the estimated fair values allocated to Shamrad's assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:
Net assets excluding cash acquired
$
(
404
)
Other long-term assets
173
Liabilities in respect of business combinations
(
662
)
Backlog
837
Deferred tax liabilities, net
(
140
)
Goodwill
1,948
Total assets acquired net of acquired cash
$
1,752
b.
Acquisition of ZAP Group Ltd. ("ZAP Group")
On April 6, 2021
(the "Zap Group acquisition date"), the Company directly acquired
100
% of the share capital of Zap Group, Israel's largest
group of consumer websites which manages more than 20 leading consumer websites from diverse content worlds. The websites managed and
offered by Zap provide small and medium-sized businesses in Israel with a broad and rich advertising platform and offer consumers a user-friendly
search experience with a variety of advanced tools, which enable them to make educated purchase decisions in the best and most informed
way. The cash consideration paid at the closing amounted to approximately NIS
244,169
(approximately $
74,350
), or approximately NIS
216,172
(approximately $
65,825
) net of acquired cash. Moreover, the former shareholders of Zap Group are entitled to contingent consideration
payments of up to NIS
60,000
(approximately $
18,270
) depending on the future results of operations of Zap Group during the first two years
following the acquisition. The fair value of such contingent consideration, as of the acquisition date amounted to NIS
3,577
(or $
1,089
).
For the year ended December 31, 2022, the fair value of such contingent consideration amounted to $
0
. Acquisition-related costs were immaterial.
Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's consolidated statement
of profit or loss. The results of Zap Group's operations have been included in the consolidated financial statements since April
2021.
F-
56
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
The following table
summarizes as of the acquisition date the estimated consideration for the acquisition of Zap Group:
Cash consideration
$
74,350
Acquisition date fair-value of contingent consideration
1,089
Total consideration
$
75,439
The following table
summarizes the estimated fair values allocated to Zap Group's assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:
Net assets excluding cash acquired
$
(
7,171
)
Other long-term assets
8,735
Other long-term liabilities
(
4,565
)
Customer relationships
39,152
Trade names
8,642
Deferred tax liabilities
(
10,984
)
Non-controlling interests in acquiree's subsidiary
(
1,384
)
Goodwill
33,400
Total assets acquired net of acquired cash
$
65,825
ii.
Sapiens
Acquisition of
I.T Cognitive Ltd ("Cognitive"):
On May 19, 2022,
Sapiens completed the acquisition of
100
% of the outstanding shares of Cognitive, an Israeli company which provides digital transformation
solutions, for a total cash consideration of $
3,466
.
Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's
consolidated statements of statement of profit or loss.
The following table
summarizes the estimated fair values allocated to Cognitive' s assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:
Net assets excluding cash acquired
$
116
Customer relations
345
Acquired technology
1,320
Deferred tax liabilities
(
437
)
Goodwill
2,122
Total assets acquired net of acquired cash
$
3,466
F-
57
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
iii.
Magic Software
a.
Acquisition of Appush Ltd. (formerly known as Vidstart
Ltd.) ("Appush")
On January 27, 2022,
Magic Software acquired
50.1
% of Appush Ltd. (formerly known as Vidstart Ltd.) ("Appush"), a provider of a video advertising
platform that offers personalized automated methods and real-time smart optimization, helping its clients achieve high yields in the competitive
digital ecosystem. According to the share purchase agreement, Magic Software is committed to purchase the remainder of Appush's shares
in two tranches:
30
% on April 1, 2022 and
19.9
% on April 1, 2023. Magic Software's commitment to purchase all of the outstanding
share capital of Appush as of the closing date was accounted for as a financial liability measured at fair value in the amount of $
10,450
.
As of the closing date the estimated total consideration for the acquisition of all of the outstanding share capital of Appush amounted
to $
21,492
, or approximately $
19,944
, net of acquired cash (of which $
11,043
was paid in cash at closing, or approximately $
9,495
net
of acquired cash). The fair value of the financial liability referring to the purchase of the remaining
49.9
% interest in Appush amounted
as of December 31, 2022 to approximately $
8,560
.
Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's
consolidated statement of profit or loss. The acquisition was accounted for according to the purchase method. Appush's results of
operations have been included in the consolidated financial statements commencing January 27, 2022.
The following table
summarizes the estimated fair values allocated to the Appush acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:
Net liabilities excluding cash acquired
$
(
1,047
)
Customer relations
5,168
Acquired technology
2,276
Deferred tax liabilities
(
1,713
)
Liabilities in respect of business combinations
(
10,450
)
Goodwill
15,261
Total assets acquired, net of acquired cash
$
9,495
b.
Acquisition of The Goodkind Group, LLC ("TGG"):
On August 23, 2022
(the "TGG Acquisition Date"), Magic Software acquired
100
% of TGG's outstanding share capital for a total consideration
of $
11,629
or approximately $
11,482
net of acquired cash (of which approximately $
7,993
was paid upon closing, or approximately $
7,846
net of cash acquired). TGG provides permanent and temporary staffing services in various sectors including: Information Technology, Accounting
& Finance, Digital Media, Marketing, Human Resource, Financial Services. With On-Site programs and sourcing models TGG solutions include
functions which differ from standard staffing companies. TGG provides assistance in the areas of compensation design and development,
employee opinion surveys, employment policies and practices, performance management, regulatory and compliance issues and succession planning.
F-
58
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
The remainder constitutes
a deferred payment payable in 2023 (approximately $
2,765
) and 2024 (approximately $
870
).
Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's
consolidated statement of profit or loss. The acquisition was accounted for according to the purchase method. TGG's results of operations
have been included in the consolidated financial statements since TGG Acquisition Date.
The following table
summarizes the estimated fair values
(1)
allocated to the TGG acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:
Net assets excluding cash acquired
$
3,177
Customer relations
3,901
Liabilities in respect of business combinations
(
3,635
)
Goodwill
4,404
Total assets acquired, net of acquired cash
$
7,847
(1)
The
estimated fair values of the tangible and intangible assets in respect of the acquisition of TGG are provisional and are based on information
that was available as of the acquisition date to estimate the fair value of these amounts. The Group's management believes the
information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary
to finalize those fair values. Therefore, provisional measurements of fair value that appear are subject to change. The Group expects
to finalize the tangible and intangible assets valuation and complete the acquisition accounting as soon as practicable but no later
than the measurement period.
c.
Acquisition of Intrabases SAS ("Intrabases"):
On July 1, 2022 (the
"Intrabases Acquisition Date"), Magic Software acquired Intrabases SAS, a provider of IT professional services based in Nantes,
France. The consideration for the transaction was comprised solely of cash in an amount of approximately $
3,428
, or approximately $
2,981
net of acquired cash.
Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's
consolidated statement of profit or loss. The acquisition was accounted for according to the purchase method. Intrabases' results
of operations have been included in the consolidated financial statements since the Intrabases Acquisition Date.
The following table
summarizes the estimated fair values allocated to the Intrabases acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:
Net liabilities excluding cash acquired
$
120
Acquired technology
429
Customer relations
1,145
Deferred tax liabilities
(
520
)
Goodwill
1,807
Total assets acquired, net of acquired cash
$
2,981
d.
During 2022 Magic Software concluded two separate asset purchase agreements
each meeting the definition of a "business" and as such were deemed as "business combinations" in accordance with
IFRS 3. These aforementioned acquisitions were immaterial, both individually and in the aggregate. The total consideration paid for these
acquisitions amounted to approximately $
1,753
. The estimated fair values allocated to customer relations, net of deferred tax liability
and goodwill amounted to $
1,163
and $
898
, respectively.
F-
59
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
e.
Acquisition of EnableIT, LLC ("EnableIT")
On April 1, 2021
(the "EnableIT Acquisition Date"), Magic Software completed the acquisition of all of the share capital of EnableIT, a U.S.-based
services company, specializes in IT staffing and recruiting, for a total consideration of $
6,000
(or $
5,900
net of acquired cash) of which
$
4,000
was paid upon closing and the remaining $
2,000
was paid in two equal installments: one in April 1, 2022 and the second and final
one in April 1, 2023. Acquisition-related costs were immaterial. Unaudited pro forma condensed results of operations were not presented
since they were not material to the Company's consolidated statement of profit or loss. The acquisition was accounted for according
to the purchase method. EnableIT's results of operations have been included in the consolidated financial statements since the EnableIT
Acquisition Date
The following table
summarizes the estimated fair values allocated to the EnableIT acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:
Net liabilities excluding cash acquired
$
(
35
)
Intangible assets
2,546
Other long-term assets
459
Other long-term liabilities
(
1,171
)
Goodwill
4,101
Total assets acquired, net of acquired cash
$
5,900
The excess of purchase
consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill. The goodwill from the acquisition
of EnableIT is primarily attributable to potential synergies with Magic Software, as well as certain intangible assets that do not qualify
for separate recognition. The goodwill is not deductible for income tax purposes.
f.
Acquisition of Menarva Ltd. ("Menrava")
On April 1, 2021
(the "Menrava Acquisition Date"), Magic Software completed the acquisition of all of the share capital of Menarva, an Israeli-based
services company which specializes in software solutions for non-profit organizations and the developer of Nativ, a proprietary comprehensive
core system, based on Magic xpa, for management of rehabilitation centers for a total consideration of $
5,595
(or $
5,505
net of acquired
cash), of which, $
3,000
was paid upon closing). The remaining amount constitutes a contingent payment depending on the future operating
results achieved by Menarva during 2021-2022. The fair value of the contingent consideration on the acquisition date amounted to $
2,595
.
Acquisition related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not
material to the Company's consolidated statement of profit or loss.
The acquisition was
accounted for according to the purchase method. Menrava's results of operations were included in the consolidated financial statements
of the Company commencing of the Menarva Acquisition Date
.
The following table
summarizes the estimated fair values allocated to the Menarva acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:
Net liabilities excluding cash acquired
$
(
129
)
Customer relationships
2,750
Other long-term assets
194
Other long-term liabilities
(
787
)
Goodwill
3,477
Total assets acquired, net of acquired cash
$
5,505
F-
60
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
The excess of purchase
consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill. The goodwill from the acquisition
of Menarva is primarily attributable to potential synergies with Magic Software, as well as certain intangible assets that do not qualify
for separate recognition. The goodwill is not deductible for income tax purposes.
g.
Acquisition of 9540 Y.G. Soft IT Ltd. ("Soft IT")
On January 1, 2021 (the "SoftIT
Acquistion Date"), Magic Software, through one of its Israeli subsidiaries, acquired
60
% of the shares of Soft IT, an Israel-based
services company which specializes in outsourcing of software development services, for a total consideration of up to $
1,134
(or $
843
net of acquired cash), of which $
367
was paid upon closing, $
256
was paid in July 2021, $
257
was paid in April 2022 and with the remaining
amount constitutes a contingent payment depending on the future operating results achieved by Soft IT. The fair value of the contingent
consideration as of the acquisition date amounted to $
510
. In addition, both Magic Software and Soft IT's minority shareholder hold
mutual call and put options, respectively, for the remaining
40
% interest. Thus, the noncontrolling interests were classified as redeemable
noncontrolling interests. Acquisition related costs were immaterial. Unaudited pro forma condensed results of operations were not presented
since they were not material to the Company's consolidated statement of profit or loss. The acquisition was accounted for according
to the purchase method. Soft IT's results of operations were included in the consolidated financial statements of the Company commencing
on the SoftIT Acquistion Date.
The following table
summarizes the estimated fair values allocated to the Soft IT acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date
:
Net liabilities excluding cash acquired
$
(
402
)
Customer relationships
1,150
Deferred taxes
(
264
)
Redeemable non-controlling interests
(
719
)
Goodwill
967
Total assets acquired, net of acquired cash
$
732
The excess of purchase
consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill. The goodwill from the acquisition
of Soft IT is primarily attributable to potential synergies with Magic Software, as well as certain intangible assets that do not qualify
for separate recognition. The goodwill is not deductible for income tax purposes.
F-
61
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
iv.
Matrix IT
a.
Sale of Infinity Labs R. & D. Ltd. ("Infinity")
On April 24, 2022, Matrix IT concluded the sale of
45.2
% of the issued
and share capital of Infinity Labs R. & D. Ltd. ("Infinity") for a total consideration of NIS
154,469
(approximately $
46,165
).
Following the transaction Matrix IT's remaining interest in Infinity's outstanding share capital amounted to
4.9
% of Infinity's
outstanding share capital. As a result of the transaction, the Company recognized a capital gain (before tax), in the amount of approximately
NIS 148,102 (approximately $
44,260
), including NIS 16,745 (approximately $
5,004
) recorded with respect to the revaluation of the Matrix
IT remaining share interest in Infinity. In accordance, as of the second quarter of 2022, Infinity's financial results of operations
were not consolidated in the Company's financial statements and the remaining share interest of
4.9
% in Infinity's outstanding
share capital was measured at fair value with subsequent changes in the fair value of the investment recognized in profit or loss.
b.
Acquisition of RDT Equipment and Systems (1993) Ltd.,
Asio Vision Ltd. and R.S.A. Test Systems Industry Ltd. (Collectively "RDT")
On June 19, 2022,
Matrix IT, through Matrix Integration and Infrastructure Ltd., Matrix IT's wholly owned subsidiary, acquired all of the share capital
of RDT for cash consideration of NIS
44,012
(approximately $
12,720
), or NIS
41,006
(approximately $
11,851
) net of acquired cash. As part
of the purchase agreement, the sellers may be entitled to additional future consideration contingent upon RDT meeting certain future operating
profit targets. As of the acquisition date, Matrix IT estimates the future value of the contingent consideration at NIS
14,751
(approximately
$
4,263
). RDT provides services in the field of multimedia systems. RDT markets software solutions and systems for a wide range of technologies,
including control and automation solutions, test and measurement equipment, advanced technological solutions for testing data communication,
EMC products, radio frequency (RF) and microwaves components, and serves, among other things, as a representative in Israel for dozens
of international software and hardware vendors. Unaudited pro forma condensed results of operations were not presented since they were
not material to the Company's consolidated statement of profit or loss. RDT's results of operations were included in the consolidated
financial statements of the Company commencing July 2022.
The following table
summarizes the provisional estimated fair values
(1)
allocated to the RDT acquired assets and assumed liabilities, with reference
to the acquisition as of the acquisition date:
Net assets excluding cash acquired
$
529
Inventories
2,513
Property, plant and equipment
669
Intangible assets
3,470
Deferred taxes
(
115
)
Credit from banks
(
1,388
)
Other long-term liabilities
(
62
)
Liabilities in respect of business combinations
(
4,263
)
Goodwill
10,498
Total assets acquired net of acquired cash
$
11,851
(1)
The estimated fair values of the tangible and intangible
assets in respect of the acquisition of RDT are provisional and are based on information that was available as of the acquisition date
to estimate the fair value of these amounts. The Group's management believes the information provides a reasonable basis for estimating
the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional
measurements of fair value that appear are subject to change. The Group expects to finalize the tangible and intangible assets valuation
and complete the acquisition accounting as soon as practicable but no later than the measurement period.
F-
62
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
c.
Acquisition of AVB Technologies Ltd. ("AVB Technologies")
On October 5, 2021,
Matrix IT, through Matrix Integration and Infrastructure Ltd., Matrix's wholly owned subsidiary, acquired
60
% of the share capital
of AVB Technologies for cash consideration of NIS
4,626
(approximately $
1,433
), or NIS
4,068
(approximately $
1,260
) net of acquired cash.
As part of the purchase agreement, the sellers may be entitled to additional future consideration contingent upon AVB Technologies meeting
certain future operating profit targets. As of the acquisition date, Matrix IT estimated the future value of the contingent consideration
at NIS
2,063
(approximately $
639
). AVB Technologies provides services in the field of multimedia systems. AVB Technologies' services
vary from constructing multimedia systems for meeting rooms to video conference rooms, state of the art digital display solutions, video
walls, command and control management rooms, advanced audio solutions and advanced display solutions. Acquisition related costs were immaterial.
Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's consolidated
statement of profit or loss. AVB Technologies' results of operations were included in the consolidated financial statements of the
Company commencing October 2021.
The following table
summarizes the estimated fair values allocated to AVB Technologies' acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:
Net assets excluding cash acquired
$
234
Other long-term assets
100
Intangible assets
972
Deferred taxes
(
224
)
Other long-term liabilities
(
1,094
)
Non-controlling interests
(
320
)
Goodwill
1,592
Total assets acquired net of acquired cash
$
1,260
F-
63
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
d.
Acquisition of I.T.D. Group Ltd. ("I.T.D. Group")
On April 29, 2021,
Matrix IT acquired 75% of the share capital of the I.T.D. Group for cash consideration of NIS 5,750 (approximately $1,771) or NIS 4,141
net of acquired cash (approximately $1,276). As part of the purchase agreement, the sellers may still be entitled to future additional
consideration contingent upon I.T.D. Group achieving certain future operating profit targets. As of the acquisition date, Matrix IT estimates
the future value of the contingent consideration at NIS 223 (approximately $69). Matrix IT also holds a future call option to purchase
the remaining 25% of I.T.D. Group's share capital. I.T.D. Group is a leading provider of software development, regulation and cybersecurity
services for the healthcare industry in Israel, assisting companies to: design and develop innovative solutions, services, and desktop,
mobile, and cloud-based apps; ensure rock-solid cybersecurity and privacy in compliance with HIPAA/GDPR standards; and manage FDA/CE submissions.
Acquisition
-
related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were
not material to the Company's consolidated statement of profit or loss. I.T.D Group's results of operations were included
in the consolidated financial statements of the Company commencing May 2021.
The following table
summarizes the estimated fair values allocated to I.T.D Group's acquired assets and assumed liabilities, with reference to the acquisition
as of the acquisition date:
Net assets excluding cash acquired
$
98
Other long-term assets
179
Intangible assets
901
Deferred taxes
(
207
)
Liabilities in respect of business combination
(
818
)
Other long-term liabilities
(
137
)
Redeemable non-controlling interests
(
145
)
Goodwill
1,405
Total assets acquired net of acquired cash
$
1,276
e.
Acquisition of SQ Service Quality Ltd. ("SQ Service
Quality")
On April 5, 2021,
Babcom Centers Ltd., a subsidiary of Matrix IT, acquired
60
% of the share capital of SQ Service Quality for cash consideration of NIS
4,043
(approximately $
1,218
) or NIS
2,734
net of acquired cash (approximately $
822
). As part of the purchase agreement, the sellers may
still be entitled to future additional consideration contingent upon SQ Service Quality achieving certain future operating profit targets.
Matrix IT and SQ Service Quality's minority shareholder hold mutual call and put options for the remaining
40
% interest in SQ Service
Quality. SQ Service Quality has been active for more than a decade and it accompanies organizations and companies in service quality improvement
processes. Acquisition
-
related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since
they were not material to the Company's consolidated statement of profit or loss. SQ Service Quality's results of operations
were included in the consolidated financial statements of the Company commencing April 2021.
The following table
summarizes the estimated fair values allocated to the SQ Service Quality acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:
Net assets excluding cash acquired
$
84
Other long-term assets
63
Intangible assets
431
Deferred taxes
(
99
)
Other long-term liabilities
(
3
)
Redeemable non-controlling interests
(
555
)
Goodwill
901
Total assets acquired net of acquired cash
$
822
F-
64
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
f.
Acquisition of A.A Engineering Ltd. ("A.A Engineering")
On April 5, 2021,
Dana Engineering Ltd. (a subsidiary of Matrix IT), acquired
75
% of the share capital of A.A Engineering for NIS
10,490
(approximately
$
3,160
) or NIS
9,289
net of acquired cash (approximately $
2,797
). As part of the purchase agreement, the sellers may be entitled to future
additional consideration contingent upon A.A Engineering achieving certain future operating profit targets. As of the acquisition date,
Matrix IT estimates the future value of the contingent consideration at NIS
474
(approximately $
143
). Matrix IT holds a call option for
the remaining
25
% share interest in A.A Engineering. Since 1973, A.A Engineering specializes in planning, management, coordination and
supervision work in civil engineering projects serving a wide range of customers, both from institutions and public bodies and from leading
companies in the Israeli economy.
Acquisition
-
related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's
consolidated statement of profit or loss. A.A Engineering's results of operations were included in the consolidated financial statements
of the Company commencing April 2021.
The following table
summarizes the estimated fair values allocated to A.A Engineering's acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:
Net assets excluding cash acquired
$
389
Other long-term assets
104
Intangible assets
1,139
Deferred taxes
(
262
)
Other long-term liabilities
(
260
)
Non-controlling interests
(
527
)
Goodwill
2,214
Total assets acquired net of acquired cash
$
2,797
F-
65
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
v.
Michpal
a.
Acquisition of Formally Smart Form System Ltd. ("Formally")
On February 16, 2022,
Michpal acquired 70% of the share capital of
Formally, for a total consideration of NIS 44,833 (approximately $14,415) or NIS 43,768 (approximately $14,073) net of acquired cash.
Michpal and the seller hold mutual call and put options, respectively, for the remaining 30% share interest in Formally. The options can
be exercised during every year starting from January 1, 2023 in 3 equal portions of 10% each and for a period of 3 years thereafter (i.e.
10% of Formally's outstanding share capital as of 1.1.23 and for a period of 3 years thereafter; 10% as of 1.1.24 and for a period
of 3 years thereafter and 10% as of 1.1.24 and for a period of 3 years thereafter).The fair value of the put option measured on the acquisition
date amounted to NIS 6,104 (approximately $1,936). Formally is an Israeli-based company and the creator of Formally Smart Form platform
– a central server platform for managing knowledge and work processes, and for producing digital forms combined with a legally-binding
eSignature technology allowing customers to create impressive documents in minutes and get them signed in a snap. Formally offers a variety
of proprietary computerized and advanced tools for managing business processes trusted by Israel's largest financial, banking, and
insurance enterprises. Its "no-code" platform, allows to convert outdated forms into a digital process for any company freeing
IT teams from ongoing maintenance issues and enables employees across the organization to deliver new digital products quickly and efficiently.
Acquisition
-
related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were
not material to the Company's consolidated statement of profit or loss. Formally's results of operations were included in
the consolidated financial statements of the Company commencing February 16, 2022.
The following table
summarizes the estimated fair values of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition
date:
Net liabilites excluding cash acquired
$
(
521
)
Other long-term assets
82
Acquired technology
2,468
Customer relations
6,727
Deferred tax liabilities
(
2,008
)
Other long-term liabilities
(
548
)
Non-controlling interests
(
1,963
)
Goodwill
9,836
Total assets acquired net of acquired cash
$
14,073
vi.
ZAP Group:
a.
Acquisition
    of N.C Marketing and Advertising Ltd. ("Safra digital marketing") and Marcomit Ltd. ("Marcomit")
During December 2022,
Zap Group concluded the acquisition of
51
% of the outstanding share capital of N.C Marketing and Advertising Ltd. (also known as "Safra
digital marketing") and
51
% of the outstanding share capital of Marcomit Ltd. ("Marcomit"). Safra digital marketing
is an Israeli company specializing in social media services including Facebook, Instagram and Tik-tok. Marcomit is an Israeli company
specializing in digital branding for large enterprises including advanced branding materials for media and digital advertising.
F-
66
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
The total
consideration paid for these acquisitions amounted to approximately $
3,532
, or $
2,819
net of acquired cash. As part of the purchase
agreements, the sellers of Safra digital marketing and Marcomit may be entitled to additional future consideration contingent upon
meeting certain future operating profit targets. The fair value of such contingent considerations, as of the acquisition dates,
amounted to $
708
. In addition, Zap and the minority shareholders of Safra digital marketing and Marcomit hold mutual call and put
options for the remaining
49
% interest. The fair value of the put options measured on the acquisition date amounted to approximately
$
4,021
. Acquisition-related costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they
were not material to the Company's consolidated statement of profit or loss. The results of operations of Safra digital
marketing and Marcomit have been included in the consolidated financial statements since their respective acquisition dates. The
provisional estimated fair values allocated to customer relations, net of deferred tax liability and goodwill, amounted to $
2,745
and $
1,891
, respectively.
b.
Acquisition of the remaining rights in Winhelp Ofran partnership
In February 2022, Zap Group acquired
49.9
% of the rights in its controlled partnership, Winhelp Ofran, a provider of digital advertising solutions for domestic travel businesses
in Israel, for consideration of NIS 11,000 (approximately $
3,537
), pursuant to which, Zap Group owns the entire rights in Winhelp Ofran
partnership.
vii.
Insync Staffing:
On December 12, 2022,
Insync Staffing acquired all of the outstanding share capital of Bear Staffing Services Corporation ("Bear Staffing"), a corporation
duly organized under the laws of the State of Florida, for a total consideration of $
7,737
(excluding $
8,646
of acquired cash) with $
5,276
paid in cash at closing, $
589
paid in March 2023 and deferred payments of $
957
and $
915
, respectively due on the first and second anniversaries
of the closing date. Bear Staffing Corporation is a staffing agency providing talent for industries such as manufacturing
,
distribution, and call centers. Since its inception, Bear Staffing Corporation has provided more than
50,000
employees to over
2,000
employers
across the United States
.
Leveraging leading-edge recruiting technology
and their recruiting model, Bear Staffing has been able to find, attract, place, and retain talent for their clients nationwide. As a
staffing agency that specializes in high-volume industries and skill sets, Bear Staffing's objective is to provide targeted and
efficient staffing solutions to meet the specific needs of its clients.
Acquisition-related
costs were immaterial. Unaudited pro forma condensed results of operations were not presented since they were not material to the Company's
consolidated statement of profit or loss. Bear Staffing's results of operations were included in the consolidated financial statements
of the Company commencing December 12, 2022.
F-
67
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 3:- BUSINESS
COMBINATION, SIGNIFICANT TRANSACTION AND SALE OF BUSINESS (Cont.)
The following table
summarizes the provisional estimated fair values
(1)
of the acquired assets and assumed liabilities, with reference to the
acquisition as of the acquisition date:
Net assets excluding cash acquired
$
11
Customer relations
1,969
Dividend to former shareholder
(
7,327
)
Liabilities due to acquisitions
(
2,461
)
Goodwill
4,438
Total assets acquired net of acquired cash
$
(
3,370
)
(1)
The estimated fair values of the tangible and intangible
assets in respect of the acquisition of Bear Staffing are provisional and are based on information that was available as of the acquisition
date to estimate the fair value of these amounts. The Group's management believes the information provides a reasonable basis for
estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore,
provisional measurements of fair value that appear are subject to change. The Group expects to finalize the tangible and intangible assets
valuation and complete the acquisition accounting as soon as practicable but no later than the measurement period.
NOTE 4:-
CASH AND CASH EQUIVALENTS
December 31,
2022
2021
Balance nominated in USD
$
190,457
$
155,045
Balance nominated in NIS
282,050
249,186
Balance nominated in other currencies
71,835
81,160
$
544,342
$
485,391
NOTE 5:-
PREPAID EXPESNES AND OTHER ACCOUNTS RECEIVAVABLE
The following table summarizes
the composition of the Group's prepaid expenses and other accounts receivable:
December 31,
2022
2021
Prepaid expenses and advances to suppliers
$
42,190
$
48,871
Government authorities
17,908
20,911
Employees
430
326
Related Parties
281
278
Others
3,726
1,732
$
64,535
$
72,118
F-
68
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note 6:- long-term
investments and receivables
December 31,
2022
2021
Prepaid expenses and deposits
$
15,173
$
17,139
Investments in financial assets designated at fair value through other comprehensive income
9,870
680
Trade receivables and unbilled receivables
5,379
2,960
Financial assets designated at fair value through profit or loss
4,856
35
Dividend preference derivative in TSG (see Note 8)
3,000
2,023
Others
707
839
$
38,985
$
23,676
Note 7:- Fair
value measurement
In determining fair value, the
Group utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible and considers counterparty credit risk in its assessment of fair value.
The Group's financial
assets and liabilities measured at fair value on a recurring basis, including accrued interest components, consisted of the following
types of instruments as of December 31, 2021 and 2022:
Fair value measurements
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Financial assets at fair value through the other comprehensive income
9,408
-
462
9,870
Financial assets measured at fair value through profit or loss
738
-
4,762
5,500
Dividend preference derivative in TSG
(1)
-
-
3,000
3,000
Foreign currency derivative contracts
-
109
-
109
$
10,146
$
109
$
8,224
$
18,479
Fair value measurements
December 31, 2022
Level 1
Level 2
Level 3
Total
Liabilities:
Put options of non-controlling interests
-
-
72,188
72,188
Contingent consideration in respect of business combination
-
-
30,635
30,635
$
-
$
-
$
102,823
$
102,823
F-
69
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note 7:- Fair
value measurement (
Cont.
)
Fair value measurements
December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Dividend preference derivative in TSG
(1)
-
-
2,023
2,023
Convertible bonds at fair value through profit or loss
-
1,142
-
1,142
Foreign currency derivative contracts
-
188
-
188
$
-
$
1,330
$
2,023
$
3,353
Liabilities:
Put options of non-controlling interests
-
-
71,278
71,278
Contingent consideration in respect of business combination
-
-
24,495
24,495
$
-
$
-
$
95,773
$
95,773
(1)
The fair value of dividend preference derivative in TSG was
estimated using the Monte-Carlo simulation technique.
Note 8:-  Investments
in companies accounted for at equity
The following table summarizes
the Group's investments in companies accounted for at equity:
December 31,
2022
2021
TSG (Joint venture)
19,459
27,633
Other
1,287
1,267
$
20,746
$
28,900
Investment in TSG
The Company holds
directly a
50
% share interest in the issued and outstanding share capital of TSG, a joint venture engaged in the fields of command-and-control
systems, intelligence, homeland security and cyber security. The Company's investment in TSG is reflected in the consolidated financial
statements using the equity method of accounting. At the acquisition date the Company attributed an amount of $
2,140
to a separate component
of dividend preference derivative. The dividend preference derivative is measured at fair value through profit or loss and is presented
in the consolidated statements of financial position under long-term investments and receivables.
F-
70
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note 8:-  Investments
in companies accounted for at equity (
Cont.
)
a.
The following table summarizes the balances related to the Company's investment in TSG in the consolidated
statements of financial position:
December 31,
2022
2021
Investment in companies accounted for at equity method
Shares
11,291
18,391
Capital note
8,168
9,242
$
19,459
$
27,633
Long-term investments and receivables
Dividend preference derivative at fair value through profit or loss
$
3,000
$
2,023
b.
The following table summarizes the changes in the fair value
of TSG's dividend preference derivative:
December 31,
2022
2021
Opening balance
$
2,023
$
1,707
Increase in fair value recognized in profit or loss
1,221
255
Currency exchange rate in other comprehensive income
(
244
)
61
Closing balance
$
3,000
$
2,023
c.
The following table summarizes the changes in the carrying amount of the Company's investment in
TSG:
January 1, 2020
$
26,016
Company's share of profit
1,318
Company's share of other comprehensive income
(
169
)
December 31, 2020
$
27,165
Company's share of profit
340
Company's share of other comprehensive income
128
December 31, 2021
$
27,633
Company's share of profit
(
2,027
)
Company's share of other comprehensive income
(
3,053
)
Adjustments arising from translating financial statements from functional currency to presentation currency
(
3,094
)
December 31, 2022
$
19,459
F-
71
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
8:- Investments in companies accounted for at equity
(Cont.)
d.
Summarized financial data of joint venture:
(i)
Summarized statements of financial position of TSG as of
December 31, 2021 and 2022:
December 31,
2022
2021
Current assets
67,254
47,065
Non-current assets
65,627
27,557
Current liabilities
(
33,527
)
(
25,167
)
Non-current liabilities
(
69,534
)
(
6,299
)
Net assets
29,820
43,156
Accumulated cost of share-based payment
(
1,705
)
(
1,282
)
Total equity attributed to shareholders
$
28,115
$
41,874
50
%
50
%
Share of equity in TSG
14,058
20,937
Excess of fair value over carrying amount
5,401
6,696
Total investment carrying amount
$
19,459
$
27,633
(ii)
Summarized operating results of TSG for the years ended December
31, 2022, 2021 and 2020:
Year ended December 31,
2022
2021
2020
Revenues
69,714
77,035
77,661
Net income
(
2,780
)
2,104
4,059
Other comprehensive income
(
6,107
)
255
(
338
)
Total comprehensive income
(
8,887
)
2,359
3,721
Company's share in TSG
50
%
50
%
50
%
(
4,444
)
1,180
1,861
Amortization of excess cost of intangible assets net of tax
(
637
)
(
712
)
(
712
)
Company's share of total comprehensive income
(
5,081
)
468
1,149
Company's share of other comprehensive income
(
3,053
)
128
(
169
)
Company's share of profit
(
2,027
)
340
1,318
(
5,081
)
468
1,149
F-
72
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 9:- PROPERTY,
PLANTS AND EQUIPMENT, NET
a.
Property, plants and equipment, net, are comprised of the
following as of the below dates:
Computers, furniture and equipment
Leasehold improvements
Motor vehicles
Software
Total
Cost:
Balance at January 1, 2022
$
145,333
$
41,911
$
8,305
$
2,546
$
198,095
Entrance to consolidation
4,024
453
351
111
4,939
Purchases
17,298
4,675
368
114
22,455
Disposals
(
10,735
)
(
418
)
(
560
)
(
25
)
(
11,738
)
Loss of Control
(
684
)
(
1,337
)
-
-
(
2,021
)
Exchange rate differences from translation of foreign operations
(
15,259
)
(
2,468
)
(
967
)
(
327
)
(
19,021
)
Balance at December 31, 2022
$
139,977
$
42,816
$
7,497
$
2,419
$
192,709
Accumulated depreciation:
Balance at January 1, 2022
$
108,762
$
25,444
$
4,673
$
2,330
$
141,209
Entrance to consolidation
2,803
388
219
107
3,517
Depreciation
14,709
2,834
909
75
18,527
Disposals
(
10,287
)
(
242
)
(
384
)
(
23
)
(
10,936
)
Loss of Control
(
308
)
(
971
)
-
-
(
1,279
)
Exchange rate differences from translation of foreign operations
(
9,805
)
(
2,691
)
(
573
)
(
231
)
(
13,300
)
Balance at December 31,2022
$
105,874
$
24,762
$
4,844
$
2,258
$
137,738
Depreciated cost at December 31, 2022
$
34,103
$
18,054
$
2,653
$
161
$
54,971
F-
73
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 9:- PROPERTY,
PLANTS AND EQUIPMENT, NET (Cont.)
Computers, furniture and equipment
Leasehold improvements
Motor vehicles
Software
Total
Cost:
Balance at January 1, 2021
$
137,947
$
40,458
$
8,571
$
2,489
$
189,465
Entrance to consolidation
6,913
1,687
420
8
9,028
Purchases
14,593
2,442
645
114
17,794
Disposals
(
16,699
)
(
1,473
)
(
1,542
)
(
5
)
(
19,719
)
Loss of Control
-
(
2,288
)
-
-
(
2,288
)
Exchange rate differences from translation of foreign operations
2,579
1,085
211
(
60
)
3,815
Balance at December 31, 2021
$
145,333
$
41,911
$
8,305
$
2,546
$
198,095
Accumulated depreciation:
Balance at January 1, 2021
102,197
22,024
3,855
2,213
130,289
Entrance to consolidation
5,693
1,495
331
-
7,519
Depreciation
15,805
3,532
991
140
20,468
Disposals
(
15,328
)
(
2,242
)
(
954
)
(
5
)
(
18,529
)
Exchange rate differences from translation of foreign operations
395
635
450
(
18
)
1,462
Balance at December 31, 2021
$
108,762
$
25,444
$
4,673
$
2,330
$
141,209
Depreciated cost at December 31, 2021
$
36,571
$
16,467
$
3,632
$
216
$
56,886
b.
Depreciation expenses totaled $
18,527
, $
20,468
and $
16,513
for the years ended December 31, 2022, 2021 and 2020, respectively.
F-
74
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NotE 10:- Intangible
Assets, Net
a.
Intangible assets, net, are comprised of the following as
of the below dates:
Customer relationship
Capitalized Software costs
Acquired technology
Other
Total
Cost:
Balance at January 1, 2022
$
307,256
$
289,506
$
97,395
$
12,906
$
707,063
Entrance to consolidation
26,643
-
6,152
843
33,638
Purchases
-
14,732
1,181
-
15,913
Disposals
-
(
415
)
(
1,204
)
-
(
1,619
)
Exchange rate differences from translation of foreign operations
(
23,920
)
(
20,785
)
(
3,187
)
(
1,479
)
(
49,371
)
Balance at December 31, 2022
$
309,979
$
283,038
$
100,337
$
12,270
$
705,624
Accumulated depreciation:
Balance at January 1, 2022
154,112
243,264
64,381
3,370
465,127
Depreciation
26,668
11,562
9,986
1,285
49,501
Disposals
-
(
416
)
(
1,205
)
-
(
1,621
)
Exchange rate differences from translation of foreign operations
(
11,213
)
(
17,157
)
(
1,319
)
(
420
)
(
30,109
)
Balance at December 31,2022
$
169,567
$
237,253
$
71,843
$
4,235
$
482,898
Depreciated cost at December 31, 2022
$
140,412
$
45,785
$
28,494
$
8,035
$
222,726
Customer relationship
Capitalized Software costs
Acquired technology
Other
Total
Cost:
Balance at January 1, 2021
$
253,064
$
269,374
$
96,754
$
3,657
$
622,849
Entrance to consolidation
51,348
-
-
9,126
60,474
Purchases
249
14,272
1,070
-
15,591
Exchange rate differences from translation of foreign operations
2,595
5,860
(
429
)
123
8,149
Balance at December 31, 2021
$
307,256
$
289,506
$
97,395
$
12,906
$
707,063
F-
75
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NotE 10:- Intangible
Assets, Net
(Cont.)
Customer relationship
Capitalized Software costs
Acquired technology
Other
Total
Balance at January 1, 2021
$
125,577
$
218,762
$
52,107
$
2,380
$
398,826
Depreciation
25,960
19,697
12,096
931
58,684
Exchange rate differences from translation of foreign operations
2,575
4,805
178
59
7,617
Balance at December 31,2021
$
154,112
$
243,264
$
64,381
$
3,370
$
465,127
Depreciated cost at December 31, 2021
$
153,144
$
46,242
$
33,014
$
9,536
$
241,936
b.
Amortization expenses totaled $
49,501
, $
58,611
, and $
44,586
for the years ended December 31, 2022,
2021 and 2020, respectively.
Note
11:- Goodwill
The following table summarizes the changes in
the carrying amount of goodwill for the years ended December 31, 2022 and 2021:
December 31,
2022
2021
Opening balance
$
932,854
$
872,424
Acquisition of subsidiaries
52,651
49,416
Classifications
(
1,502
)
1,585
Foreign currency translation adjustments
(
57,842
)
9,429
Closing balance
$
926,161
$
932,854
The Group performed
annual impairment tests as of December 31, 2022, 2021 and 2020 and did not identify any impairment losses (see Note 2(20)).
Note 12:-
short term Liabilities to banks and others
December 31,
December 31,
2022
2022
2021
Interest rate
%
Currency
Current maturities of long-term loans from
    banks and other financial institutions (Note 14)
1.4 - Prime + 1.5
NIS
78,883
85,280
Commercial securities not listed
Prime+ 0.5
NIS
56,834
64,309
Short-term bank loans and credit line
1.6-4
NIS and USD
13,168
22,070
Current maturities of long-term loans from banks (Note 14)
2.1%+LIBOR-SOFR+2.25%
NIS Linked to USD
8,908
3,950
Short-term interest on long-term loans from other
    financial institutions
2.6 - Prime + 1.5
NIS
89
87
$
157,882
$
175,696
F-
76
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note 13:- other accounts
payable
Other
accounts payable are comprised of the following as of the below dates:
December 31,
2022
2021
Government institutions
$
43,955
$
39,480
Accrued expenses and other current liabilities
42,385
40,931
$
86,340
$
80,411
Note 14:- Long term
Liabilities to Banks and Others
a.
Long term liabilities to banks and others are comprised of
the following as of the below dates:
Long-term liabilities
Current maturities
Long-term liabilities net of current maturities
Total long-term liabilities net of current maturities
Interest rate %
Currency
December 31, 2022
December 31,
2021
1.4
%-
5
%
NIS (Unlinked)
167,258
78,726
$
88,532
$
145,979
2.1
%+LIBOR-SOFR+
2.25
%
USD (Unlinked) and NIS Linked to USD
36,407
9,065
27,342
11,250
203,665
87,791
$
115,874
$
157,229
b.
Maturity dates:
December 31,
2022
2021
First year (current maturities)
$
87,791
$
89,230
Second year
67,956
76,627
Third year
32,430
51,835
Fourth year
9,998
22,716
Fifth year and thereafter
5,490
6,051
$
203,665
$
246,459
c.
Details of liens, guarantees and credit facilities are described in Note 20.
F-
77
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 15:
- DEBENTURES
The Group's liabilities
under debentures are attributable to debentures issued by Formula, Sapiens and Matrix. The debentures are all listed for trading on the
Tel-Aviv Stock Exchange.
a.
Debentures are comprised of the following as of the below dates:
Effective
Interest
rate
Currency
Par
    value
in
issuance
currency
Par
Value
Unamortized
debt
premium
(discount)
and
issuance
costs, net
Current
maturities
Total
long-term
debentures,
net of
current
maturities
Short-term
accrued
interest
Total
short-term
and
long-term
debentures
%
December
    31, 2022
Formula's
    Series A Secured Debentures (2.8%)
2.4
NIS (Unlinked)
NIS 68,422
$
19,444
85
9,722
9,807
-
19,529
Formula's
    Series C Secured Debentures (2.3%)
2.7
NIS (Unlinked)
NIS 493,244
$
140,166
(
1,477
)
23,012
115,677
265
138,954
Sapiens'
    Series B Debentures (3.37%)
3.3
NIS (Linked to fix rate of USD)
NIS 280,000
$
79,186
(
114
)
19,796
59,276
1,337
80,409
Matrix
    IT' Series B Debentures (4.1%)
4.5
NIS (Unlinked)
NIS 475,615
$
135,156
(
1,343
)
9,650
124,163
1,220
135,033
$
373,952
(
2,849
)
62,180
308,923
2,822
$
373,925
Effective
Interest
rate
Currency
Par
    value
in
issuance
currency
Par
Value
Unamortized
debt
premium
(discount)
and
issuance
costs, net
Current
maturities
Total
long-term
debentures,
net of
current
maturities
Short-term
accrued
interest
Total
short-term
and
long-term
debentures
%
December
    31, 2021
Formula's
    Series A
Secured Debentures (2.8%)
2.4
NIS (Unlinked)
NIS 102,633
$
33,000
217
11,000
22,217
457
33,674
Formula's
    Series C
Secured Debentures (2.3%)
2.2
NIS (Unlinked)
NIS 374,225
$
120,330
472
16,970
103,832
227
121,029
Sapiens'
    Series B Debentures (3.37%)
3.3
NIS (Linked to fix rate of USD)
NIS 350,000
$
98,980
(
198
)
19,796
78,986
5
98,787
$
252,310
491
47,766
205,035
689
$
253,490
F-
78
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 15:
- DEBENTURES
(
Cont
.)
During the years
ended December 31, 2022 and 2021, the Group recorded $
7,533
and $
7,056
, respectively, of interest expenses, and $
158
and ($
109
), respectively,
of amortization of debt premium, discount and issuance costs, net in respect of the Group's debentures.
b.
Scheduled aggregate principal annual payments of the debentures:
Repayment
amount
2023
62,180
2024
71,830
2025
86,168
2026
86,168
2027
67,606
$
373,952
c.
Formula's debentures
i)
Formula Systems Series A Secured Debentures
On September 16,
2015, Formula issued Formula Systems Series A Secured Debentures in an aggregate principal amount of NIS
102,260
(approximately $
26,295
),
at a purchase price equal to
100
% of their par value, payable in eight equal annual installments on July 2
nd
of each of the
years 2017 through 2024. The principal amount outstanding under the Formula Systems Series A Secured Debentures bears interest at a fixed
rate of
2.8
% per annum (subject to adjustments based on the credit rating of the debentures), payable on July 2
nd
and January
2
nd
of each of the years 2016 through 2024. Issuance costs, including early commitment commission of approximately NIS
1,246
(approximately $
320
), were allocated to the Formula Systems Series A Secured Debentures and are amortized as financial expenses over the
term of the Series A Secured Debentures due in 2024.
On January 31, 2018,
Formula issued additional Formula Systems Series A Secured Debentures in an aggregate principal amount of NIS
150,000
(approximately
$
44,053
) through a private placement to qualified investors in Israel. The gross proceeds received by Formula from the issuance of Formula
Systems Series A Secured Debentures in January 2018 were NIS
155,205
(approximately $
45,581
), out of which NIS
336
was attributed
to interest payable (approximately $
99
). Debt premium of NIS
4,869
(approximately $
1,430
) net of issuance costs of NIS
782
(approximately
$
225
) was allocated to the Formula Systems Series A Secured Debentures and is amortized as financial income over the remaining term of
the Formula Systems Series A Secured Debentures due in 2024.
The Formula Systems
Series A Secured Debentures issued in September 2015, together with the Formula Systems Series A Secured Debentures sold in the private
placement, form one single series with identical terms and conditions.
The Series A Secured
Debentures are denominated in New Israeli Shekels not linked to any currency or index, and are non-convertible. The Formula Systems Series
A Secured Debentures are secured with collateral consisting of shares of Matrix IT, Magic Software and Sapiens (see Note 20a).
F-
79
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 15:
- DEBENTURES
(
Cont
.)
The Formula Systems
Series A Secured Debentures are listed for trading on the Tel-Aviv Stock Exchange. As of December 31, 2022 and 2021, the fair value of
Formula's Series A Secured Debentures, based on the quoted market price on the Tel-Aviv Stock Exchange, was approximately $
19,202
and $
34,057
, respectively.
ii)
Formula Systems Series C Secured Debentures
On March 31, 2019,
Formula issued Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS
300,000
(approximately $
82,600
), at
a purchase price equal to
100
% of their par value. The principal due under the Series C Secured Debentures is payable in five annual installments
of NIS 33,000 on December 1 of each of the years 2020 through 2024 and two annual installments of NIS 67,500 on December 1 of each of
the years 2025 and 2026. The outstanding principal amount under the Formula Systems Series C Secured Debentures bears interest at a fixed
rate of
2.29
% per annum (subject to adjustments based on the credit rating of the debentures), payable on December 1
st
and
June 1
st
of each of the years 2019 through 2026. Issuance costs, including an early commitment commission of approximately
NIS
3,355
(approximately $
924
) were allocated to Formula Systems Series C Secured Debentures and are amortized as financial expenses over
the term of Formula Systems Series C Secured Debentures due in 2026.
On April 12, 2021,
Formula issued additional Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS
160,000
(approximately
$
48,617
) through a private placement to qualified investors in Israel. The gross proceeds received by Formula for the issuance of Formula
Systems Series C Secured Debentures in April 2021 were NIS
165,920
(approximately $
50,524
), out of which NIS
1,329
was attributed
to interest payable (approximately $
405
). Debt premium of NIS
4,591
(approximately $
1,398
) net of issuance costs of NIS
752
(approximately
$
229
) was allocated to the Formula Systems Series C Secured Debentures and is amortized as financial income over the remaining term of
the Formula Systems Series A Secured Debentures due in 2026.
On August 30, 2022,
Formula issued additional Formula Systems Series C Secured Debentures in an aggregate principal amount of NIS
200,000
(approximately
$
60,514
) through a private placement to qualified investors in Israel. The gross proceeds received by Formula for the issuance of Formula
Systems Series C Secured Debentures in August 2022 were NIS
195,000
(approximately $
59,002
), out of which NIS
1,126
was attributed
to interest payable (approximately $
341
). Debt deficit of NIS
7,076
(approximately $
2,141
) including issuance costs of NIS
950
(approximately
$
287
) were allocated to the Formula Systems Series C Secured Debentures and are amortized as financial expenses over the remaining term
of the Formula Systems Series C Secured Debentures due in 2026.
The Formula Systems
Series C Secured Debentures issued in March 2019, together with the Formula Systems Series C Secured Debentures sold in April 2021 and
in August 2022 in private placements, form one single series with identical terms and conditions.
The Formula Systems
Series C Secured Debentures are denominated in New Israeli Shekels and are not linked to any currency or index and are non-convertible.
The Formula Systems Series C Secured Debentures
are secured with collateral consisting of shares of Matrix IT, Magic Software and Sapiens (see Note 20a).
F-
80
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 15:
- DEBENTURES
(
Cont
.)
The Series C Secured
Debentures are listed for trading on the Tel-Aviv Stock Exchange. As of December 31, 2022 and 2021, the fair value of Formula's
Series C Secured Debentures, based on the quoted market price on the Tel-Aviv Stock Exchange, was approximately $
133,046
and $
125,672
,
respectively.
The offerings of
Formula'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,
as amended (the "Securities Act")), in an overseas directed offering (as defined in Rule 903(b)(i)(ii) under the Securities
Act), and were exempt from registration under the Securities Act pursuant to the exemption provided by Regulation S thereunder.
The sale of Formula
debentures was not registered under the Securities Act, and Formula debentures may not be offered or sold in the United States and/or
to U.S. persons without registration under the Securities Act or an applicable exemption from the registration requirements of the Securities
Act.
In accordance with
the indenture for the Formula Systems Series A Secured Debentures and the Formula Systems Series C Secured Debentures, Formula has undertaken
to maintain a number of conditions and limitations on the manner in which it operates its business, including limitations on its ability
to undergo a change of control, distribute dividends, incur a floating charge on its assets, or undergo an asset sale or other change
that results in a fundamental change in its operations, and to meet certain financial covenants (see Notes 20a and 20c(1)(i)).
d.
Sapiens' Series B Debentures
On September 16,
2017, Sapiens issued its unsecured Series B Debentures in an aggregate principal amount of NIS
280,000
(approximately $
79,186
), linked
to the US dollar and payable in eight equal annual payments of $
9,898
on January 1
st
of each of the years 2019 through 2026.
The outstanding principal amount of Sapiens' Series B Debentures bears a fixed interest rate of
3.37
% per annum (which may be adjusted
based on changes to the credit rating of the debentures), payable on January 1
st
and July 1
st
of each of the years
2018 through 2025, with one final interest payment due on January 1, 2026. Debt discount, and issuance costs were approximately $
956
,
allocated to Sapiens' Series B Debentures discount and are amortized as financial expenses over the term of the Series B Debentures
due in 2026
.
On June 8, 2020,
Sapiens issued additional Sapiens' Series B Debentures in an aggregate principal amount of NIS
210,000
(approximately $
60,362
) through
a public offering in Israel. The gross proceeds received from the issuance of Sapiens' Series B Debentures in June 2020 were NIS
210,840
(approximately $
60,603
), out of which approximately NIS
3,006
was attributed to interest payable (approximately $
864
). Debt discount
of NIS
2,166
(approximately $
623
) and issuance costs of NIS
2,326
(approximately $
669
) were allocated to Sapiens' Series B Debentures
and are amortized as financial expenses over the remaining term of the Sapiens Series B Debentures due in 2026. Sapiens' Series
B Debentures issued in September 2017 together with the Sapiens' Series B Debentures issued in June 2020, form one single series
with identical terms and conditions. Sapiens' Series B Debentures are linked to the US Dollar, unsecured and non-convertible. Sapiens'
Series B Debentures are listed for trading on the TASE
.
As of December
31, 2022 and 2021, the fair value of Sapiens' Series B Debentures, based on the quoted market
price on the Tel-Aviv Stock Exchange, was approximately $
75,192
and $
100,465
, respectively.
F-
81
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 15:- DEBENTURES
(
Cont.
)
The offerings of
Sapiens' debentures were made only in Israel and not to U.S. persons (as defined in Rule 902(k) under the Securities Act of 1933,
as amended (the "Securities Act")), in an overseas directed offering (as defined in Rule 903(b)(i)(ii) under the Securities
Act) and was exempt from registration under the Securities Act pursuant to the exemption provided by Regulation S thereunder.
The sale of Sapiens
debentures was not registered under the Securities Act, and the Sapiens debentures may not be offered or sold in the United States and/or
to U.S. persons without registration under the Securities Act or an applicable exemption from the registration requirements of the Securities
Act.
In accordance with
the indenture for the Sapiens Series B Debentures, Sapiens has undertaken to comply with a number of conditions and limitations on the
manner in which it operates its business, including limitations on its ability to undergo a change of control, distribute dividends, incur
a floating charge on Sapiens' assets, or undergo an asset sale or other change that results in a fundamental change in Sapiens'
operations and to meet certain financial covenants (see Note 20c(3)(iii)).
e.
Matrix IT Series B Debentures
On September 18,
2022, Matrix IT issued the Matrix IT Series B Debentures in an aggregate principal amount of NIS
295,249
(approximately $
87,872
), at a
purchase price equal to
100
% of their par value.
The principal due under the Matrix IT Series B Debentures is payable in thirteen (13)
semi-annual installments each equal to approximately 7.14% of the aggregate principal amount (or approximately NIS 21,081) on February
1 and on August 1 of each of the years 2023 through 2029 with the last payment equal to 7.18% of the aggregate principal amount (or approximately
NIS 21,196) paid on February 1, 2030.
The outstanding principal amount under the Matrix IT Series B Debentures bears interest at a fixed
rate of
4.1
% per annum (subject to adjustments based on the credit rating of the debentures), payable on February 1
st
and August
1
st
of each of the years 2023, through 2030. Issuance costs including an early commitment commission of approximately NIS
2,158
(approximately $
642
) were allocated to the Matrix IT Series B Debentures and are amortized as financial expenses over the term of the
Matrix IT Series B Debentures due in 2030.
On December 4, 2022,
Matrix IT issued additional Matrix IT Series B Debentures in an aggregate principal amount of NIS
180,366
(approximately $
53,680
)
through a private placement to qualified investors in Israel. The gross proceeds received by Matrix IT for the issuance of Matrix IT Series
B Debentures in December 2022 were NIS
178,385
(approximately $
53,107
), out of which NIS
1,582
was attributed to interest payable
(approximately $
471
). Debt deficit of NIS
1,981
(approximately $
590
) including issuance costs of NIS
399
(approximately $
119
) were allocated
to the Matrix IT Series B Debentures and are amortized as financial expenses over the remaining term of the Matrix IT Series B Debentures
due in 2030.
The Matrix IT Series
B Debentures issued in September 2022, together with the Matrix IT Series B Debentures sold in December 2022 in a private placement, form
one single series with identical terms and conditions.
As of December 31,
2022, the fair value of Matrix IT's Series B Secured Debentures, based on the quoted market price on the Tel-Aviv Stock Exchange,
was approximately $
135,156
.
F-
82
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
16:- RELATED PARTies TRANSACTIONS
a)
Acquisition of Sapiens Software Solutions (Poland) Sp. Z o.o (formerly "Insseco Sp. Z o.o.")
("Sapiens Poland")
On August 18, 2015,
Sapiens completed the acquisition from Asseco, the parent company of Formula, of all issued and outstanding share capital of Sapiens Poland.
Under the share purchase agreement for that acquisition, Asseco committed to assign to Sapiens Poland all customer contracts that relate
to the intellectual property that Sapiens acquired as part of the acquisition. In the event that Asseco cannot obtain the consent of any
customer to the assignment of its contract to Sapiens Poland, Asseco will hold that customer's contract in trust for the benefit
of Sapiens Poland.
During the years
ended December 31, 2022, 2021 and 2020, Asseco provided back-office services, professional services and fixed assets to Sapiens'
wholly owned subsidiary, Sapiens Poland, in amounts totaling approximately $
181
, $
197
and $
521
, respectively.
During the years
ended December 31, 2022, 2021 and 2020, Sapiens Poland performed services as a sub-contractor on behalf of Asseco for clients of Asseco
in total amounts of approximately $
2,900
, $
3,200
and $
3,100
, respectively. For historic reasons, Asseco issues invoices to those clients
and then Sapiens in turn invoices Asseco on a back-to-back basis (with no margin to Asseco).
As of December 31,
2022 and 2021 the Group had trade payable balances due from its transactions with Asseco, as detailed above, in amounts of $
2,927
and
$
3,187
, respectively. As of December 31, 2022 and 2021, the Group had trade receivables balances due from its transactions with Asseco,
as detailed above, in amounts of approximately $
1,149
and $
852
, respectively.
b)
Fees paid for board services in affiliates
Sapiens paid Formula
director fees for the years ended December 31, 2022, 2021 and 2020, of approximately $
28.6
, $
26.7
and $
29.6
, respectively, in respect
of Mr. Guy Bernstein, Sapiens' Chairman and Formula's chief executive officer.
Matrix IT paid Formula
director fees for the years ended December 31, 2022, 2021 and 2020, of approximately $
33.2
, $
36.7
and $
31.4
, respectively, in respect
of Mr. Guy Bernstein, Matrix IT's Chairman and Formula's chief executive officer.
c)
Compensation of key officers of the Company
The following amounts disclosed in the
table are recognized as an expense during the reporting period related to officers and directors of the Company:
Year ended
December 31,
2022
2021
Short-term employee benefits
$
4,665
$
3,577
Share-based compensation
8,104
7,440
$
12,769
$
11,017
d)
Back-office services
During the years
ended December 31, 2022, 2021 and 2020, Magic Software provided back-office services to Formula in amounts totaling approximately $
240
,
$
160
and $
138
, respectively.
e)
Other Transactions
The
Group's subsidiaries and affiliates engage from time to time with each other in non-material transactions, in the ordinary
course of business, where the amounts involved, and the nature of the transactions, are not material for either of the parties. The
Group believes that these transactions are made on an arms' length basis upon terms and conditions no less favorable to the
Group, its subsidiaries and affiliates, as it could obtain from unaffiliated third parties. If Group engages with its subsidiaries
and affiliates in transactions which are not in the ordinary course of business, the Group receives the approvals required under the
Companies Law. These approvals include audit committee approval, board approval and, in certain circumstances, shareholder
approval.
F-
83
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
17:- LEASES
The Group leases substantially
all of its office space and vehicles under operating leases.
The Group's leases have original lease periods expiring between 2021
and 2033.
Some leases include one or more options to renew. The Group does not assume renewals in its determination of the lease term
unless the renewals are deemed to be reasonably certain at lease commencement. Lease payments included in the measurement of the lease
liability comprise the following: the fixed non-cancellable lease payments, payments for optional renewal periods where it is reasonably
certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will
not be terminated early.
Under IFRS 16, all leases with
durations greater than 12 months, including non-cancellable operating leases, are now recognized on the statement of financial position.
The aggregated present value of lease agreements is recorded as a long-term asset titled operating lease right-of-use assets.
The corresponding lease liabilities
are classified between operating lease liabilities which are current and long-term.
Maturity analysis of undiscounted
future lease payments receivable for operating leases:
2023
$
46,489
2024
27,416
2025
13,229
2026
12,225
2027
11,086
2028 and thereafter
26,763
Total undiscounted cash flows
$
137,208
Less imputed interest
(
12,244
)
Present value of lease liabilities
$
124,964
a.
Information on leases:
Year ended
December 31,
2022
2021
Interest expense on lease liabilities
$
4,822
$
5,377
Total cash outflow for leases
$
49,702
$
44,086
F-
84
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
17:- LEASES
(Cont.)
b.
Disclosures in respect of right-of-use assets:
Land and
buildings
Motor
vehicles
Total
Cost:
Balance as of January 1, 2022
$
173,450
$
54,036
$
227,486
Additions during the year:
New leases
30,711
22,483
53,194
Adjustments for indexation
2,438
1,017
3,455
Adjustments arising from translating financial statements of foreign operations
(
15,571
)
(
5,471
)
(
21,042
)
Modification of leases
589
89
678
Acquisition of subsidiaries
2,714
40
2,754
Disposals during the year:
Termination of leases
(
14,714
)
(
21,942
)
(
36,656
)
Balance as of December 31, 2022
$
179,617
$
50,252
$
229,869
Accumulated depreciation:
Balance as of January 1, 2022
77,669
33,984
111,653
Additions during the year:
Depreciation
31,387
15,893
47,280
Adjustments arising from translating financial statements of foreign operations
(
6,902
)
(
3,416
)
(
10,318
)
Disposals during the year:
Termination of leases
(
13,725
)
(
21,861
)
(
35,586
)
Balance as of December 31, 2022
88,429
24,600
113,029
Depreciated cost at December 31, 2022
$
91,188
$
25,652
$
116,840
Land and
buildings
Motor
vehicles
Total
Cost:
Balance as of January 1, 2021
$
159,764
$
27,977
$
187,741
Additions during the year:
New leases
16,868
24,694
41,562
Adjustments for indexation
989
495
1,484
Adjustments arising from translating financial statements of foreign operations
2,900
1,864
4,764
Acquisition of subsidiaries
1,129
-
1,129
Disposals during the year:
Termination of leases
(
8,200
)
(
994
)
(
9,194
)
Balance as of December 31, 2021
$
173,450
$
54,036
$
227,486
Accumulated depreciation:
Balance as of January 1, 2021
49,187
21,003
70,190
Additions during the year:
Depreciation
30,398
12,634
43,032
Adjustments arising from translating financial statements of foreign operations
2,525
1,226
3,751
Disposals during the year:
Termination of leases
(
4,441
)
(
879
)
(
5,320
)
Balance as of December 31, 2021
77,669
33,984
111,653
Depreciated cost at December 31, 2021
$
95,781
$
20,052
$
115,833
F-
85
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
18:- Employee Option Plans
a)
Formula and its subsidiaries grant, from time to time, options, restricted share units or restricted shares
to their officers and employees to purchase shares in the respective companies. In general, the options expire ten years after grant.
The following table sets forth the breakdown of share-based compensation expense resulting from such grants, as included in the consolidated
statements of profit or loss:
Year ended December 31,
2022
2021
2020
General and administrative expenses
14,953
14,767
7,856
$
14,953
$
14,767
$
7,856
b)
Formula
:
In March 2011, the
Company's board of directors adopted Formula's 2011 Share Incentive Plan (the "2011 Plan"). Pursuant to the 2011
Plan, the Company may grant from time to time to its employees, office holders and consultants' options to purchase, share based
awards or restricted shares with respect to, up to an aggregate of
545,000
ordinary shares of the Company. The 2011 Plan is administered
by the Company's board of directors. The 2011 Plan provides that options, restricted shares or other stock-based awards may be granted,
from time to time, to such grantees to be determined by the Company's board of directors, at such exercise prices and with such
vesting or other terms as shall be determined by the board at its sole and absolute discretion. In March 2012, the Company's board
of directors increased the amount of ordinary shares reserved for issuance under the 2011 Share Incentive Plan by
1,200,000
shares. Upon
the lapse of
ten years
following the adoption of the 2011 Plan, no further grants could be made under the plan. Consequently, in August
2021, the Company adopted its 2021 Share Incentive Plan (the "2021 Plan"). Pursuant to the 2021 Plan, we may grant from time
to time to the Company's employees, office holders and consultants' options to purchase, share-based awards or restricted
shares with respect to, up to an aggregate of
350,000
Ordinary shares (including
48,378
Ordinary shares that were reserved for issuance
under the 2011 Plan and not subject to outstanding grants and transferred to the 2021 Plan). The 2021 Plan is administered by the Company's
board of directors. The 2021 Plan provides that options, restricted shares, or other stock-based awards may be granted, from time to time,
to such grantees to be determined by the Company's board of directors, at such exercise prices and with such vesting or other terms
as shall be determined by the Company's board of directors at its sole and absolute discretion.
Of the awards available
for grant under the 2011 Plan, the Company approved the grant, in March 2011, of options to purchase
1,122,782
ordinary shares to the
Company's Chief Executive Officer, each to be exercisable for NIS
0.01
per share. The Company also approved the grant of
10,000
restricted shares to its Chief Financial Officer on each of November 13, 2014 and August 17, 2017 and the grant of
10,000
restricted shares
to its Chief Operational Officer on November 19, 2017, in each case under the 2011 Plan.
In August 2017,
Formula's board of directors, following the approval by Formula's compensation committee, awarded its chief financial
officer
10,000
restricted shares under the 2011 Plan (the "new restricted shares").
These restricted shares vest on a
quarterly basis over a three-year period, commencing on August 17, 2017 and concluding on August 17, 2020, provided that during such
time the chief financial officer will continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the
directly held affiliates, except that if he fails to meet the service condition due to the request of the board of directors of
either Formula or any of its directly held affiliates (other than a termination of his provision of services which is based on
actions or omissions by him that will constitute "cause" under his grant agreement with Formula), then, the chief
financial officer will be deemed to have complied with clauses (i) or (ii) above.
Notwithstanding the foregoing, if a change of
control of the Company occurs, then all unvested new restricted shares will immediately become vested. Total fair value of the grant
was calculated based on the Formula share price on the grant date and equaled $
371
($
37.1
per share).
F-
86
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 18:- EMPLOYEE
OPTION PLANS (
Cont.
)
In March 2022, Formula's
board of directors, following the approval by Formula's compensation committee, awarded its chief financial officer
21,000
restricted
shares under the 2021 Plan (the "new restricted shares"). These restricted shares vest on a quarterly basis over a six-year
period, commencing on March 15, 2022 and concluding on December 31, 2027, provided that during such time the chief financial officer will
continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the directly held affiliates, except that if he fails
to meet the service condition due to the request of the board of directors of either Formula or any of its directly held affiliates (other
than a termination of his provision of services which is based on actions or omissions by him that will constitute "cause"
under his grant agreement with Formula), then, the chief financial officer will be deemed to have complied with clauses (i) or (ii) above.
Notwithstanding the foregoing, if a change of control of the Company occurs, then all unvested new restricted shares will immediately
become vested. Total fair value of the grant was calculated based on the Formula share price on the grant date and equaled $
232
($
96.7
per share).
The total compensation
expense that the Company recorded in its statement of profit or loss for the years ended December 31, 2022 and 2021 in respect of its
chief financial officer was $
973
and $
0
, respectively.
As of December 31, 2022, Formula's chief financial officer holds 31,834 Ordinary
shares, of which 16,834 are fully vested.
In March 2022, Formula's
board of directors, following the approval by Formula's compensation committee, awarded employees of the Company
2,400
restricted
shares under the 2021 Plan (the "new restricted shares"). These restricted shares vest
at certain
points in time
over a six-year period, commencing on March 15, 2022 and concluding on December 31, 2027. The total fair value of
the grant was calculated based on the Formula share price on the grant date and equaled $
232
($
96.7
per share).
In November 2018,
Formula's board of directors, following the approval by Formula's compensation committee, awarded its chief operational officer
10,000
restricted shares under the 2011 plan (the "restricted shares").
These restricted shares vest on an annual basis over
a four-year period, commencing on November 19, 2018 and concluding on November 19, 2022, provided that during such time the chief operational
officer will continue to serve as (i) an officer of the Company and/or (ii) an officer in one of the directly held affiliates. The total
fair value of the grant was calculated based on the Formula share price on the grant date and equaled $382 ($38.2 per share). The total
compensation expense the Company recorded in its statement of profit or loss for the years ended December 31, 2022, 2021 and 2020 was
$21, $52 and $98, respectively. As of December 31, 2022 Formula's chief operational officer holds 10,000 restricted shares from
this grant.
In November
2020, Formula's board of directors, following the approval by Formula's compensation committee, awarded Emil Sharvit
(2001) Consulting and Project Management Ltd., through which its chief executive officer provides services to Formula,
611,771
restricted stock units ("RSUs") in respect of ordinary shares of the Company.
66.67% of the RSUs (i.e., 407,847 RSUs)
are subject to time-based vesting that shall start as of the grant date and shall end at December 31, 2027, subject to the continued
engagement of Formula's chief executive officer with the Company as of that date (the "Vesting Period"); and up to
33.33% of the RSUs (i.e., 203,924 RSUs as of the date hereof) are subject to performance-based vesting, and shall vest at December
31, 2027 on a pro-rata basis with respect to each fiscal year (starting as of January 1, 2020) during the Vesting Period in which
the Target EBITDA (as defined below) is achieved, subject to the continued engagement of Formula's chief executive officer
with the Company. At the end of the vesting period, the number of performances-based RSUs that vests shall be equal to (i) the
number of fiscal years in which the Target EBITDA was achieved multiplied by (ii) 25,490.50 RSUs (rounded to the nearest whole
number, up to a cap of 203,924 RSUs in total). The "Target EBITDA" in a given fiscal year during the Vesting Period
means the Company's EBITDA in that certain fiscal year (as reflected in the Company's annual audited consolidated
financial statements), excluding the cost attributed to the applicable portion of the RSUs in the Company's annual audited
consolidated financial statements for the applicable fiscal year (as to which the review of performance is made to determine whether
one-eighth of the Performance Based RSUs (i.e., 25,490.50 RSUs) shall become vested at the end of the Vesting Period).
The Target
EBITDA shall be not less than
105
% of
75
% of the Company's EBITDA in the previous fiscal year, excluding the cost attributed
to the applicable portion of the RSUs in the Company's annual audited consolidated financial statements for such previous
fiscal year (the "Previous Year"). Such examination of EBITDA shall be made on the basis of the Company's annual
audited consolidated financial statements as reflected in the Company's annual report on Form 20-F, and in the event that the
Company sells any of its operations, the Target EBITDA shall be adjusted as applicable for future reference by removing the results
of the operations that were sold.
F-
87
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 18:- EMPLOYEE
OPTION PLANS (
Cont
.)
In the event that
with respect to any specific fiscal year (the "Specific Year"), the Target EBITDA is not achieved, the Target EBITDA with
respect to such Specific Year will still be deemed to have been met for the purpose of vesting of RSUs in the event that either:
(i) the
EBITDA in the fiscal year immediately following the Specific Year was at least 110.25% of 75% of the Company's EBITDA in the year
preceding the Specific Year, or (ii) in case that the condition in the foregoing clause (i) was not met, then the EBITDA in the second
fiscal year following the Specific Year was at least 115.7625% of 75% of the Company's EBITDA in the year preceding the Specific
Year.
Accordingly, in case
that either clause (i) or (ii) was met for a certain Specific Year, then the vesting with respect to such Specific Year shall be deemed
to have been achieved, and those RSUs shall become vested as of the end of the Vesting Period. In the event that neither of the conditions
described in clauses (i) or (ii) was met, the portion of RSUs for the applicable Specific Year shall automatically expire and terminate.
Notwithstanding the
foregoing, in case the Target EBITDA is met (in accordance with the above terms) in a certain fiscal year, yet the Target EBITDA is less
than
105
% of
75
% of the average EBITDA for the three fiscal years that consist of the subject fiscal year and the
two
preceding
years
(excluding the cost attributed to the applicable portion of the RSUs in Company's annual audited consolidated financial statements
for such applicable fiscal years), then regardless of meeting the Target EBITDA, the number of performance-based RSUs that vests shall
be reduced by
20
%.
The total fair value of the grant was calculated based on the Formula
share price on the grant date and equaled NIS
170,684
, or $
50,054
($
81.8
per share). The total compensation expense the Company recorded
in its statement of profit or loss in respect of this grant, in accordance with accounting principles, for the year ended December 31,
2022, was approximately $
7,089
.
In addition to the
RSU grant terms described above, Formula's board of directors has approved, following the approval by Formula's compensation
committee, an adjustment to the above-described RSU grant based on dividends that the Company distributes to its shareholders. During
the vesting period of the RSUs, in the event that any dividend, in cash or in kind, is distributed to the shareholders of the Company,
then in addition to the distribution to all shareholders, there will be an equivalent payment to Formula's chief executive officer
with respect to all RSUs that were not converted into shares (whether or not vested) in an amount equal to the pro-rata portion of the
overall dividend amount that the RSUs constitute out of the issued and outstanding share capital of the Company as of the date of the
distribution. For those purposes, the RSUs will be counted as if they are already vested and converted into shares. These special RSU
dividend amounts shall be paid and/or set aside by the Company for the benefit of its chief executive officer, all as described below.
For the purpose of
payment of the dividend amounts to Formula's chief executive officer, the vesting period shall be regarded as if it has commenced
on January 1, 2020 (other than with respect to distributions and any related dividend amount which were made prior to the grant of the
RSUs and which are explicitly excluded), and will be divided into 32 fiscal quarters (each, referred to as a Fiscal Quarter). The dividend
amount within each dividend distributed by the Company to its shareholders will be released to, or set aside for, Formula's chief
executive officer together with the distribution of the dividend. The portion of the Dividend Amount to be released to Formula's
chief executive officer will in each case be based on the number of Fiscal Quarters that have lapsed at the time of distribution of the
dividend. The remainder of the Dividend Amount will be set aside and paid to Formula's chief executive officer on a pro-rata basis
upon the expiration of each Fiscal Quarter until the Dividend Amount is released in full at the end of the Vesting Period for the RSUs.
In the event of termination
of Formula's chief executive officer services agreement with the Company, by the Company for Cause (as defined in the services
agreement), the RSUs will immediately terminate and become null and void, and all interests and rights of Formula's chief executive
officer in and to the same will expire. In case of termination of Formula's chief executive officer services agreement by the Company
not for Cause, or due to the resignation of Formula's chief executive officer for Good Reason
1
,
all unvested RSUs that could have vested from the grant date until December 31, 2027, assuming all performance and time conditions and
future targets would have been fulfilled (including all targets that would have resulted in vesting with respect to any Previous Year
which could have still been met in future years), will accelerate and become immediately vested and exercisable, regardless of the actual
occurrence or failure to occur of any of the future performance targets relating to those RSUs.
In the event of
resignation by Formula's chief executive officer not for Good Reason, Formula's chief executive officer RSUs will vest,
in an accelerated manner, in such portion equal to the pro-rata portion of the Vesting Period that has already lapsed (based on the
full number of Fiscal Quarters that have lapsed form January 1, 2020 until the actual resignation date, including notice period).
However, any Performance Based RSUs for which the applicable target was not achieved up until the resignation date (including the
notice period) will expire and terminate.
1
"Good Reason" is a termination due to: (i) a
material reduction in Formula chief executive representative's scope of authorities and responsibilities (excluding, for the avoidance
of doubt, as a result of changes in legislation or other legal restrictions which affect the scope of Services under its service agreement),
(ii) a material breach by the Company of any provision of the service agreement or its exhibits, or (iii) any acceleration event, in
each of (i) to (iii) which is not cured (if curable) by the Company within thirty (30) days of receipt of a written notice about such
breach from Formula chief executive officer, provided that during the three (3) months prior notice period with respect to resignation
for
F-
88
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 18:- EMPLOYEE
OPTION PLANS (
Cont
.)
Total unrecognized
compensation costs related to non-vested share-based compensation arrangements granted under the Formula equity incentive plan as of December
31, 2022 and 2021 were $
34,972
and $
45,973
, respectively.
In December 2020,
a motion to certify a derivative suit, referred to as the Motion, was filed against the Company by a shareholder, who is also referred
to as the Plaintiff, in the district court (economic division) of Tel Aviv-Jaffa, Israel, naming each of our then acting five directors,
as well as our chief executive officer and chief financial officer as defendants.
The suit challenged
the legality, under the Companies Law, of, among other things, compensation approved for the chief executive officer, including the re-approval
by our compensation committee and board of the subject eight-year RSU award to our chief executive officer.
On January 12, 2023, the Company held
a special general meeting of shareholders for its shareholders to re-affirm the subject grant of RSUs (reflecting the adjusted
66.67
%-
33.33
%
ratio of time-based-vesting to performance-based-vesting RSUs) to the Company's chief executive officer. Although the Company believes
that the legal challenge to the original re-approval, in November 2020, by the compensation committee and the board of directors of this
RSUs grant were without merit, the Company nevertheless brought the re-affirmation to its shareholders.
The January 12, 2023 special general
shareholders meeting did not re-affirm the RSUs grant. On January 15, and 16, 2023, the Company's compensation committee and board
of directors, respectively, acting in accordance with the Companies Law, re-affirmed the RSUs grant once again. Since such additional
re-affirmation by the Company's shareholders, compensation committee and board of directors was not required by law, the Company
considered November 2020 as the grant date for accounting purposes, in accordance with IFRS 2.
c)
Matrix IT
:
In December 2017,
Matrix IT extended its agreement with Revava Management Company Ltd. through which its chief executive officer, Mr. Moti Gutman, provides
services to Matrix IT, for five years' term starting on January 1, 2018. As part of the new agreement in January 2018, Matrix IT
awarded Mr. Gutman 256,890 (RSUs), which vest on an annual basis over a five-year period, commencing on January 16, 2018 and concludes
on December 31, 2022, but not before the publication of Matrix IT's financial statements for each respective year, and subject to
certain conditions. In 2022, 51,378 restricted share units (RSU) were vested and exercised. As of December 31, 2022 Mr. Gutman holds 51,378
restricted share units (RSUs)
from this grant.
F-
89
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
18:- EMPLOYEE OPTION PLANS (
Cont
.)
In December 2022,
Matrix IT entered into a new employment agreement with its chief executive officer, Mr. Moti Gutman, for the provision of management services
for a term of five years starting on January 1, 2023. As part of the new employment agreement, Matrix IT awarded Mr. Gutman
375,000
Matrix
restricted shares.
40
% of the options will be vested on December 31, 2024 with the remaining amount vesting in equal parts on December
31, 2025, 2026 and 2027 but any case not before the publication of Matrix IT's financial statements for each respective year.
The fair value of the restricted shares
amounted on the date of grant to NIS
27,851
(approximately $
7,914
).
In January 2019,
Matrix IT's
board of directors approved, following the approval by Matrix IT's compensation committee, the grant of 1,440,000 options which
are exercisable into up to 1,440,000 ordinary shares of Matrix IT of NIS 1 par value each, to 20 senior officers of Matrix IT. The exercise
price of the options was NIS 41.7 at the date of their grant, subject to adjustments, including upon the distribution of dividends. 50%
of the options will be vested on January 1, 2021 with the remaining amount vesting in equal parts on January 1, 2022 and 2023.
When the
actual exercise will take place, shares will be allotted, according to a net exercise mechanism resulting with Matrix IT not receiving
any cash consideration for the issuance of its shares.
In February 2019, the general shareholder
meeting of
Matrix IT approved, after obtaining the approval of Matrix IT's compensation committee and Matrix IT's board of
directors the grant of 80,000 options which are exercisable into up to 80,000 ordinary shares of Matrix IT of NIS 1 par value, to the
President and Vice Chairman of the Matrix IT board. The exercise price of the options was NIS 43.16 at the date of their grant, subject
to adjustments, including upon the distribution of dividends. 50% of the options will vest on January 1, 2021, with the remaining amount
vesting in equal parts on January 1, 2022 and 2023.
When the actual exercise will take place, shares will be allotted, according to a
net exercise mechanism resulting with Matrix IT not receiving any cash consideration for the issuance of its shares. In January 2022,
the general shareholder meeting of Matrix IT approved, after obtaining the approval of Matrix IT's compensation committee and Matrix
IT's board of directors the acceleration of the third tranche so that tranche will vest on January 31, 2022, Matrix IT's President
and Vice Chairman of the Matrix IT expected retirement date, instead of January 1, 2023.
The fair value of the options was estimated
on the date of grant using the Binomial model based on the terms which are: risk-free interest rate is
0.5
% -
1.6
%, early exercise factor
is
70
% and expected volatility is
24
%. The contractual life of the options is
5
years from the date of grant.
F-
90
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
18:- EMPLOYEE OPTION PLANS (
Cont
.)
The following table
summarizes Matrix IT's employee stock-based compensation activity during the year ended December 31, 2022:
Number
of options
Weighted
average
exercise
price
Weighted average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
Outstanding at January 1, 2022
862,756
10.07
1.93
17,513
Expired and forfeited
(
12,500
)
10.08
Exercised
(
451,378
)
10.11
-
7,786
Outstanding at December 31, 2022
398,878
7.66
0.9
5,144
Exercisable at December 31, 2022
51,378
-
-
1,056
The aggregate intrinsic
value provided in the table above represents the total intrinsic value that would have been received by the option holders had all option
holders exercised their options on the respective dates. This value would change based on the change in the market value of Matrix IT's
ordinary shares and the change in the exchange rate between the New Israeli Shekel and dollar. Total unrecognized compensation costs related
to non-vested share-based compensation arrangements granted under the Matrix IT equity incentive plan as of December 31, 2022 and 2021
were $
0
and $
428
, respectively.
d)
Sapiens:
The following table
summarizes Sapiens' stock-based compensation activity during the year ended December 31, 2022:
Year ended December 31, 2022
Amount of
options
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life (in years)
Aggregate
intrinsic
value
Outstanding at January 1, 2022
1,835,385
22.27
3.77
22,374
Granted
404,500
21.19
Exercised
(
21,253
)
10.65
250
Expired and forfeited
(
85,869
)
24.07
Outstanding at December 31, 2022
2,132,763
21.51
3.30
5,531
Exercisable at December 31, 2022
1,010,513
16.21
1.95
4,305
In 2022, 2021 and
2020, Sapiens granted 404,500, 847,000 and 315,000 stock options, respectively, to its employees and directors to purchase its shares.
The weighted average grant date fair values of the options granted during the years ended December 31, 2022, 2021 and 2020 were $
7.22
,
$
10.35
and $
7.99
, respectively. The aggregate intrinsic value provided on the table above represents the total intrinsic value that would
have been received by the option holders had all option holders exercised their options on the respective dates. This value would change
based on the change in the market value of Sapiens' common shares. The total intrinsic value of options exercised during the years
ended December 31, 2022, 2021 and 2020 was $
250
, $
8,505
and $
11,658
, respectively.
F-
91
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
18:- EMPLOYEE OPTION PLANS (
Cont
.)
The options outstanding
under Sapiens' stock option plans as of December 31, 2022 have been separated into ranges of exercise price as follows:
Weighted
Options
Weighted
Options
Average
outstanding
Average
Weighted
Exercisable
Exercise
as of
remaining
average
as of
price of
Ranges of
December 31,
contractual
exercise
December 31,
Options
exercise price
2022
Term
price
2022
Exercisable
$
(Years)
$
$
8
2,000
1.18
8
2,000
8
8.37
-
10.02
590,097
0.82
9.96
590,097
9.96
10.78
-
18.77
220,416
4.30
16.49
62,916
11.99
22.54
-
24.33
423,250
4.42
23.10
141,250
23.69
27.79
-
31.57
830,000
4.03
29.27
197,500
29.46
33.99
67,000
4.92
33.99
16,750
33.99
2,132,763
3.30
21.51
1,010,513
16.21
The total equity-based
compensation expense related to all of Sapiens' equity-based awards, recognized for the years ended December 31, 2022, 2021 and
2020, after being adjusted to comply with IFRS, was $
4,317
, $
5,421
and $
4,318
, respectively. As of December 31, 2022, there was $
5,550
of total unrecognized compensation cost related to non-vested options, which is expected to be recognized over a weighted-average period
of
1.84
years.
In connection with
Sapiens' acquisition of sum.cumo on February 6, 2020, Sapiens issued an aggregate of
173,005
RSUs to certain employees of sum.cumo
in connection with the acquisition. The value of these grants was not included in the purchase price of sum.cumo, since their vesting
is subject to both continued employment and other performance criteria
.
On August 3, 2021, Sapiens issued another
24,222
RSUs to certain employees of sum.cumo in connection with the acquisition.
Sapiens recorded
compensation costs related to RSUs of $
794
and $
1,130
for the years ended December 31, 2022 and 2021, respectively which were included
in Selling, marketing, general and administrative expenses in the Company's consolidated statements of profit or loss.
A summary of the
RSU activities in Sapiens in the year ended on December 31, 2022, is as follows:
Weighted Average
Amount of
Grant-Date Fair
options
value
Unvested at January 1, 2022
203,756
26.46
Granted
7,500
23.24
Vested
(
53,948
)
26.32
Expired and forfeiture
(
18,164
)
24.73
Unvested at December 31, 2022
139,144
26.56
F-
92
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
18:- EMPLOYEE OPTION PLANS (
Cont
.)
e)
Magic Software
:
The following table
summarizes Magic Software stock-based compensation activity during the year ended December 31, 2022:
Number
of options
Weighted
average
exercise price
Weighted average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
Outstanding at January 1, 2022
66,250
0.45
7.96
1,360
Granted
-
-
Exercised
(
20,000
)
-
Forfeited
(
20,000
)
-
Outstanding at December 31, 2022
26,250
0.91
5.99
394
Exercisable at December 31, 2022
6,250
3.81
0.6
76
The aggregate intrinsic
value provided on the table above represents the total intrinsic value that would have been received by the option holders had all option
holders exercised their options on the respective dates. This value would change based on the change in the market value of Magic Software's
ordinary shares. Total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020, was $
344
, $
628
and $
765
respectively. As of December 31, 2022, there was $
112
of unrecognized compensation cost related to non-vested share-based compensation
arrangements granted under Magic Software's plans, which is expected to be recognized in full during 2023.
The options outstanding
as of December 31, 2022, have been separated into ranges of exercise price categories, as follows:
Ranges of Exercise
price
Options
outstanding
Weighted
average
remaining
contractual life
Weighted
average
exercise
    price
Options
exercisable
Weighted
average
exercise price
of exercisable
options
$
(Years)
$
$
0
20,000
7.67
-
-
-
3.81
6,250
0.6
3.81
6,250
3.81
26,250
5.99
$
0.91
6,250
$
3.81
Stock Option Plan
of Comm-IT Technology Solutions Ltd ("Comm-IT Solutions"), a subsidiary of Magic Software:
Under the Comm-IT
Solutions' 2022 Stock Option Plan, ("Comm-IT Solutions 2022 Plan"), options may be granted to employees, officers, directors
and consultants of Comm-IT Solutions and its subsidiaries. Pursuant to Comm-IT Solutions 2022 Plan, Comm-IT Solutions shall reserve in
its registered and reserved capital, such sufficient number of shares (subject to any adjustment in the capital under the Comm-IT Solutions
2022 Plan) required in order to consummate the Comm-IT Solutions 2022 Plan.
In December 2022,
Comm-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
fully vested upon their grant, whereas the vesting of the remainder of the options are
subject to Comm-IT
Solutions and its subsidiaries meeting certain EBITDA targets for the years 2023-2024. Subject to the EBITDA targets to be met, as well
as the officers continued employment with Comm-IT Solutions throughout 2027, the options will vest at certain points in time throughout
the years 2023 to
2027.
F-
93
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
18:- EMPLOYEE OPTION PLANS (
Cont
.)
A summary of employee
option activity under the Comm-IT Solutions 2022 Plan as of December 31, 2022 and changes during the year ended December 31, 2022 are
as follows:
Number
of options
Weighted
average
exercise
price
Weighted average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
Outstanding at January 1, 2022
-
$
-
-
$
-
Granted
4,028
264.67
Outstanding at December 31, 2022
4,028
$
264.67
7.94
$
7,499
Exercisable at December 31, 2022
827
$
0.28
7.92
$
1,839
As of December 31,
2022, there was $
2,885
of total unrecognized compensation cost related to non-vested options of Comm-IT Solutions, which is expected to
be recognized in full over a weighted average period of
1.13
years.
The options outstanding
as of December 31, 2022, have been separated into exercise price categories, as follows:
Ranges of
Exercise price
Options
outstanding
Weighted
average
remaining
contractual life
Weighted
average
exercise price
Options
exercisable
Weighted
average
exercise price
of exercisable
options
$
(Years)
$
$
0.28
3,238
7.92
-
827
0.28
469.45
297
7.99
-
-
1,877.81
493
7.99
3.81
-
-
4,028
7.94
$
0.91
827
$
0.28
Note
19:- EMPLOYEE BENEFIT LIABILITIES
Employee benefits
consist of post-employment benefits, other long-term benefits and termination benefits.
a)
Post-employment benefits
:
According to the
labor laws and Severance Pay Law in Israel, the Israeli companies in the Group are required to pay compensation to an employee upon dismissal
or retirement or to make current contributions in defined contribution plans pursuant to section 14 of the Severance Pay Law, as specified
below. These liabilities are accounted for as a post-employment benefit. The computation of the Group's employee benefit liability
is made according to the current employment contract based on an employee's salary and employment term which establish the entitlement
to receive the compensation.
F-
94
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
19:- EMPLOYEE BENEFIT LIABILITIES (
Cont
.)
The post-employment
employee benefits are normally financed by contributions classified as a defined benefit plan or as a defined contribution plan, as detailed
below.
1)
Defined contribution plans
:
Section 14 of the
Severance Pay Law, 1963 applies to part of the compensation payments, pursuant to which the fixed contributions paid by the Group into
pension funds and/or policies of insurance companies release the Group from any additional liability to employees for whom said contributions
were made. These contributions and contributions for benefits represent defined contribution plans.
2)
Defined benefit plans
:
The
Group accounts for that part of the payment of compensation that is not covered by contributions in defined contribution plans, as above,
as a defined benefit plan for which an employee benefit liability is recognized and for which the Group deposits amounts in central severance
pay funds and in qualifying insurance policies.
3)
Other long-term benefits
:
Certain
of the Company's U.S. subsidiaries have a 401(k) defined contribution plan covering certain employees in the U.S. All eligible employees
may elect to contribute up to
100
% of their annual compensation to the plan through salary deferrals, subject to Internal Revenue Service
limits. These U.S. Subsidiaries match up to
3
% of the employees' contributions up to the plan with no limitation.
b)
Composition of defined benefit plans is as follows:
December 31,
2022
2021
Defined benefit obligation
91,973
123,138
Fair value of plan assets
(
82,857
)
(
110,497
)
Net defined benefit liability
$
9,116
$
12,641
Note
20:- Commitments and Contingencies
a)
Liens
:
1)
Liens have been incurred by Formula over a certain
portion of the Matrix IT, Magic Software and Sapiens' shares which it held. As of December 31, 2022 Formula has collateral in connection
with the Series A Secured Debentures and Series C Secured Debentures issued by Formula on the TASE (see Note 15).
2)
Composition of pledged shares of Matrix IT, Magic
Software and Sapiens owned by Formula as of December 31, 2022:
December 31, 2022
Formula's Series A
Secured Debentures
Formula's Series C
Secured Debentures
Matrix IT ordinary shares, par value NIS
1.0
per share
4,128,865
6,169,761
Magic Software ordinary shares, par value NIS
0.1
per share
5,825,681
3,141,474
Sapiens common shares, par value €
0.01
per share
1,260,266
2,957,590
F-
95
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
In
August 2022, following the private placement of an additional NIS
200,000
par value Series C Secured Debentures, Formula pledged an additional
138,000
shares of Matrix IT and
730,000
shares of Magic (see Note 15).
b)
Guarantees
:
As of December 31, 2022, the Group
provided performance bank guarantees in an aggregate amount of approximately $
43,300
as security for performance of various contracts
with customers and suppliers. As of December 31, 2022, the Group provided bank guarantees in an aggregate amount of approximately $
8,200
as security for rent to be paid for its leased offices. As of December 31, 2022, the Group had restricted bank deposits in an aggregate
amount of $
400
in favor of the above-mentioned bank guarantees. In addition, The Company and its subsidiaries provided certain cross guaranties
in favor of certain subsidiaries in the Group.
Each of Matrix IT, Sapiens, Magic Software
and Formula provides cross guarantees to its subsidiaries.
c)
Covenants
:
In connection with
the Group's debentures and credit facility agreements with banks and other financial institutions, as of December 31, 2022, the
Group committed to the following:
1)
Formula
i)
Formula's Debentures
In accordance with
Formula's indenture for its Series A and Series C Secured Debentures, Formula has undertaken to comply with the following financial
covenants and obligations:
a.
A covenant not to distribute dividends unless (i) Formula shareholders' equity attributable to Formula
Systems shareholders is at least $
290
million, (ii) Formula's net financial indebtedness (financial indebtedness offset by cash,
marketable securities, deposits and other liquid financial instruments) shall not exceed
50
% of net CAP (defined as financial indebtedness,
net, plus shareholders' equity), and (iii) the aggregate amount of distributions from January 1, 2016 shall not exceed the aggregate
amount of net oncome for the year ended December 31, 2015 together with
75
% of accumulated profits from January 1, 2016 until the respective
distribution date and (iv) no event of default shall have occurred.
b.
Financial covenants, including: (i) the equity attributable to Formula Systems shareholders, as reported
in Formula's annual or quarterly financial statements, shall not be less than $
215
million (as of December 31, 2022, Formula equity
attributable to Formula Systems' shareholders was approximately $
551.9
million); (ii) Formula's net financial indebtedness
(financial indebtedness offset by cash, marketable securities, deposits and other liquid financial instruments) shall not exceed
65
% of
net CAP (defined as financial indebtedness, net, plus total equity) (as of December 31, 2022 Formula's net financial indebtedness
was
6.3
% of net CAP); (iii) the ratio of Formula's net financial indebtedness to the last twelve-months period EBITDA will not exceed
5 (all based on the Company's quarterly and annual consolidated financial statements) (as of December 31, 2022 the ratio of Formula's
net financial indebtedness
to EBITDA was 0.23); and (iv) at all times, Formula's cash balance on a stand-alone basis will not be less than the semi annual
interest payments for the unpaid principal amount of Series A and Series C Secured Debentures (as of December 31, 2022 Formula's
cash balances exceed the semi annual interest payments amount).
F-
96
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
c.
Standard events of default, including, among others:
1.
Suspension of trading of the debentures on the TASE over a period of 60 days;
2.
If the rating of the debentures is less than BBB- by Standard and Poors Maalot or equivalent rating of
other rating agencies;
3.
Failure to have the debentures rated over a period of 60 days;
4.
If there is a change in control without consent of the rating agency; and
5.
If Formula fails to continue to control any of its subsidiaries;
2)
Matrix IT
A.
In the context of Matrix IT's engagements with banks and financial institutions for its credit facilities,
Matrix IT has undertaken to comply with the following financial covenants, as they are expressed in its financial statements:
(i)
The total rate of Matrix IT financial debts and liabilities to banks with the addition of debts in respect
of debentures that have been and/or will be issued by Matrix IT and shareholders' loans that have been and/or will be granted to
Matrix IT (collectively, the "debts") will not exceed 40% of its total balance sheet. As of December 31, 2022 the ratio between
Matrix IT's financial debts and liabilities to banks versus Matrix IT total assets was 9.6%.
(ii)
The ratio of Matrix IT net debt to the annual EBITDA will not exceed 3.5. As of December 31, 2022, Matrix
IT ratio of net debt to EBITDA was 0.74.
(iii)
Matrix IT equity shall not be lower than NIS 275,000 (approximately $78,147) at all times. As of
December 31, 2022 Matrix IT's equity was approximately NIS 916,000 (approximately $260,000 million).
(iv)
Matrix IT cash and cash equivalents and short-term bank deposits shall not be less than NIS 50,000
(approximately $14,209). In the context of Matrix IT's issuance of Commercial Securities which are not listed, Matrix IT committed
to maintain at least NIS 300,000 (approximately $85,251) of liquid assets including unused approved bank credits. Such liquid assets should
account for not less than NIS 200,000 of cash and cash equivalent and short-term bank deposit (approximately $56,834)
.
As of December 31, 2022, Matrix IT's cash and cash equivalent and short-term bank deposits amounted to NIS 839,313 (approximately
$238,509)
.
(v)
Matrix IT has committed that the rate of ownership and control of Matrix IT-Systems shall never be below
50.1%.
(vi)
Matrix IT will not create any pledge on all or part of its property and 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 as they will be without the banks'
consent (except for a first-rate fixed pledge on an asset which acquisition will be financed by a third party and which the pledge will
be in his favor).
F-
97
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
(vii)
Matrix IT will not sell and/or transfer all or part of its assets to others in any manner whatsoever without
the banks' advance written consent unless it is done in the ordinary course of business.
B.
Matrix IT Series B Debentures:
In accordance with
Matrix IT's indenture for its Series B Debentures, Matrix IT has undertaken to comply with the following financial covenants and
obligations:
(i)
Matrix IT total shareholders' equity (all based on Matrix IT's quarterly or annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) shall not be less than NIS
275,000
(approximately
$
78,147
). As of December 31, 2022, Matrix IT total shareholders' equity (all based on Matrix IT's 2022 annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) was approximately NIS
964,874
(approximately $
274,190
).
(ii)
Matrix IT net financial indebtedness (all based on Matrix IT's quarterly or annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) shall not exceed
45
% of Matrix IT total assets (all
based on Matrix IT's quarterly or annual consolidated financial statements, and as defined on Matrix IT Series B Debentures deed
of trust). As of December 31, 2022 Matrix's net financial indebtedness (all based on Matrix IT's 2022 annual consolidated
financial statements, and as defined on Matrix IT Series B Debentures deed of trust) was
9.6
% of total assets.
(iii)
The ratio of Matrix IT net financial indebtedness (as defined on Matrix IT Series B Debentures deed of
trust) to the last twelve-months period EBITDA (as defined on Matrix IT Series B Debentures deed of trust) will not exceed 5 (all based
on Matrix IT's quarterly and annual consolidated financial statements). As of December 31, 2022 the ratio of Matrix IT's net
financial indebtedness to EBITDA (all based on Matrix IT's 2022 annual consolidated financial statements, and as defined on Matrix
IT Series B Debentures deed of trust) was
0.76
.
3)
Sapiens
In accordance with
the indenture for Sapiens' Series B Debentures, Sapiens has undertaken to maintain a number of conditions and limitations on the
manner in which it can operate its business, including limitations on its ability to undergo a change of control, distribute dividends,
incur a floating charge on its assets, or undergo an asset sale or other change that results in fundamental change in its operations.
Sapiens Series B Debentures deed of trust also requires it to comply with certain financial covenants, as described below. A breach of
the financial covenants for more than two successive quarters or a substantial downgrade in the rating of the debentures (below BBB-)
could result in the acceleration of Sapiens' obligation to repay the debentures. The deed of trust includes the following provisions:
(i)
a negative pledge, subject to certain exceptions.
(ii)
financial covenants, including: (a) the equity attributable to the shareholders of Sapiens, as reported
in its annual or quarterly financial statements, will not be less than $
120
million.
F-
98
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
(as of December 31,
2022 Sapiens shareholders' equity was $400,504); (ii) Sapiens' net financial indebtedness (financial indebtedness offset by
cash, marketable securities deposits and other liquid financial instruments) shall not exceed 65% of net CAP (defined as financial indebtedness,
net, plus shareholders equity, including deposits and other liquid financial instruments) (as of December 31, 2022 Sapiens' net
financial indebtedness was (32.96%) of net CAP); and (iii) the ratio of Sapiens' net financial indebtedness to EBITDA (based on
accumulated calculation for the four last quarters) shall not exceed 5.5 (as of December 31, 2022 the ratio of Sapiens' net financial
indebtedness to EBITDA was (1.14)).
(iii)
a covenant not to distribute dividends unless (a) Sapiens equity attributable to Sapiens shareholders'
shall not be less than $160 million, (b) Sapiens net financial indebtedness (financial indebtedness offset by cash, marketable securities,
deposits and other liquid financial instruments) does not exceed 65% of net CAP (defined as financial indebtedness, net, plus total equity),
(c) the amount of accumulated dividends from the issuance date and going forward shall not exceed Sapiens net income for the year ended
December 31, 2016 and the first three quarters of the year ended December 31, 2017, plus 75% of Sapiens accumulated profits from September
1, 2017 and up to the date of distribution, and (d) no event of default shall have occurred.
4)
Magic Software
Under the terms of
the loan with an Israeli financial institution, Magic Software has undertaken to comply with the following financial covenants, as they
will be expressed in its consolidated financial statements:
(i)
Total equity attributable to Magic Software' shareholders shall not be lower than $100,000 at all
times – as of December 31, 2022 Magic Software shareholders' equity was $276,311.
(ii)
Magic Software's consolidated cash and cash equivalents and marketable securities available for
sale shall not be less than $10,000 – as of December 31, 2022 Magic Software's cash and marketable securities available for
sale were $86,966.
(iii)
The ratio of Magic Software's consolidated total financial debts to consolidated total assets will
not exceed 50% - as of December 31, 2022 Magic Software's financial debts were 9.4% of its total assets;
(iv)
The ratio of Magic Software's total financial debts less cash, short-term deposits and short-term
marketable securities to the annual EBITDA will not exceed 3.25 – as of December 31, 2022 the ratio of Magic Software's net
financial indebtedness to EBITDA was negative (-0.47) (cash exceeds indebtedness) ; and
(v)
Magic Software shall not create any pledge on all of its property and assets in favor of any third party
without the financial institution's consent.
As
of December 31, 2022, each of Formula, Matrix IT, Sapiens and Magic Software was in compliance with all of its financial covenants.
F-
99
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
d)
Legal proceedings
:
1)
In September 2016, an Israeli software company, which was previously
involved in an arbitration proceeding with Magic Software in 2015 and won damages from it for $
2.4
million, filed a lawsuit seeking damages
of NIS
34,106
against Magic Software and one of its subsidiaries. This lawsuit was filed as part of an arbitration proceeding. In the
lawsuit, the software company claimed that warning letters that Magic Software sent to its clients in Israel and abroad, warning those
clients against the possibility that the conversion procedure offered by the software company may amount to an infringement of Magic Software's
copyrights (the "Warning Letters"), as well as other alleged actions, have caused the software company damages resulting from
loss of potential business. The lawsuit is based on rulings given in the 2015 arbitration proceeding in which it was allegedly ruled that
the Warning Letters constituted a breach of a non-disclosure agreement (NDA) signed between the parties. Magic Software rejected the claims
by the Israeli software company and moved to dismiss the lawsuit entirely. In July 2021 the arbitrator of this proceeding rendered his
decision and determined that Magic Software should pay final damages in an amount of NIS5,
316
(approximately NIS
1,650
). Our financial
results of operations of 2021 included a net impact of $
1.6
million resulting from the arbitration expenses.
2)
On November 23, 2020, Olir Trade and Industries Ltd. ("Olir")
filed a derivative action and a motion to certify a derivative action, with the District Court (Economic Division) of Tel Aviv-Jaffa,
Israel (Derivative Action No. 58348-11-20) (the "Claim" and the "Motion to Certify", respectively) (as reported
in the Company's Report of Foreign Private Issuer on Form 6-K furnished to the Securities and Exchange Commission on December 9,
2020). In the framework of the Motion to Certify, Olir requested permission to file the Claim, on the Company's behalf, against
each of the Company's five directors, as well as the Company's chief executive officer (the "CEO"), Mr. Guy Bernstein,
and chief financial officer, Mr. Asaf Berenstin (the "CFO"), as defendants. The Company and the named defendants are all listed
as respondents to the Motion to Certify. The Claim challenges the legality, under the Israeli Companies Law, 5759-1999 (the "Companies
Law"), of compensation awarded to the Company's CEO and CFO, including past engagements with the CEO and the recent re-approval
by the Company's compensation committee and board of directors (as reported in the Company's Report of Foreign Private Issuer on
Form 6-K furnished to the Securities and Exchange Commission on November 4, 2020), of the eight-year equity-based award of compensation—in
the form of
611,771
restricted share units— to the Company's CEO. The Claim includes allegations of breaches of fiduciary
duties (duty of care and duty of loyalty) and the oppression of minority shareholders and unjust enrichment. The Claim seeks an accounting
from the defendants as to the alleged harm caused to the Company, as well as compensation to the Company for such harm. The Claim also
seeks a declaratory order preventing the board of directors from using voting powers allegedly granted to it under agreements related
to the Company's ADSs. The Company rejects all claims made by Olir and believe that all actions taken by its board of directors
and its committees were taken in accordance with the Companies Law and based upon advice of legal counsel. All respondents intend to vigorously
defend against the Motion to Certify and on May 13, 2021 all respondents filed their responses to the Motion to Certify.
On
May 19, 2021 the Company filed a motion asking the court to order Olir to deposit a guarantee for our costs in the proceedings. On June
23, 2021 Olir filed its response to the motion. The parties held mediation meetings. The mediation meetings took place on February 16,
2022, May 17, 2022 and
May 24, 2022. The mediation ended without the parties reaching an agreement. On June 16, 2022, following the oral argument at the pre-trial
hearing, the district court accepted the company's request and ordered Olir to deposit a guarantee for the Company's costs. Olir deposited
the guarantee and paid the costs to the Company as ordered. in the proceedings in the amount of NIS
173
(approximately $
51
). On January
24, 2023, the Company submitted a request for dismissal in limine of the motion to certify due to a change in the factual grounds of
the motion including, among otherthings, the reapproval of the compensation given to the CEO by a new and independent board of directors
made on January 15, 2023. The court asked the other parties to respond to the request for dismissal by March 1,2023. A cross examinations
hearing was held on January 31, 2023. On March 1, 2023, the other respondents to the motion to certify submitted their responses to the
request for dismissal in which they supported the request. On March 8, 2023, Olir filed its objection to the dismissal in limine. On
April 13, the Company submitted its response to Olir's response. Olir should file its briefs by the beginning of July 2023. The respondents
should file their briefs 60 days thereafter and Olir has a right to respond 30 days thereafter. At this stage of the proceedings, the
Company believes that the chances for the approval of the motion to certify are low.
F-
100
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
3)
On December 24, 2019, a motion for the approval of a class action
(#60508-02-20), in an amount of NIS
793,800
, was filed against Zap Group with the Israeli District Court (central district), claiming
that Zap Group allegedly generated income illegally from paying customers through the 'ZAP Group's price comparison'
website. At the pre-trial hearing, it was decided that the plaintiffs would file an explanation to the court as to why they believe they
were fit to serve as class action plaintiffs and give an explanation as to why they have performed prohibited clicks on their competitor's
websites through ZAP Group's website. Additionally, the plaintiffs were requested to update whether they are willing to reduce the
amount of the claim. On July 15, 2021, the plaintiffs filed a motion to reduce the amount of the claim to NIS
63,000
. On December 15,
2021, a pre-trial hearing took place, in which the court clarified that it does not intend to interfere with Zap Group's business
considerations regarding the click filtering mechanisms that it operates. The court recommended that the plaintiffs reach an agreed solution
with Zap Group on the issue of the necessary disclosure that Zap Group should include in its contracts with customers (as available on
its website). The parties were requested to file a joint notice in accordance with the court's recommendation by January 15, 2022.
The plaintiffs submitted a request for an extension to file the notice. On April 5, 2022, the plaintiffs filed a notice with the court
stating that they had not reached agreement with Zap Group and therefore seek to set the case for evidentiary hearing. On December 12,
2022 the parties filed a joint notice with the court stating their agreement to initiate a mediation process. A mediation meeting took
place on February 6, 2023. The mediation ended without the parties reaching an agreement. A date for a hearing has not yet been set. As
this claim was filed against Zap Group prior to its acquisition by Formula, any liability resulting from it is covered by the indemnification
provided to Formula by the former shareholders of Zap Group.
4)
On December 30, 2021, Ronen Har Even, Galit Har Even and TV Center
Ltd. (the "Plaintiffs") submitted a monetary claim in the sum of NIS
24,490
(approximately $
6,959
) and a claim for the grant
of a mandamus order against Zap Group, in the District Court at Haifa. The Plaintiffs allege that Zap Group constitutes a monopoly in
the provision of price comparison services in the online arena in Israel, and excluded the Plaintiffs' business from the E-commerce
arena in Israel. According to the Plaintiffs, Zap Group prevented price comparisons between the prices of the Plaintiffs' televisions
and the prices of the televisions of the official importers, by causing systemic manipulations aimed at excluding the television models
sold by the Plaintiffs and blurring the fact that
they are cheaper in the search results. As mentioned in the Statement of Claim, concurrent with submission of
F-
101
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
the Claim, on April 19, 2021, the Plaintiffs
submitted a complaint against Zap Group to the Israel Competition Authority, and on August 18, 2021 and October 21, 2021, submitted supplements
to the aforesaid complaint. On June 1, 2022, Zap Group submitted a statement of defense, denying the Plaintiffs' allegations and
in particular the Plaintiffs' argument that Zap Group has a monopoly in the provision of price comparison services in the online
arena in Israel. On July 19, 2022, a pre-trial hearing took place, at the end of which it was held that the Parties must conclude the
discovery proceedings by September 10, 2022, and that should any of the Parties wish to submit a motion following receipt of the answers,
they must do so by November 15, 2022. On November 15, 2022 the Plaintiffs submitted a motion for the grant of an order of discovery of
documents and answer to interrogatories. On December 20, 2022, Zap Group submitted its response to the motion, in which it rejected all
of the Plaintiffs' demands. The Plaintiffs provided Zap Group with the documents that had been disclosed by them in the case, without
a suitable legend. On January 13, 2023, the Plaintiffs submitted a response to the motion. On January 16, 2023, a pre-trial hearing took
place, in which Zap Group insisted on the receipt of a suitable legend for the documents that had been disclosed to it by the Plaintiffs.
The Court held that the Plaintiffs would deliver a suitable legend within 45 days, after which Zap Group would be entitled to submit
a suitable motion in this regard within 30 days, should the need to do so arise. On March 5, 2023, the Plaintiffs submitted a new document
file in the context of the discovery proceedings, and an updated legend that was almost identical to the previous one. For that reason,
on April 3, 2023, Zap Group submitted a motion to strike out the Statement of Claim due to breach of the Court's decision to provide
the discovery materials in a proper manner or, alternatively, for the for the lack of performing the court's decision. The Plaintiffs
are required to respond to the motion by May 21, 2023. An additional pre-trial proceeding has been scheduled for October 2023. As this
claim was filed against Zap Group with respect to the period prior to its acquisition by Formula, any liability resulting from it is
covered by the indemnification provided to Formula by the former shareholders of Zap Group.
5)
In addition to the above-described legal proceedings, from time
to time, Formula and/or its subsidiaries and affiliates are subject to legal, administrative and regulatory proceedings, claims, demands
and investigations in the ordinary course of business, including claims with respect to intellectual property, contracts, employment and
other matters. The Group accrues a liability when it is both probable that a liability has been incurred and the amount of the loss can
be reasonably estimated. Significant judgment is required in the determination of both the probability and as to whether a loss is reasonably
estimable. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice
of legal counsel and other information and events pertaining to a particular matter. The Group intends to defend itself vigorously against
the above claims, and it generally intends to vigorously defend any other legal claims to which it is subject. While for most litigations,
the outcome is difficult to determine, to the extent that there is a reasonable possibility that the losses to which the Group may be
subject could exceed the amounts (if any) that it has already accrued, the Group attempts to estimate such additional loss, if reasonably
possible, and disclose it (or, if it is an immaterial amount, indicate accordingly). The aggregate provision that the Group has recorded
for all other legal proceedings (other than the particular material proceedings described above) is not material.
F-
102
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE 20:- COMMITMENTS
AND CONTINGENCIES (
Cont.
)
e)
Royalty commitments:
Sapiens Technologies
(1982) Ltd. ("Sapiens Technologies"), a wholly owned subsidiary of Sapiens incorporated in Israel, was partially financed
under programs sponsored by the IIA, formerly the Office of the Chief Scientist ("OCS") for the support of certain research
and development activities conducted in Israel. In exchange for participation in the programs by the IIA, Sapiens Technologies agreed
to pay
3.5
% of total net consolidated license and maintenance revenue and
0.35
% of the net consolidated consulting services revenue related
to the software developed within the framework of these programs based on an understanding with IIA reached in January 2012. The royalties
will be paid up to a maximum amount equaling
100
%-
150
% of the grants provided by the IIA, linked to the dollar, and for grants received
after January 1, 1999, bear annual interest at a rate based on LIBOR.
As of December 31, 2022, the total remaining
unpaid royalties to the IIA amounted to $
5,661
, out of which, an amount of $
1,659
was recorded as a liability in accordance with IAS 20.
f)
Insurance:
The Company and its
subsidiaries and affiliates insure themselves in bodily injury and property damage insurance policies, including third party, professional
liability and employer's liability insurance policies. Formula, Sapiens, Magic Software, Zap Group, Insync, Michpal, Shamrad and
Ofek directors and officers (D&O) are insured under an "umbrella" policy for insurance of directors and officers including
D&O side A DIC policy (another layer of protection for officers) acquired by the Company for itself and its subsidiaries, for a period
of 12 months from February 14, 2022.
Note
21:- equity
The composition
of the Company's share capital is as follows:
December 31, 2022
December 31, 2021
Authorized
Issued
Outstanding
Authorized
Issued
Outstanding
Ordinary shares, NIS
1
par value each
25,000,000
15,886,287
15,317,667
25,000,000
15,862,887
15,294,267
a.
Formula's ordinary shares, par value NIS
1
per share, are traded on the TASE, and Formula's
ADSs, each representing one ordinary share, are traded on the NASDAQ.
b.
Formula holds
568,620
of its own ordinary shares.
c.
In February 2021, Formula declared a cash dividend of approximately NIS
33,036
(approximately $
10,155
)
or NIS
2.16
per share (approximately $
0.66
per share) to shareholders of record on February 18, 2021 that was paid on March 4, 2021.
d.
In August 2021, Formula declared a cash dividend of approximately NIS
38,694
(approximately $
11,932
) or
NIS
2.53
per share (approximately $
0.78
per share) to shareholders of record on September 1, 2021 that was paid on September 19, 2021.
F-
103
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
21:- equity (
Cont
.)
e.
In March 2022, Formula declared a cash dividend of approximately NIS
39,213
(approximately $
12,018
) or
NIS
2.56
per share (approximately $
0.78
per share) to shareholders of record on April 12, 2022 that was paid on April 25, 2022.
f.
In November 2022, Formula declared a cash dividend of approximately NIS
33,086
(approximately $
9,571
)
or NIS
2.16
per share (approximately $
0.62
per share) to shareholders of record on December 5, 2022 that was paid on December 19, 2022.
g.
For information concerning Formula's employees and officers share-based plans, see Note 18.
Note
22:- INCOME TAX
a.
Israeli taxation:
1)
Corporate tax rate in Israel
:
Taxable income of
Israeli companies was generally subject to corporate tax at the rate of
23
% in 2020, 2021 and in 2022. Some of our Israeli subsidiaries
are eligible for certain tax benefits, as described below.
2)
Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the "Law"):
Amendment 73 to
the Law:
In December 2016,
the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years) 2016, which includes
Amendment 73 to the Law for the Encouragement of Capital Investments (the "2017 Amendment") was published and was pending
the publication of regulations, in May 2017 regulations were promulgated by the Finance Ministry to implement the "Nexus Principles"
based on OECD guidelines published as part of the Base Erosion and Profit Shifting (BEPS) project. Following the publication of the regulations
the 2017 Amendment became fully effective.
According to the 2017 Amendment, a Preferred Technological Enterprise, as defined in the 2017
Amendment, with total consolidated revenues of the group companies is less than NIS 10 billion, shall be subject to 12% tax rate on income
derived from intellectual property (in development area A—a tax rate of 7.5%). In order to qualify as a Preferred technological
enterprise certain criterion must be met, such as a minimum ratio of annual R&D expenditure and R&D employees, as well as having
at least 25% of annual revenues derived from exports. A Preferred Technology Enterprise that acquires Benefited Intangible Assets from
a foreign company for more than NIS 200 million after January 1, 2017, will be eligible for 12% reduce tax rate on capital gain upon sale
of the Benefited Intangible Assets.
The 2017 Amendment
further provides that a technology company satisfying certain conditions will qualify as a Special Preferred Technology Enterprise ("SPTE")
(an enterprise for which, among others, total consolidated revenues of its parent company and all subsidiaries is at least NIS 10 billion)
and will thereby enjoy a reduced corporate tax rate of 6% on PTI regardless of the company's geographic location within Israel.
In addition, a SPTE will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain "Benefited Intangible
Assets" to a related foreign company if the Benefited Intangible Assets were either developed by the Special Preferred Technology Enterprise
or acquired from a foreign company on or after January 1, 2017.
F-
104
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
Starting from 2017
under Amendment 73 to the Investment Law, part of the Group's taxable income in Israel is entitled to a preferred 12% tax rate.
Since 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.
Amendment 74 to
the Encouragement Law:
On November 15, 2021,
the Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2021 and 2022 Budget Years), 2021 (the "Economic
Efficiency Law"), was enacted. This Law establishes a temporary order allowing Israeli companies to release tax-exempt earnings
("trapped earnings" or "accumulated earnings") accumulated until December 31, 2020, through a mechanism established
for a reduced corporate income tax rate applicable to those earnings (the "Temporary Order")
.
In addition to the
reduced corporate income tax (CIT) rate, Article 74 to the Encouragement Law was amended whereby effective from August 15, 2021, for any
dividend distribution (including a dividend as per Article 51B to the Encouragement Law) by a company which has trapped earnings, there
will be a requirement to allocate a portion of that distribution to the trapped earnings
.
The tax-exempt income
is attributable to certain Group members' previous status as "Approved Enterprise" and "Benefited Enterprise".
Such tax-exempt income cannot be distributed to shareholders without subjecting the Company to payable income taxes. If dividends are
distributed from previous tax-exempt profits, the Company will be liable for income tax at the rate applicable to its profits from the
Approved Enterprise in at the tax rate enacted in the year in which the income was earned
.
According to the Temporary
Order, the reduction of CIT will apply to earnings that are released (with no requirement for an actual distribution) within a period
of one year from the date of enactment of the Temporary Order. The reduction in the CIT is dependent on the proportion of the trapped
earnings that are released in relation to the total trapped earnings, and on the applicable CIT rate in the years the earnings were generated.
Consequently, the larger the proportion of the trapped earnings that are released, the lower the tax in respect of the distribution. The
minimum tax rate is
6
%. Further, a company that elects to pay a reduced CIT is required to invest in its industrial enterprise a designated
amount in accordance with the Economic Efficiency Law within a period of five years commencing from the tax year in which the election
is made. The designated investment should be utilized for the acquisition of production assets, and/or investments in research and development
and/or compensation to additional new employees
.
According to IAS 12,
a deferred tax liability would generally be recorded relating to corporate taxes that would be owed on the distribution of profits if
management has currently the intention to declare dividends of its tax-exempt earnings
.
In 2021, Sapiens elected
to benefit from the Temporary Order and pay the reduced CIT as per the provisions of the Economic Efficiency Law in respect of its total
accumulated tax-exempt earnings amounting to NIS
109,000
(approximately $
35,048
), and accordingly recognized deferred tax liability of
$
3,531
. In 2022, the Sapiens filed its application for the Temporary Order and paid the required amount to the Israeli tax authority.
F-
105
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
In November 2022,
Magic Software also elected to benefit from the Temporary Order and filed its application for the Temporary Order and paid the required
reduced CIT as per the provisions of the Economic Efficiency Law in respect of its total accumulated tax-exempt earnings amounting to
NIS
25,022
(approximately $
7,100
), and accordingly recognized a tax liability of NIS
2,502
(approximately $
711
).
As of December 31,
2022 all of Sapiens' and Magic Software's trapped earnings were released.
3)
Tax benefits under the Israeli Law for the Encouragement of Industry (Taxes), 1969
:
It is Formula's
management's belief that certain of its Israeli operations currently qualify as Industrial Companies within the meaning of the Law
for the Encouragement of Industry (Taxes), 5729-1969 (the "Industrial Encouragement Law"). The Industrial Encouragement Law,
provides several tax benefits for an "IndustrialCompany". Pursuant to the Industry Encouragement Law, a company qualifies
as an Industrial Company if it is an Israeli resident company which was incorporated in Israel and at least
90
% of its income in any tax
year (other than income from certain government loans) is generated from an "Industrial Enterprise" that it owns and located
in Israel or in the "Area," in accordance with the definition under Section 3A of the Israeli Income Tax Ordinance (NewVersion)
1961, or the Ordinance. An "Industrial Enterprise" is defined as an enterprise which is held by an Industrial Company whose
major activity, in any given tax year, is industrial production.
An Industrial Company
is entitled to certain corporate tax benefits, including:
i.
Amortization of the cost of purchased patents, or the right to use a patent or know-how or certain other
intangible property rights (other than goodwill) that were purchased in good faith and are used for the development or promotion of the
Industrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised.
ii.
The right to elect, under certain conditions, to file a consolidated tax return together with Israeli
Industrial Companies controlled by it.
iii.
Expenses related to a public offering are deductible in equal amounts over three years beginning from
the year of the offering.
Eligibility for the
benefits under the Industrial Encouragement Law is not subject to receipt of prior approval from any governmental authority
.
The Group believes
that certain of its Israeli subsidiaries currently qualify as Industrial Companies within the definition under the Industry Encouragement
Law. The Group cannot assure you that those subsidiaries will continue to qualify as Industrial Companies or that the benefits described
above will be available in the future.
4)
Foreign Exchange Regulations
:
Under the Foreign
Exchange Regulations, certain Israeli subsidiaries of the Group calculate their tax liability in dollars according to certain orders.
The tax liability, as calculated in dollars is translated into NIS according to the exchange rate as of December 31 of each year for tax
purposes only.
F-
106
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
5)
Structural changes in Matrix IT
:
On June 11, 2020, a tax ruling was signed
determining that effective December 31, 2019 as part of a merger process, three subsidiaries of Matrix IT will transfer all their assets
and liabilities subject to the provisions of section 103 of the Income Tax Ordinance.
During the fourth quarter of 2022, Matrix
IT made a structural change with respect to its holdings in some of its U.S. based subsidiaries. Prior to the structural change, Matrix
IT held, indirectly through subsidiaries, all of the share interest in Matrix IFS and Network Infrastructure Technologies Inc. and
60
%
of the share interest in Matrix Global Services USA Inc. Post the structural change, which was completed without payment of cash, Matrix
IT interest in such U.S. subsidiaries is held through Matrix US Holding LLC.(established for this purpose), with Matrix IT holding
95
%
of the share interest of Matrix US Holding LLC.
b.
Non-Israeli subsidiaries:
Non-Israeli subsidiaries
are taxed according to the tax laws in their respective countries of residence. Deferred income taxes were provided in relation to undistributed
earnings of non-Israeli subsidiaries, which the Group intends to distribute in the near future.
The Group intends
to permanently reinvest undistributed earnings in the foreign subsidiaries in which earnings arose, in the vast majority of its subsidiaries.
If the earnings, for which deferred taxes were not provided, were distributed in the form of dividends or otherwise, the Group would be
subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and non-Israeli withholding taxes.
The amount of undistributed
earnings of foreign subsidiaries that are considered to be reinvested as of December 31, 2022 and 2021 was $
185,636
and $
157,464
, respectively.
However, a determination of the amount of the unrecognized deferred tax liability for temporary difference related to those undistributed
earnings of foreign subsidiaries is not practicable due to the complexity of the structure of our group of subsidiaries for tax purposes
and the difficulty of projecting the amount of future tax liability.
The amount of cash
and cash equivalents that were held by the Group's subsidiaries outside of Israel and would have been subject to income taxes if
distributed as dividend as of December 31, 2022 and 2021 was $
81,756
and $
56,916
, respectively.
F-
107
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
c.
Tax Reform - United States of America
The U.S. Tax Cuts
and Jobs Act of 2017 ("TCJA") was approved on December 22, 2017. This legislation makes significant changes to the U.S. Internal
Revenue Code. Such changes include a reduction in the corporate tax rate and limitations on certain corporate deductions and credits,
among other changes.
The TCJA reduces the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.
In addition, the
TCJA makes certain changes to the depreciation rules and implements new limits on the deductibility of certain expenses and deduction.
The TCJA introduced
the rules for tax on the global intangible low-taxed income ("GILTI") on foreign income in excess of a deemed return on tangible
assets of foreign corporations. One of our subsidiaries is subject to GILTI.
Except for one U.S.
subsidiary which has a share interest in a subsidiary in India, all of the Group's other subsidiaries in the United States do not
have any foreign subsidiaries and, therefore, the remaining provisions of the TCJA have no material impact on the Group's results
of operations.
Starting from 2022,
the TCJA requires taxpayers to capitalize research and development expenses with amortization periods over five years for research activities
conducted in the United States and over fifteen years for research activities conducted outside of the United States, which has increased
the Group's tax liability in the U.S. The tax provision expense has increased from prior year to account for the capitalization
of research and development costs starting in 2022.
d.
Net operating loss carried forward:
As of December 31,
2022, Formula and its subsidiaries have cumulative losses for tax purposes totaling approximately $
174,524
, of which $
136,443
was in respect
of Israeli subsidiaries and approximately $
38,081
of which was in respect of subsidiaries abroad.
1)
Formula
As of December 31,
2022, Formula stand-alone had cumulative carry forward tax losses in Israel totaling approximately NIS
257,503
(approximately $
73,180
),
which can be carried forward and offset against taxable income in the future for an indefinite period.
2)
Matrix IT
As of December 31,
2022, certain subsidiaries of Matrix IT had operating carry-forward tax losses totaling approximately NIS
110,185
(approximately $
31,311
),
which resulted from Israeli operations and as such can be carried forward and offset against taxable income in the future for an indefinite
period.
3)
Magic Software
As of December 31,
2022, certain subsidiaries of Magic Software had operating carry forward tax losses totaling approximately $
22,427
, which can be carried
forward and offset against taxable income in the future for an indefinite period.
F-
108
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
4)
Sapiens
As of December 31,
2022, certain subsidiaries of Sapiens had carry-forward tax losses totaling approximately $
32,592
. Most of these carry-forward tax losses
have no expiration date.
5)
Zap
As of December 31,
2022, Zap and certain of its subsidiaries had carry-forward tax losses totaling approximately NIS
21,761
(approximately $
6,184
). These
carry-forward tax losses have no expiration date.
6)
As of December 31, 2022 Insync, Michpal, Ofek and Shamrad did not have any carry forward tax losses.
e.
Income tax assessments:
Formula and its subsidiaries
are routinely examined by various tax authorities. Below is a summary of the income tax assessments of Formula and its subsidiaries:
1)
Formula
Formula has received
final tax assessments (or assessments that are deemed final) through the tax year 2017.
2)
Matrix IT
Matrix IT has received
final tax assessments through the tax year 2018.
Matrix IT subsidiaries have received final tax assessments (or assessments that are deemed
final) through the tax year 2018.
3)
Magic Software
Magic Software has
received final tax assessments through the year 2016. Magic Software subsidiaries have received final tax assessments (or assessments
that are deemed final) through the tax year 2017.
4)
Sapiens
Tax assessments filed
by some of Sapiens' Israeli subsidiaries through the year 2017 are considered to be final.
Sapiens is currently under audit in several
jurisdictions for the tax years 2017 and onwards. Timing of the resolution of audits is highly uncertain and therefore, as of December
31, 2022, the Company cannot estimate the change in unrecognized tax benefits resulting from these audits.
5)
Zap Group
Zap Group has received
final tax assessments (or assessments that are deemed final) through the tax year 2018. Zap Group's subsidiaries have received final
tax assessments (or assessments that are deemed final) through the tax year 2018.
6)
Other than those aforementioned subsidiaries, all other Formula's subsidiaries have received final
tax assessments (or assessments that are deemed final) through the tax year 2017.
F-
109
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
f.
Deferred tax liabilities, net:
1)
Presentation in consolidated statements of financial position
:
December 31,
2022
2021
Deferred taxes assets
$
42,027
$
46,364
Deferred tax liabilities
(
59,465
)
(
78,135
)
$
(
17,438
)
$
(
31,771
)
2)
Composition
:
December 31,
2022
2021
Net operating losses carried forward
$
10,296
$
8,775
Intangibles, fixed asset and right-of-use assets
(
39,307
)
(
52,436
)
Lease liability
(
166
)
484
Differences in measurement basis (cash basis for tax purposes)
2,213
3,084
Other
9,526
8,322
$
(
17,438
)
$
(
31,771
)
g.
Pre-tax income:
Year
ended December 31,
2022
2021
2020
Domestic (Israel)
$
181,953
$
137,213
$
106,974
Foreign
47,757
46,798
36,782
Total
$
256,710
$
184,011
$
143,756
h.
Income tax (tax benefit) consist of the following:
Year
ended December 31,
2022
2021
2020
Current taxes
$
75,407
$
52,956
$
23,015
Deferred taxes
(
20,172
)
(
10,342
)
8,254
Total
$
55,235
$
42,614
$
31,269
F-
110
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
i.
Theoretical tax:
The following table
presents reconciliation between the theoretical tax expense, assuming that all income was taxed at statutory tax rates, and the actual
income tax expense, as recorded in the Group's consolidated statements of profit or loss:
Year
ended December 31,
2022
2021
2020
Income before income taxes, as per the statement of operations
$
256,710
$
184,011
$
143,756
Statutory tax rate in Israel
23
%
23
%
23
%
Tax computed at the statutory tax rate
59,043
42,323
33,064
Non-deductible expenses (non-taxable income) net and tax-deductible costs not included in the accounting costs
720
3,667
2,544
Effect of different tax rates
(
1,273
)
852
(
774
)
Release of trapped earnings (see note 22(a)(2)
711
3,531
Effect of "Approved, Beneficiary or Preferred Enterprise" status
(
5,579
)
(
7,338
)
(
5,426
)
Deferred taxes on current losses (utilization of carry forward losses) and temporary differences for which a valuation allowance was provided, net
448
(
84
)
1,877
Undistributed earnings
(
461
)
-
-
Taxes in respect of prior years
890
891
280
Uncertain tax positions
3,065
401
285
Other
(
2,329
)
(
1,629
)
(
581
)
Taxes on income
$
55,235
$
42,614
$
31,269
j.
Uncertain tax positions:
A reconciliation
of the beginning and ending amount of total unrecognized tax benefits in Formula's subsidiaries is as follows:
Balance as of January 1, 2021
$
9,091
Decrease in tax positions
(
1,457
)
Increase in tax positions
2,906
Balance as of December 31, 2021
$
10,540
Decrease in tax positions
(
1,042
)
Increase in tax positions
4,455
Statue limitation
(
1,012
)
Balance as of December 31, 2022
$
12,941
Although the Group
believes that it has adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement, there is no assurance
that the final tax outcome of its tax audits will not be different from that which is reflected in the Group's income tax provisions.
Such differences could have a material effect
on the Group's income tax provision, cash flow from operating activities and net income in the period in which such determination
is made.
F-
111
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
22:- INCOME TAX (
Cont
.)
The entire balance
of unrecognized tax benefits, if recognized, would reduce the Group's annual effective tax rate.
Note 23:- Supplementary
Financial Statement Information
a.
Composition of non-controlling interest in material partially
-
owned
subsidiaries:
December 31,
2022
2021
Matrix IT and its subsidiaries
$
155,886
$
161,947
Sapiens and its subsidiaries
316,319
320,448
Magic Software and its subsidiaries
151,253
153,706
Other
1,291
2,726
$
625,049
$
638,827
b.
The following table provides detailed breakdown of the Group's financial income and expenses:
Year
ended December 31,
2022
2021
2020
Financial expenses:
Financial expenses related to liabilities in respect of business combinations
$
1,081
$
3,539
$
3,738
Interest expenses on loans and borrowings
9,837
6,249
6,863
Financial costs related to Debentures
3,775
6,948
6,546
Interest expenses attributed to IFRS 16
4,822
4,873
5,367
Derivatives loss
1,193
-
-
Bank charges, negative foreign exchange differences and other financial expenses
6,508
8,385
6,930
27,216
29,994
29,444
Financial income:
Income from marketable securities and embedded derivative
-
3,338
204
PPP loan forgiveness
1,465
-
-
Interest income from deposits, positive foreign exchange differences and other financial income
5,821
2,651
2,355
7,286
5,989
2,559
Financial expenses, net
$
19,930
$
24,005
$
26,885
F-
112
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
23: - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (
Cont
.)
c.
Geographical information:
1)
The Group's property and equipment is located as follows:
December 31,
2022
2021
Israel
$
45,994
$
44,221
United States
3,563
3,144
Europe
1,834
2,820
Japan
153
211
Other
3,427
6,490
Total
$
54,971
$
56,886
2)
Revenues:
The Group's
revenues classified by geographic area (based on the location of customers) are as follows:
Year
ended December 31,
2022
2021
2020
Israel
$
1,571,035
$
1,506,566
$
1,203,109
International:
United States
680,325
591,794
501,785
Europe
262,303
255,680
189,152
Africa
26,692
18,012
11,702
Japan
11,333
12,890
14,282
Other (mainly Asia pacific)
20,669
19,434
13,888
Total
$
2,572,357
$
2,404,376
$
1,933,918
d.
Earnings per share:
The following table
presents the computation of basic and diluted net earnings per share for the Group:
Year
ended December 31,
2022
2021
2020
Numerator:
Basic earnings per share – net income attributable to equity holders of the Company
$
81,393
$
54,585
$
46,776
Diluted earnings per share – net income attributable to equity holders of the Company
$
80,794
$
53,974
$
45,969
Denominator:
Basic earnings per share – weighted average shares outstanding
15,296
15,290
15,286
Effect of dilutive securities
207
114
6
Diluted earnings per share – adjusted weighted average shares outstanding
15,503
15,404
15,292
Basic net earnings per share
5.31
3.57
3.05
Diluted net earnings per share
5.21
3.50
3.01
F-
113
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
24: - operating segments
a.
General:
The Group is engaged
through seven directly held subsidiaries— Matrix IT; Sapiens; Magic Software; Michpal, Zap, Insync, Ofek and Shamrad; and one jointly
controlled entity: TSG— in providing software services, proprietary and non-proprietary software solutions, software product marketing
and support, computer infrastructure and integration solutions and training and integration.
Matrix
IT
Matrix IT Ltd. is
Israel's leading IT services company. Matrix IT provides software solutions and services, software development projects, outsourcing,
integration of software systems and services, project management services and comprehensive consulting and management services in complex
infrastructure projects, urban and environment planning – all in accordance with its customers' specific needs. Matrix IT
also provides upgrading and expansion of existing software systems.
Matrix IT operates
through its directly and indirectly held subsidiaries in the following segments: (1) Information Technology (IT) Software solutions and
services, Consulting & Management in Israel; (2) Information Technologies (IT) Software solutions and services in the U.S.; (3) Training
and integration; (4) Computer and cloud infrastructure and integration solutions; and (5) Software product marketing and support.
Information
Technologies (IT) Software solutions and services, Consulting & Management in Israel:
The software solutions
and services in Israel provided by Matrix IT consist mainly of providing tailored software solutions and upgrading and expanding mainly
existing large-scale software systems. These services include, among others, developing customized software, adapting software to the
customer's specific needs, implementing software and modifying it based on the customer's needs, outsourcing, software project
management, software testing and QA and integrating all or part of the above elements. Furthermore, the activity in this segment includes
project management consulting services and multi-disciplinary operational and engineering consulting services, including supervision of
complex engineering projects, all according to client specific needs as the scope of work invested in each element varies from one customer
to the other. In 2022, activity in software solutions and value-added services in Israel accounted for approximately
52
% of Matrix IT's
revenues and approximately
51
% of its operating income.
Information
Technologies (IT) Software solutions and services in the United States:
Matrix IT's
activities in this segment are performed by two lines of business – Matrix US Holdings and Xtivia. The two line of business primarily
provide software solutions and services of Governance Risk and Compliance ("GRC") experts, including activities on the following
topics: risk management, management and fraud prevention, anti-money laundering, trade surveillance as well as, specialized advisory services
in the area of compliance with financial regulation and operational services, as well as solutions and specialized technological services
in areas such as: portals, BI (Business Intelligence) DBA (Data Base Administration), CRM (Customer Relation Management) and EIM (Enterprise
Information Management). Furthermore, the activity in this segment includes dedicated solutions for the GovCon Government contracting
market, IT help desk services specializing in healthcare and software product distribution services particularly IBM, BMC and Atlassian
products to customers in the public-government
sector in the U.S,. In 2022, the activity in the U.S. accounted for approximately
9
% of Matrix IT's revenues and approximately
17
%
of its operating income.
F-
114
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
Note
24: - operating segments (
Cont
.)
Training
and integration:
Matrix IT's
activities in this segment consist of operating a network of high-tech training and instruction centers which provide application courses,
professional training courses and advanced professional studies in the high-tech industry, courses of soft skills and management training
and provision of training and implementation of computer systems. Matrix IT also outsources IT services based on graduates of its courses.
In 2022, activity in training and integration accounted for approximately
5
% of Matrix IT's revenues and for approximately
5
% of
its operating income.
Computer
and cloud infrastructure and integration solutions:
Matrix IT's
activities in this segment, is primarily providing computer solutions to computer and communications infrastructures, marketing and sale
of computers and peripheral equipment to business customers, providing related services, and cloud computing solutions
(
through
the business specializing unit of the Company - Cloud Zone) and a myriad of services and products regarding office automation and printing
solutions, representation of global leading manufacturers of test and measurement equipment, communication and cyber and RF solutions,
projects and integration in the field of automation, calibration services in advanced technologies, provision of industrial video and
image processing solutions as well as Database services and Big data services (through the specialized business unit Data zone). In 2022,
activity in computer and cloud infrastructure and integration solutions accounted for approximately
29
% of Matrix IT's revenues
and for approximately
22
% of its operating income.
Software
product marketing and support:
Matrix IT's activities
in this segment include marketing, distributing and support for various software products, web world content management, database and
data warehouse mining, application integration, database and systems, data management and software development tools. In 2022, activity
in software product marketing and support accounted for approximately
5
% of Matrix IT's revenues and approximately
5
% of its operating
income.
Sapiens
Sapiens is a leading
global provider of software solutions for the insurance industry. Sapiens' extensive expertise is reflected in its innovative software,
solutions and professional services for property & casualty (P&C); reinsurance; life, pension & annuity (L&A); workers'
compensation (WC); medical professional liability (MPL); financial & compliance (F&C); and decision modelling for both insurance
and financial markets. Sapiens offers an end-to-end solutions for insurers core systems, as well as complementary data & analytics
and digital. Importantly its wide array of professional services ensures that Sapiens not only makes a sale but accompanies and guides
its customers on their path to digital transformation and bring important insights from the field into its products roadmap. Sapiens'
offerings not only enable its customers to effectively manage their core business functions – including policy administration, claims
and billing – they support insurers on their path to digital transformation. Its portfolio also provides a variety of complimentary
solutions for critical requirements such as reinsurance management, underwriting management, illustration software, electronic applications
and financial compliance tools. The latest versions of its platforms possess modern, modular
cloud-first architecture and are digital-driven, providing full coverage for all business aspects of policy management, digital engagement
and data analysis. They empower customers to respond to the rapidly changing insurance market and frequent regulatory changes, while improving
the efficiency of their core operations.
F-
115
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
24: - OPERATING SEGMENTS (
Cont
.)
Magic Software
Magic Software is
a global provider of: (i) software services and Information Technologies ("IT") outsourcing software services; (ii) proprietary
application development and business process integration platforms; (iii) selected packaged vertical software solutions; as well as (iv)
cloud based services for end to end digital transformation. Magic Software's technology is used by customers to develop, deploy
and integrate on-premise, mobile and cloud-based business applications quickly and cost effectively. In addition, Magic Software's
technology enables enterprises to accelerate the process of delivering business solutions that meet current and future needs and allow
customers to dramatically improve their business performance and return on investment.
With respect to software
services and IT outsourcing services, Magic Software offers a vast portfolio of professional services in the areas of infrastructure design
and delivery, application development, technology consulting planning and implementation services, integration projects, project management,
software testing and quality assurance, engineering consulting (including supervision of engineering projects), support services, cloud
computing for deployment of highly available and massively-scalable applications and API's and supplemental outsourcing services,
all according to the specific needs of the customer, and in accordance with the professional expertise required in each case.
In addition, Magic
Software offers a variety of proprietary comprehensive packaged software solutions through certain of its subsidiaries for (i) enterprise-wide
and fully integrated medical platform ("Clicks"), specializing in the design and management of patient-file oriented software
solutions for managed care and large-scale health care providers. This platform aims to allow providers to securely access an individual's
electronic health record at the point of care, and it organizes and proactively delivers information with potentially real time feedback
to meet the specific needs of physicians, nurses, laboratory technicians, pharmacists, front- and back-office professionals and consumers;
(ii) enterprise management systems for both hubs and traditional air cargo ground handling operations from physical handling and cargo
documentation through customs, seamless electronic data interchange, or EDI communications, dangerous goods, special handling, track and
trace, security to billing ("Hermes"); (iii) enterprise human capital management, or HCM, solutions, to facilitate the collection,
analysis and interpretation of quality data about people, their jobs and their performance, to enhance HCM decision making ("HR
Pulse"); (iv) revenue management and monetization solutions in mobile, wireline, broadband and mobile virtual network operator/enabler,
or MVNO/E ("Leap"); (v) comprehensive systems for managing broadcast channels in the area of TV broadcast management through
cloud-based on-demand service or on-premise solutions; (vi) comprehensive solution for sales and distribution field activities, such as
order taking, route accounting, trade marketing, retail execution, proof of deliveries and B2B E-commerce ("Mobisale"); and
(vii) comprehensive solution for efficient management of all types of rehabilitation centers ("Nativ").
F-
116
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
24: - OPERATING SEGMENTS (
Cont
.)
Magic Software solutions
are used by customers to develop, deploy and integrate on-premise, mobile and cloud-based business applications quickly and cost effectively.
In addition, its technology enables enterprises to accelerate the process of delivering business solutions that meet current and future
needs and allow customers to dramatically improve their business performance and return on investment. Its software solutions include
application platforms for developing and deploying specialized and high-end large-scale business applications (Magic xpa application platform,
formerly branded uniPaaS, Appbuilder and Magic SmartUX), an integration platform that allows the integration and interoperability of diverse
solutions, applications and systems in a quick and efficient manner (Magic xpi business and process integration platform, formerly branded
iBOLT), Magic BusinessEye – a cloud-based platform for all verticals enabling smooth end-to-end digital transformation and full
organizational business intelligence and FactoryEye - a proprietary high performance, low-code, flexible, hybrid platform for manufacturers
based on existing infrastructure enabling real-time virtualizations of all production data and advanced analytics (based on machine learning)
for improved productivity and competitive advantage. These solutions enable Magic Software customers to improve their business performance
and return on investment by supporting the affordable and rapid delivery and integration of business applications, systems and databases.
Magic Software products
and services are available through a global network of regional offices, independent software vendors, system integrators, distributors
and value-added resellers as well as original equipment manufacturers and consulting partners in approximately 50 countries.
Insync
InSync is a U.S. based
national supplier of employees to Vendor Management Systems (VMS) Workforce Management Program accounts. Insync specializes in providing
professionals in the following areas; Accounting and Finance, Administrative, Customer Service, Clinical, Scientific and Healthcare, Engineering,
Manufacturing and Operations, Human Resources, IT Technology, LI/MFG, and Marketing and Sales. InSync currently supports more than 30
VMS program customers with employees in over 40 states.
Michpal
Michpal, an Israeli
registered company, is a developer of proprietary, on-premise payroll software solution for processing traditional payroll stubs to Israeli
enterprises and payroll service providers. Michpal also developed several complementary modules such as attendance reporting, which are
sold to its customers for additional fees. Together with its subsidiaries Unique Software Industries Ltd, a software development and services
company, providing integrated solutions in the field of payroll for more than
30
years, including pay-stubs, pension services management,
education funds management, and software solutions for managing employee attendance, and Effective Solutions Ltd Michapl also provides
consulting services in the fields of operational cost savings and procurement, as well as salary control and monitoring a payroll, labor,
pensions, social security and employee income tax matters. As of December 31, 2022, Michpal serves approximately 8,000 customers, most
of which are long-term customers.
Zap Group
Zap Group, is Israel's
largest group of consumer websites which manages more than twenty leading consumer websites from diverse content worlds with a total of
more than 17 million visits per month, including Zap Price
Comparison website, Zap Yellow Pages (the largest business index in Israel) and Zap Rest (Israel's restaurants index). Zap Group,
an Israeli private company, provides a variety of digital advertising solutions for its customers (small and medium businesses in Israel)
and an access to an E-commerce platform to allow them engage with their consumers. Zap Group serves over 400,000 listed businesses on
its platforms; approximately 16,000 of them are paying customers. The websites managed and offered by Zap Group offer consumers a user-friendly
search experience with a variety of advanced tools, which enable them to make educated purchase decisions in the best and most informed
way.
F-
117
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
24: - OPERATING SEGMENTS (
Cont
.)
Digital Solutions
Zap Group provides
a variety of digital advertising solutions for its customers (small and medium businesses in Israel) and an access to an E-commerce platform
that allows them to engage with their consumers. Zap Group regularly seeks to develop attractive digital solutions, which it believes
to have market potential for small and medium businesses and their end user. All of Zap Group's investments in this area have been
proven, where we believe we can leverage our experience to enhance product positioning and increase market penetration. We provide our
management and technical and financial expertise, marketing experience to help bring these products to market.
E-commerce Solutions
Zap Group provides
an e-commerce platform for approximately 1,500 large, medium and small businesses, which operate stores in Israel. The platform, both
website and application, allow end users to compare prices of the various stores for over 1.2 million products in 650 categories. The
platform provides to more than 120 million visiting end users annually, 300,000 reviews of stores and products and 5,000 quality guides
(videos and articles), which allow them to engage through the platform directly with the stores for a purchase of a certain product they
looked at through the platform. Total online purchases through the platform is estimated at approximately NIS 2 billion annually, which
is estimated at 14% out of total online purchase volume in Israel (not including food and beverage).
In 2021, Zap Group
launched a new website for car sellers and buyers, which provides a marketplace where buyers can explore on one website various options
for buying a second-hand car (B2C). The platform allows the buyer to compare prices, specs, financing, peripheral services, accessories
and overall packages. The Online, real-time supply availability enables transparency, and also provides the buyer an aggregated view of
specific sellers and agencies and a direct contact with a large pool of sellers
Digital platforms
Zap Group provides
digital advertising platforms and services through 18 websites for medium and small businesses in 1,600 business categories in Israel,
including doctors, lawyers, and other service and product providers. The platform, both website and application allow end users to contact
directly with the service provider. The platform provides to more than 50 million visiting end users annually, 200,000 reviews, 2,000
quality guides (videos and articles), 300 price lists, and 700 forums with more than 1.5 million expert explanations.
F-
118
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
24: - OPERATING SEGMENTS (
Cont
.)
Zap Group also provides
its customers other digital services as Search Engine Marketing (Pay Per Click Google and Facebook campaigns) and Search Engine Optimization
for their websites. Zap Group also provides website design services, creation of new websites on various tools (ZAP-X), management of
social media, online business cards (GMB), and big data services.
Restaurants and
events
Zap Group provides
digital advertising platforms and services for more than 17,000 restaurants listed and provides services for social events. Approximately
2,500 of them are paying customers. The platform, both website and application allow end users to directly contact the restaurant for
table ordering, ordering of delivery or take away, to post visit reviews or explore the restaurant menu, photo gallery and other content
such as articles, etc. The platform provides to more than 30 million visiting end users annually, approximately two million food deliveries,
200,000 reviews, 5,000 food and culinary articles (videos and articles), and more than 0.5 million push updates annually.
Other
Zap Group provides
digital advertising platform for domestic travel and hospitality businesses in Israel (the "Platform"). The platform, both
website and application, allows end users to order directly from the provider (hotel, guesthouse or attraction service provider). The
platform provides access to millions of visiting end users annually, to approximately 1,200 vacation and leisure locations.
Ofek
Founded in 1987, Ofek
is one of the leading companies in Israel in the fields of aerial and satellite mapping, geographic data collection and processing, and
provider of services in numerous geographic applications. Among Ofek's customers are many government authorities and foreign government.
Ofek employs approximately 100 employees, all situated at Ofek's headquarter in Natanya, Israel, in multiple areas of expertise:
geodetic engineers, software experts, geographers and aerial photo interpreters, GIS and surveying engineers, 3D mapping and data processing
experts. The company owns three aerial photography aircrafts equipped with state-of-the-art mapping sensors. Ofek operates worldwide.
It has successfully completed projects for various clients (government and private) in Asia, America, Europe, Middle East and Africa,
and it constantly involved in ongoing international geographic projects. Ofek aerial photography has accumulated experience in managing
and executing NSDI and GIS projects and surveys for detecting, collecting and analyzing diverse geographic cadastral and environmental
information.
TSG
TSG is a global high
-
technology
company engaged in high-end technical solutions for protecting the safety of national borders, improving data gathering mechanisms, and
enhancing communications channels for military, homeland security and civilian organizations.
TSG operates primarily
in the defense and homeland security arenas. The nature of military and homeland security actions in recent years, including low intensity
conflicts and ongoing terrorist activities, as well as budgetary pressures to focus on leaner but more technically advanced forces, have
caused a shift in the defense and homeland security priorities for many of TSG's major customers. As a result, TSG believes there
is a continued demand in the areas of command, control, communications, computer
and intelligence (C4I) systems, intelligence, surveillance and reconnaissance (ISR) systems, intelligence gathering systems, border and
perimeter security systems, cyber-defense systems. There is also a continuing demand for cost-effective logistic support and training
and simulation services. TSG believes that its synergistic approach of finding solutions that combine elements of its various activities
positions it to meet evolving customer requirements in many of these areas. TSG tailors and adapts its technologies, integration skills,
market knowledge and operationally-proven systems to each customer's individual requirements in both existing and new platforms.
By upgrading existing platforms with advanced technologies, TSG provides customers with cost-effective solutions, and its customers are
able to improve their technological and operational capabilities within limited budgets.
F-
119
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
24: - OPERATING SEGMENTS (
Cont
.)
TSG markets its systems
and products either as a prime contractor or as a subcontractor to various governments and defense and homeland security contractors worldwide.
In Israel, TSG sells its defense, intelligence and homeland security systems and products mainly to the IMOD, which procures all equipment
for the Israeli Defense Force (IDF).
Shamrad
Shamrad is an Israeli
private company, engaged in the supply, integration and installation of computer communication infrastructures, announcement and alarm
systems and electronic security systems. Shamrad represents several companies in the field of security: ATI systems – sirens, Garrett
– Metal detectors, Kopp – Ferro Magnetic detectors for MRI rooms. Shamrad holds vast experience in design, supply and installation
of security systems, integrated with command and control solutions, CCTV, access control and intruder detection. Shamrad provides video
solutions together with high speed networks and wireless links, allowing hundreds of camera channels to be viewed in one or many control
centers. Shamrad installs IP and analog cameras in various configurations such as, Bullet, Dome, PTZ, Box, and Thermal. Shamrad offers
customers complete solutions for communications and telephony infrastructure, both in the fields of passive and active equipment. Amongst
the services offered are installation and maintenance of networks (local and wireless) and specific dedicated communications rooms. Shamrad
has, since it's inception, a dedicated department offering a complete and professional solution, with a system wide view tailored
to exactly meet our customers' requirements.
b)
Consolidated Goodwill in material partially owned subsidiaries
:
December 31,
2022
2021
Matrix IT and its subsidiaries
$
288,235
$
306,421
Sapiens and its subsidiaries
397,613
406,498
Magic Software and its subsidiaries
158,699
146,803
Michpal and its subsidiaries
40,603
36,108
ZAP and its subsidiaries
33,081
35,292
Other consolidated subsidiaries
7,930
1,732
$
926,161
$
932,854
c)
Reporting on operating segments
:
The operating segments
are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions
about resources to be allocated and assesses its performance. The CODM has been identified as Formula's CEO. The CODM assess the
performance of the Group based on each of the Group's directly held subsidiaries and company accounted for at equity operating income
(or loss). Headquarters and finance expenses of Formula are allocated proportionally among the investees.
Matrix IT
Sapiens
Magic Software
Michpal
ZAP Group
Other
Adjustments
Total
Year ended December 31, 2022:
Revenues from external customers
$
1,388,508
$
474,736
$
561,682
$
37,714
$
49,893
$
133,526
$
(
73,702
)
$
2,572,357
Inter-segment revenues
4,310
-
5,110
309
-
360
(
10,089
)
-
Total revenues
$
1,392,818
$
474,736
$
566,792
$
38,023
$
49,893
$
133,886
$
(
83,791
)
$
2,572,357
Depreciation and amortization
$
48,288
$
33,050
$
19,804
$
4,770
$
7,976
$
6,214
$
(
4,794
)
$
115,308
Segment operating income
$
149,298
$
66,164
$
61,762
$
8,117
$
(
1,042
)
$
8,311
$
(
5,345
)
$
287,265
Unallocated corporate expenses
(
10,625
)
Total operating income
$
276,640
Financial expenses, net
(
19,930
)
Group's share of profits of companies accounted for at equity, net
(
1,808
)
Taxes on income
(
55,235
)
Net income
$
199,667
F-
120
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
24: - OPERATING SEGMENTS (
Cont
.)
Matrix  IT
Sapiens
Magic Software
Michpal
ZAP Group
Other
Adjustments
Total
Year ended December 31, 2021:
Revenues from external customers
$
1,344,088
$
461,035
$
477,643
$
32,087
$
51,640
$
127,641
$
(
89,758
)
$
2,404,376
Inter-segment revenues
6,529
-
2,682
-
-
-
(
9,211
)
-
Total revenues
$
1,350,617
$
461,035
$
480,325
$
32,087
$
51,640
$
127,641
$
(
98,969
)
$
2,404,376
Depreciation and amortization
$
45,736
$
45,732
$
19,837
$
4,023
$
7,486
$
3,776
$
(
4,406
)
$
122,184
Segment operating income
$
102,054
$
44,210
$
59,785
$
6,838
$
5,962
$
3,841
$
(
3,519
)
$
219,171
Unallocated corporate expenses
(
11,155
)
Total operating income
$
208,016
Financial expenses, net
(
24,005
)
Group's share of profits of companies accounted for at equity, net
505
Taxes on income
(
42,614
)
Net income
$
141,902
Matrix IT
Sapiens
Magic Software
Michpal
ZAP Group
Other
Adjustments
Total
Year ended December 31, 2020:
Revenues from external customers
$
1,116,178
$
382,903
$
368,357
$
26,244
$
-
$
120,330
$
(
80,094
)
$
1,933,918
Inter-segment revenues
5,316
-
2,837
-
-
-
(
8,153
)
-
Total revenues
$
1,121,494
$
382,903
$
371,194
$
26,244
$
-
$
120,330
$
(
88,247
)
$
1,933,918
Depreciation and amortization
$
36,244
$
35,965
$
18,861
$
3,506
$
-
$
3,377
$
(
2,446
)
$
95,507
Segment operating income
$
84,181
$
35,337
$
47,757
$
6,333
$
-
$
4,753
$
(
3,455
)
$
174,906
Unallocated corporate expenses
(
4,265
)
Total operating income
170,641
Financial expenses, net
$
(
26,885
)
Group's share of profits of companies accounted for at equity, net
1,535
Taxes on income
(
31,269
)
Net income
$
114,022
F-
121
FORMULA SYSTEMS (1985) LTD.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and
per share data
NOTE
25:- SUBSEQUENT EVENTS
a)
On January 1, 2023,
Matrix IT purchased 70% of the share capital of Zebra Technologies Ltd. for NIS 53,000
(including equity). Zebra Technologies Ltd. is engaged in the distribution and marketing of solutions in the fields of data communication,
cyber protection, hardware, software and services. As part of the transaction, Matrix IT entered into a mutual option agreement with the
seller for the sale and purchase of the remaining shares.
b)
On March 27, 2023,
Magic Software entered into a loan agreement with an Israeli bank, pursuant to which,
Magic Software borrowed $20,000 for a four-year term (the "Bank Loan"). The Bank Loan will mature on March 27, 2027, and will
be repaid in four (4) equal annual installments of $6,052 (including interest) as of March 27, 2024. The Bank Loan bears interest at the
rate of SOFR + 3.38% and can be redeemed with no additional cost after one (1) year.
- - - - - - - - -
- - - - - - - - - -
F-
122
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Magic Software Japan K. K.
Opinion on the Financial Statements
We have audited the accompanying statements of financial position of Magic Software Japan K.K. (the "Company") as of January 1, 2021,
December 31, 2021 and December 31, 2022, and the related statements of profit or loss, comprehensive income and cash flows and for each
of the two years in the period ended December 31, 2022, and the related notes. In our opinion, based on our audits the financial statements
present fairly, in all material respects, the financial position of the Company at January 1, 2021, December 31, 2021 and December 31,
2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity
with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), (PCAOB), the
Company's internal control over financial reporting as of December 31, 2022, based on Section 404 of the Sarbanes-Oxley Act ("SOA'') and
our report dated February 20, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Tokyo, Japan
February 20, 2023
/s/ KDA Audit Corporation
KDA Audit Corporation