NOTE 1:- 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.

The business environment in which the Group operates is directly affected by global and local trends and events, the main ones of which are detailed below:

Following global macroeconomic developments during 2022, inflation rates increased both in Israel and globally. As part of the measures taken to curb inflation, central banks worldwide, including the Bank of Israel, began increasing interest rates. On November 24, 2025, the Bank of Israel reduced the interest rate by 0.25%, for the first time in two years. In the Group’s assessment, the impact of inflation on its operating results is not material, inter alia due to the fact that the Group’s financial debt is not linked to the Consumer Price Index. However, an increase in interest rates, should it occur, may adversely affect the Group’s operating results through higher financing costs on variable interest rate borrowings (commercial paper and short-term bank loans), as well as on new fixed-rate borrowings that may replace maturing loans.

On October 7, 2023, the “Iron Swords” War broke out. The effects of the war were reflected, inter alia, in attacks on civilian populations, extensive reserve mobilization and its impact on the labor market, as well as effects on the Israeli home front, including the evacuation of significant parts of the civilian population to alternative locations. These developments affected overall economic activity and the domestic economy in particular, including the State’s credit rating (with three major international rating agencies announcing during 2024 a downgrade of Israel’s sovereign credit rating).

In addition, alongside the continuation of the fighting in Gaza, on June 13, 2025, Israel launched a large-scale pre-emptive strike against Iran under “Operation With the Strength of a Lion.” This operation resulted in broad restrictions on economic activity in Israel due to the Iranian missile threat and damage to the Israeli home front. Approximately two weeks later, a ceasefire was declared, leading to the cessation of hostilities.

In October 2025, an agreement was signed under the mediation of the United States and other countries, based on the 21-point plan of the President of the United States, which, in its first phase, led to the release of all living hostages and most of the deceased hostages, alongside principled understandings regarding a ceasefire in Gaza and the implementation of humanitarian arrangements. Concurrently with the said ceasefire, attacks on Israel from Yemen ceased.

Following the end of the reporting period, on February 28, 2026, “Operation Roar of the Lion” commenced, a joint military operation by the United States and Israel against Iran. Iran responded by launching hundreds of ballistic missiles and UAVs toward Israel and Gulf states, alongside the opening of an additional front by Hezbollah from Lebanon. The strikes resulted in civilian casualties and injuries in Israel and caused extensive property damage. As a result, a special state of emergency was declared on the Israeli home front, including closure of Israeli airspace, restrictions on public gatherings, temporary closures and/or reduced operating hours of various businesses, and mass reserve mobilization, all of which led to a partial reduction in economic activity.

These events, by their nature, have significant security-related implications for the domestic economy and the State budget, including potential impacts on the publication of tenders for software services in the Group’s areas of activity, as well as on the budgets of various business entities operating in the Israeli economy, which may reduce their demand for the Group’s services and solutions due to prevailing uncertainty.

In the Group’s assessment, should “Operation Roar of the Lion” continue for an extended period and/or escalate, its implications may have a significant adverse effect on the Israeli economy, including on the Company. Due to the inherent uncertainty associated with such security developments, there is no certainty regarding the absence of a material impact in the future. However, as of the date of approval of the financial statements, the Group does not identify a material impact on its level of activity, including demand for its services and solutions.

In these financial statements: