Formula Systems (1985) Ltd. — Interim / Quarterly Report 2005

Aug 18, 2005

FOR IMMEDIATE RELEASE

Formula Systems Reports Second Quarter results

Herzliya, Israel – August 18, 2005 – Formula Systems (1985) Ltd. (Nasdaq: FORTY) a leading provider of information technology products, solutions and services, announced today results for the second quarter ended June 30, 2005.

Total revenues for the second quarter ended June 30, 2005 were $126.4 million compared to $110.3 million in the comparable quarter of 2004, an increase of 15%. In the first six months of 2005, Formula reported revenues of $255.1 million, an increase of 16% from the same period last year.

Operating income in the second quarter of 2005 was $2.9 million compared to $3.7 million in the second quarter of 2004. In the first half of 2005 operating income increased to $8.7 million from $6.5 million in the comparable period of 2004.

In the second quarter the Company reported a net income of $111 thousands compared to net income of $2.0 million in the second quarter of 2004. Net income in the first six months of 2005 totaled $1.9 million compared to $4.7 million in the same period last year.

Gad Goldstein, President of Formula, commented: "I am satisfied with the revenue and operational growth of 16% and 33% respectively in the first half of 2005 as compared to the same period in 2004. Gain on realization of investments was substantially lower in the first six months of 2005 as compared to the same period of 2004 and had a negative impact on the net income for this period. Since capital gains do not occur on a regular basis it is difficult to control their timing. Based on our arsenal of potential capital gains, whose materialization we are working on, and encouraged by the nice head start of the Formula Telecom IPO in the AIM stock market, we believe that the second half net income will follow the positive trend of the revenues and operating income in the first half."

About Formula

Formula Systems Ltd. is a global information technology company principally engaged, through its subsidiaries and affiliates, in providing software consulting services, developing proprietary software products and providing computer-based business solutions.

Statements made in this press release that are not historical facts are forward-looking statements. Such statements involve various risks that may cause actual results to differ materially. These risks and uncertainties include, but are not limited to: market demand for the company’s products, dependence on strategic partners, integration of new business, successful implementation of Formula’s products, economic and competitive factors, international market conditions, management of growth, technological developments, the ability to finance operations and other factors which are detailed in Formula’s Securities and Exchange Commission filings, including its most recent report on Form 20-F. Formula undertakes no obligation to publicly release any revision to any forward-looking statement.

Contact: Israel: Gad Goldstein, President, Formula Systems Ltd. +972-9-959-8800 USA: Dennis S. Dobson, for Formula Systems Ltd. (203) 255-7902

FORMULA SYSTEMS (1985) LTD. (An Israeli corporation) CONSOLIDATED BALANCE SHEETS

CURRENT ASSETS:Cash and cash equivalents...............................................................................Short-term investments ...................................................................................Trade receivables ............................................................................................Other accounts receivable ...............................................................................Inventories.......................................................................................................LONG-TERM INVESTMENTS, LOANS AND RECEIVABLES:Loans and other investments...........................................................................Investments in affiliates ..................................................................................SEVERANCE PAY FUND................................................................................FIXED ASSETS, NET........................................................................................OTHER ASSETS, NET......................................................................................CURRENT LIABILITIES:Liabilities to banks and others.........................................................................Trade payables ................................................................................................Other accounts payable...................................................................................Debentures ......................................................................................................Customer advances, net of work in progress...................................................LONG-TERM LIABILITIES:Debentures ......................................................................................................Provision for losses in formerly owned investee.............................................Deferred taxes.................................................................................................Customer advances .........................................................................................Liabilities to banks and others.........................................................................Liability in respect of the acquisition of activities ..........................................Accrued severance pay....................................................................................MINORITY INTEREST....................................................................................SHAREHOLDERS’ EQUITY...........................................................................	June 30,2005(Unaudited) December 31,2004U.S.$	June 30,2005(Unaudited) December 31,2004U.S.$	December 31,2004
		(in thousands)71,936107,17435,32839,073122,321114,53324,65326,1054,5774,668258,815291,5535,8155,24721,07324,38926,88829,63631,96431,94324,08826,529261,174261,359602,929641,02089,931104,97541,10241,60573,91581,1056,48132,3743,1966,900214,625266,95927,57927,0861,9711,9711,0709582,5561,11449,47119,7891,8672,03638,29137,750122,80590,70499,72496,579165,775186,778602,929641,020

FORMULA SYSTEMS (1985) LTD.

(An Israeli corporation) UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

Revenues ............................................................................Cost of revenues .................................................................Gross profit.........................................................................Research and development costs, net .................................Selling, general and administrative expenses .....................Depreciation and amortization............................................Restructuring and non-recurring costs................................Operating income ...............................................................Financial expenses, net.......................................................Gain on realization of investments .....................................Other income (expenses), net .............................................Income before taxes on income..........................................Taxes on income.................................................................Equity in profits (losses) of affiliated companies, net ........Minority interest in losses (profits), net..............................Net income .........................................................................Earnings (loss) per share:Basic...................................................................................Diluted................................................................................Weighted average number of shares outstanding:Basic...................................................................................Diluted................................................................................		Six months ended June 30,20052004 U.S.$(in thousands, except255,116219,354167,906136,04887,21083,30611,17412,89163,56360,9872,8742,885846-8,7536,543(4,819)(5,332)3,9341,2112,4625,804830(692)7,2266,323(1,700)(1,876)5,5264,447(2,421)(622)(1,176)8261,9294,6510.150.430.060.4112,40010,80012,40010,800		Three months ended June 30,
				2005**2004 **
				U.S.$
				per share data)126,358110,26784,47468,06041,88442,2075,6666,45031,91130,6091,2651,40088-2,9543,748(2,519)(2,594)4351,1544971,839(108)(324)8242,66920(928)8441,741(677)367(56)(96)1112,0120.0030.19(0.028)0.1913,20010,80013,20010,800