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

May 24, 2005

FOR IMMEDIATE RELEASE

Formula Systems Reports First Quarter results

Strong Operating Results

Herzliya, Israel – May 24, 2005 – Formula Systems (1985) Ltd. (Nasdaq: FORTY) a leading provider of information technology products, solutions and services, announced today results for the first quarter of 2005.

Total revenues for the first quarter ended March 31, 2005 reached $128.8 million compared to $109.1 million in the same period last year, an increase of 18%. Operating income in the first quarter was $5.8 million an increase of 107% from the $2.8 million reported in the comparable quarter of 2004. In the first quarter the Company reported a net income of $1.8 million or $0.16 per share.

On May 8, 2005 the Company announced the distribution of a cash dividend to its shareholders payable on June 1, 2005. The cash distribution will be in the amount of 17.5 NIS per ordinary share, (approximately $4 per share), or 231 million NIS in the aggregate (approximately $53 million).

Gad Goldstein, President of Formula, commented: "We are satisfied with the growth pattern of our mature core subsidiaries as it was reflected in the consolidated revenues and operational profit. The pace of sales in the first quarter reflected over half a billion dollars in consolidated revenues on an annual basis and our operating profit in the first quarter enjoyed an increase of over 100% compared to the first quarter of last year.

Encouraged by these developments we are now able to devote a larger portion of our attention to efforts to enhance value in our privately held subsidiaries, mainly Formula Vision’s affiliates and nextSource, including the exploration of capital raising and M&A activities . The nominal book value of most of our private holdings combined with the fact that the market value of our marketable securities was in excess of approximately $50 million above our book value at the end of the quarter, keep us fairly optimistic of our ability to increase our profits in the future.”

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

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 due to activity acquisition ................................................................Accrued severance pay ...................................................................................MINORITY INTEREST....................................................................................SHAREHOLDERS’ EQUITY...........................................................................		March 31,2005December 31,2004U.S.$	December 31,2004
		(in thousands)118,853107,17438,85939,073122,009114,53332,27126,1054,9224,668316,914291,5536,6325,71122,35124,38928,98330,10032,30131,94325,69626,529261,484260,895665,378641,02094,431106,97541,04441,60583,89781,10530,28532,3745,1016,900254,758268,95924,41327,0861,9711,9711,0349583,2741,11416,12917,7891,9832,03638,33237,75087,13688,704101,11196,579222,373186,778665,378641,020

FORMULA SYSTEMS (1985) LTD. (An Israeli corporation) 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 losses of affiliated companies, net ...............................................................Minority interest in profits, net ....................................................................................Net income ..................................................................................................................Earnings per share:Basic.............................................................................................................................Diluted..........................................................................................................................Weighted average number of shares outstanding:Basic.............................................................................................................................Diluted..........................................................................................................................	Three months endedMarch 31,	Three months endedMarch 31,
	20052004U.S. $	2004
	(in thousands, except pershare data)128,758109,08783,43267,98945,32641,0985,5086,44131,65230,3781,6091,484758-5,7992,795(2,300)(2,738)3,499571,9653,965938(368)6,4023,6541,7209484,6822,706(1,744)(989)(1,120)9221,8182,6390.160.240.090.2411,60010,80011,60010,800