Formula 1985 : Report of Periodic or Interim Report

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, 2023
    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: [phone], Fax: [phone]

(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:

				Name of Each
Title of Each Class		Trading Symbol(s)		Exchange On Which Registered
American Depositary Shares, each		FORTY		Nasdaq Global Select Market
representing one Ordinary Share, NIS 1 par
value

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, 2023, the registrant had 15,332,667 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	Other ☐
	Accounting Standards Board ☒

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 ☒

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 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).☐

TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS	ii
CERTAIN TERMS AND CONVENTIONS	vi
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	33
ITEM 4A. UNRESOLVED STAFF COMMENTS	101
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	101
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	144
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	163
ITEM 8. FINANCIAL INFORMATION	168
ITEM 9. THE OFFER AND LISTING	173
ITEM 10. ADDITIONAL INFORMATION	174
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	182
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	184
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	185
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	185
ITEM 15. CONTROLS AND PROCEDURES	185
ITEM 16. RESERVED	186
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	186
ITEM 16B. CODE OF ETHICS	186
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	186
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	187
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	187
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT	187
ITEM 16G. CORPORATE GOVERNANCE	187
ITEM 16H. MINE SAFETY DISCLOSURE	188
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	188
ITEM 16J. INSIDER TRADING POLICIES	188
ITEM 16K. CYBERSECURITY	188
PART III
ITEM 17. FINANCIAL STATEMENTS	190
ITEM 18. FINANCIAL STATEMENTS	190
ITEM 19. EXHIBITS	190
SIGNATURES	191
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 hybrid office/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 or fluctuations in currency exchange rates;
• the duration of macroeconomic headwinds caused by inflation, relatively high 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.

ii

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.

The forward-looking statements made in this annual report relate only to events as of the date on which the statements are made. 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments. 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.

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

• The implementation of our M&A growth strategy involves significant risks, and the failure to integrate acquired companies successfully may adversely affect our future results.
• 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 development cycles are often lengthy, and we may incur significant expenses before we generate revenues, if any, from our solutions.
• Macro-economicheadwinds may adversely impact our revenues, profitability and cash flows.
• Our inability to respond to the evolving technological environment could materially affect our results of operations.
• Highly skilled research and development, product implementation, customer support and other personnel are difficult to retain, and an increased investment by us in such personnel may reduce our profitability.
• Failure to manage our growth- both organic and non-organic-could harm our business.
• The market for software solutions and related services is highly competitive and dynamic.

iii

• If we fail to successfully plan and manage changes in the size of our operations in response to changes in demand for our products and services, our business will suffer.
• If our relationships with our existing customers, including largest customers, are impaired, our revenue could be negatively affected.
• We are in part dependent on a limited number of core product families.
• Our business sometimes involves long-term, large, complex implementation projects across the globe, which are accompanied by various risks.
• We may be liable to our clients for damages caused by a violation of intellectual property rights or similar matters, and our insurance policies may not be sufficient to cover these damages.
• Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.
• Security vulnerabilities in our software solutions could lead to reduced revenue or to liability claims.
• Errors or defects in our software solutions could inevitably arise.
• Incorrect or improper use of our products could result in customer dissatisfaction.
• Catastrophes may adversely impact the insurance industry, preventing us from expanding or maintaining our existing customer base.
• Intangible assets and goodwill recorded on our consolidated statements of financial position may lead to significant impairment charges in the future.
• There may be consolidation in the insurance or other markets in which we operate, which could reduce the use of our products and services.
• Our and our investees' credit facility agreements and debentures are subject to a number of restrictive covenants.

Summary of Risks Related to Intellectual Property

• Third parties may assert that we have infringed their intellectual property rights.
• Our intellectual property rights and our source code may be insufficiently protected.
• The loss of third-party technology and intellectual property could limit the functionality of our products.
• We could be required to provide the source code of our products to our customers.
• Some of our services and technologies may use "open source" software, which may restrict how we use or distribute our services or require our release of source code.

iv

Risks Relating to Our International Operations

• Fluctuations in foreign currency exchange rates have been adversely affecting, and could continue to adversely affect, our business.
• International operations in the insurance industry, requires adaptation to regulations in specific territories, which can be costly.
• Our business may be materially affected by changes to fiscal and tax policies.

Summary of Risks Related to an Investment in Our Traded Securities and to Our Consolidated Holdings

• There is limited trading volume for our ADSs and ordinary shares, which reduces liquidity and increases volatility.
• We have a history of quarterly fluctuations in results of operations, which contributes to volatility in the market for our securities.
• Our securities are traded on more than one market, which may result in price variations.
• Our largest shareholder, Asseco Poland S.A., can significantly influence the outcome of matters that require shareholder approval.
• 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.

Risks Related to Operations in Israel and Other Specific Geographic Locations

• The ongoing war and hostilities between Israel and terrorist groups- Hamas in Gaza, and Hezbollah in Lebanon- may limit our ability to sell our products.
• A reduction of government spending in Israel on IT services, from which some of our revenues are derived, may reduce our revenues and profitability.
• Tax benefits available to certain of our Israeli subsidiaries and our Israeli affiliate require us to continue to meet various conditions and may be terminated or reduced in the future.
• Israeli government grants to Sapiens, one of our subsidiaries, restrict its activities in certain manners and require it to satisfy specified conditions.
• As we continue to expand our business in emerging markets, such as India, we face increasing challenges.
• 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.

v

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;
• "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.

vi

• "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.

vii

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

1. [Reserved]
2. Capitalization and Indebtedness Not applicable.
3. Reasons for the Offer and Use of Proceeds Not applicable.
4. 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