PRESS RELEASE

Formula Systems Reports First Quarter Results for 2014

Net income for the first quarter included net gain of $61.4 million related to the deconsolidation of Magic Software

Or Yehuda, Israel, May 14, 2014 – Formula Systems (1985) Ltd. (NASDAQ: FORTY) a global information technology company principally engaged, through its subsidiary and affiliates, in providing software consulting services, developing proprietary software products, and providing computer-based business solutions, today announced its results for the first quarter of 2014.

Financial Highlights for the First Quarter of 2014

· In March 2014, Magic Software issued 6,900,000 of its ordinary shares in a follow-on public offering, of which Formula purchased 700,000 ordinary shares at a price of $8.50 per share. As a result of the offering, our beneficial ownership percentage in Magic Software decreased from 51.6% to 45.0%, resulting in the deconsolidation of Magic Software's from our financial statements. Following the said deconsolidation and starting March 5, 2014, our investment in Magic Software is measured under the equity method of accounting. The gain recognized in relation to Formula's loss of control in Magic Software in the first quarter of 2014 amounted to $61.4 million, net of preliminary estimated related deferred taxes.

· Operating income for the quarter ended March 31, 2014, decreased 47% to $7.0 million compared to $13.1 million in the same period last year. Operating income was negatively impacted by the deconsolidation of Magic and Sapiens results of operations, which were consolidated during all of the first quarter of 2013.

· Net income for the quarter ended March 31, 2014, amounted to $57.1 million, or $3.99 per fully diluted share, compared to $4.2 million, or $0.30 per fully diluted share, in the same period last year. Net income for the first quarter of 2014 was positively impacted by the net gain recorded in relation to Formula's loss of control in Magic Software described above offset by $3.1 million loss recorded as a result of decrease of Formula beneficial ownership percentage in Sapiens from 48.6% to 47.7% due to the exercise of employee stock based compensation and warrants.

· Consolidated cash and short-term and long-term investments in marketable securities totaled approximately $99.4 million as of March 31, 2014.

· Total equity as of March 31, 2014 was $480.8 million (representing 54% of the total balance sheet).

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “We are pleased with the strong opening to the year in terms of both revenues and profits across our portfolio. Matrix kicked off the year with strong first quarter revenues of $146.5 million and net income of $5.7 million, an increase of 18% and 26% respectively year over year, and was ranked as the number one IT service provider in Israel by analyst firm, STKI, for the 9^th consecutive year in 2014. Magic reported an excellent quarter with revenues of $40.9 million and net income of $4.5 million, up 23% and 28% respectively year over year, and showed strong performance across its products and services in all regions. Sapiens produced record quarterly revenues of $36.6 million with net income of $3.0 million, up 16% and 15% respectively year over year, with significant growth across all of its products.”

About Formula

Formula Systems (1985) 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.

For more information, visit www.formulasystems.com.

Press Contact:

Formula Systems (1985) Ltd.

+972-3-5389487

ir@formula.co.il

Except for any historical information contained herein, matters discussed in this press release might include forward-looking statements that involve a number of risks and uncertainties. Regarding any financial statements, actual results might vary significantly based upon a number of factors including, but not limited to, risks in product and technology development, market acceptance of new products and continuing product conditions, both locally and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in Formula's most recent annual report and other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. 

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

U.S. dollars in thousands (except share and per share data)             

	Three months ended
	March 31,
	2014		2013
	Unaudited
Revenues		173,489		188,770
Cost of revenues		139,129		143,410
Gross profit		34,360		45,360
Research and development costs, net		787		4,107
Selling, general and administrative expenses		26,600		28,111
Operating income		6,973		13,142
Financial expenses, net		2,064		1,475
Income before taxes on income		4,909		11,667
Taxes on income		2,685		1,786
Income (loss) after taxes		2,224		9,881
Gain derived from deconsolidation of subsidiary and
equity in gains of affiliated companies, net		59,900		11
Net income		62,124		9,892
Change in redeemable non controlling interests		659		752
Net income attributable to non-controlling interests		4,370		4,900
Net income attributable to Formula's shareholders		57,095		4,240
Earnings per share (basic)		4.11		0.31
Earnings per share (diluted)		3.99		0.30
Number of shares used in computing earnings per share (basic)		13,876,696		13,596,000
Number of shares used in computing earnings per share (diluted)		14,291,370		13,966,314

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

U.S. dollars in thousands            

	March 31,		December 31,
	2014		2013
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		81,836		82,123
Marketable securities		17,076		17,956
Short-term deposit		25		672
Trade receivables		156,833		197,442
Other accounts receivable and prepaid expenses		33,597		35,527
Inventories		2,812		2,407
Total current assets		292,179		336,127
LONG-TERM INVESTMENTS:
Marketable securities		482		520
Deferred Taxes		12,423		13,152
Prepaid expenses and other accounts receivable		8,113		8,761
Total  Long-Term Investments		21,018		22,433
INVESTMENTS IN AFFILIATED COMPANIES		329,269		161,501
SEVERANCE PAY FUND		60,685		68,148
PROPERTY, PLANTS AND EQUIPMENT, NET		17,658		19,408
NET INTANGIBLE ASSETS AND GOODWILL		173,891		267,077
TOTAL  ASSETS		894,700		874,694
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Liabilities to banks		28,484		35,636
Trade payables		42,501		52,645
Deferred revenues		27,044		28,454
Dividend payable		3,037		4,565
Other accounts payable		73,187		89,670
Total current liabilities		174,253		210,970
LONG-TERM LIABILITIES:
Liabilities to banks and others		117,506		62,447
Deferred revenue		4,991		4,990
Deferred taxes		28,110		8,157
Other long-term payables		2,180		4,289
Accrued severance pay		73,760		81,258
Total long-term liabilities		226,547		161,141
REDEEMABLE NON-CONTROLING INTEREST		13,057		23,529
EQUITY
Equity attributable to Formula shareholders		389,459		320,787
Non-controlling interests		91,384		158,267
Total equity		480,843		479,054
TOTAL LIABILITIES,  REDEEMABLE
NON-CONTROLING INTEREST AND EQUITY		894,700		874,694