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Date: 05/14/2012 02:55 PM User: djohnson Vintage Filings Project: v313119 Form Type: 20-F Client: v313119_FORMULA SYSTEMS (1985) LTD_20-F Submission Data File General Information Form Type* 20-F Contact Name Matthew Judge Contact Phone 866-683-5332 Filer Accelerated Status* Accelerated Filer Filer File Number Filer CIK* 0001045986 Filer CCC* ********** Filer is Shell Company* N Filer is Voluntary Filer* N Filer is Well Known Seasoned Issuer* N Confirming Copy No Notify via Website only No Return Copy No SROS* NASD Period* 12-31-2011 (End General Information) Document Information File Count* 20 Document Name 1* v313119_20f.htm Document Type 1* 20-F Document Description 1 FORM 20-F Document Name 9* v313119_ex8.htm Document Type 9* EX-8 Document Description 9 EXHIBIT 8 Document Name 10* v313119_ex12-1.htm Document Type 10* EX-12.1 Document Description 10 EXHIBIT 12.1 Document Name 11* v313119_ex12-2.htm Document Type 11* EX-12.2 Document Description 11 EXHIBIT 12.2 Document Name 12* v313119_ex13-1.htm Document Type 12* EX-13.1 Document Description 12 EXHIBIT 13.1 Document Name 13* v313119_ex13-2.htm Document Type 13* EX-13.2 Document Description 13 EXHIBIT 13.2 Document Name 14* v313119_ex15-1.htm Document Type 14* EX-15.1 Document Description 14 EXHIBIT 15.1 Document Name 15* v313119_ex15-2.htm Document Type 15* EX-15.2 Document Description 15 EXHIBIT 15.2 Document Name 16* v313119_ex15-3.htm Document Type 16* EX-15.3 Document Description 16 EXHIBIT 15.3 Document Name 17* v313119_ex15-4.htm Document Type 17* EX-15.4 Document Description 17 EXHIBIT 15.4 Document Name 18* v313119_ex15-5.htm Document Type 18* EX-15.5 Document Description 18 EXHIBIT 15.5 Document Name 19* v313119_ex15-6.htm Document Type 19* EX-15.6 Document Description 19 EXHIBIT 15.6 Document Name 20* v313119_ex15-7.htm Document Type 20* EX-15.7 Document Description 20 EXHIBIT 15.7 (End Document Information) Notifications Notify via Website only No E-mail 1 [email protected] (End Notifications) Date: 05/14/2012 02:55 PM User: djohnson Vintage Filings Project: v313119 Form Type: 20-F Client: v313119_FORMULA SYSTEMS (1985) LTD_20-F File: v313119_20f.htm Type: 20-F Pg: 1 of 171 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, 2011 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) 5 Haplada Street, Or Yehuda 60218, Israel (Address of Principal Executive Offices) Asaf Berenstin; 5 Haplada Street, Or Yehuda 60218, Israel Tel: 972 3 5389487, Fax: 972 3 5389645 (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: Title of Each Class Name of Each Exchange On Which Registered American Depositary Shares, each 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, 2011, the registrant had 13,596,000 outstanding ordinary shares, NIS 1 par value, of which 768,559 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer 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 Other as issued by the International 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 Date: 05/14/2012 02:55 PM User: djohnson Vintage Filings Project: v313119 Form Type: 20-F Client: v313119_FORMULA SYSTEMS (1985) LTD_20-F File: v313119_20f.htm Type: 20-F Pg: 2 of 171 TABLE OF CONTENTS PART I PART I 4 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 4 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 4 ITEM 3. KEY INFORMATION 4 ITEM 4. INFORMATION ON THE COMPANY 21 ITEM 4A. UNRESOLVED STAFF COMMENTS 35 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 35 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 57 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 69 ITEM 8. FINANCIAL INFORMATION 72 ITEM 9. THE OFFER AND LISTING 74 ITEM 10. ADDITIONAL INFORMATION 75 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 89 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 91 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 91 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 91 ITEM 15. CONTROLS AND PROCEDURES 92 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 92 ITEM 16B. CODE OF ETHICS 93 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 93 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 94 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 94 ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 94 None 94 ITEM 16G. CORPORATE GOVERNANCE 94 ITEM 17. FINANCIAL STATEMENTS 95 ITEM 18. FINANCIAL STATEMENTS 96 ITEM 19. EXHIBITS 96 Name of Subsidiary 2 Date: 05/14/2012 02:55 PM User: djohnson Vintage Filings Project: v313119 Form Type: 20-F Client: v313119_FORMULA SYSTEMS (1985) LTD_20-F File: v313119_20f.htm Type: 20-F Pg: 3 of 171 INTRODUCTION 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 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” and similar expressions are intended to identify forward looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section that appears in Item 3D. “Key Information - Risk Factors.” We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles, commonly referred to as U.S. GAAP. In accordance with U.S. GAAP, we use the United States dollar as our reporting currency. In accordance with Accounting Standards Codification, or ASC, 360, “Property, Plant and Equipment” and following the sale of our entire shareholdings in nextSource Inc., or nextSource, in October 2009, nextSource’s results of operations, assets and liabilities were classified as attributed to discontinued operations and as a result, we have reclassified certain figures in our financial statements relating to prior periods.

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