MAGIC SOFTWARE ENT LTD Symbol MGIC Magic Software Announces Second Quarter Results with Year-over-Year 22% Growth in Net Profit and 21% Increase in License Revenue

August 05, 2004

OR YEHUDA, Israel --(Business Wire)-- Aug. 5, 2004 -- Magic Software Enterprises Ltd. (Nasdaq:MGIC), a leading provider of state-of-the-art business integration and development technology, reported today its results for the quarter ended June 30, 2004, showing year-over-year growth of 22% in net profit and a 21% increase in license revenue.

Second Quarter Results
Second quarter revenues were $16.67 million, a 9% increase over $15.30 million achieved in the comparable quarter of 2003. License sales for the quarter reached $5.48 million, an increase of 21% over $4.53 million recorded in the same quarter of 2003. Application sales were $1.78 million, an increase of 7% over $1.66 million achieved in the comparable quarter of 2003, while revenues from maintenance and support, at $3.07 million, increased 15% over $2.67 million in the same period of 2003. Revenues from consulting and other services, at $6.34 million, decreased 2% from $6.45 million in the comparable quarter.

Gross profit in the second quarter of 2004 was $10.2 million, an increase of 8% over $9.4 million recorded in the comparable quarter of 2003. Net profit for the second quarter was $914,000 (or $0.03 per share), an increase of 22% over net profit of $752,000 (or $0.03 per share) in the second quarter of 2003.

In the second quarter of 2004, Europe accounted for 42% of total revenue, while North America, Japan and the rest of the world accounted for 32%, 17% and 9%, respectively.

Menachem Hasfari, CEO of Magic Software, commented: "We are pleased with the company's achievements this quarter, and especially with the growth of our sales in software licenses, which is mainly attributable to our integration platform, iBOLT."

"Of particular encouragement is the growth in iBOLT partnership recruitment," noted Hasfari. "Twenty-seven new iBOLT partners have been recruited during the quarter in Europe, North and Latin America and Japan. This is in line with our strategy in building a strong community of iBOLT partners to ensure growth. Together with the upcoming launch of the ground-breaking Version 2 of iBOLT in October 2004, Magic is well placed to effectively meet the challenges of the business integration market."

Accomplishments
The following highlights were announced or occurred since Magic Software Enterprises' last earnings statement:

-- A number of existing major customers, including the Supreme Court of California and the court system of San Francisco, have agreed to extend their contract for technical support and professional services in addition to increasing their existing software licenses for the iBOLT Integration Suite and eDeveloper.

-- A six-month extension to an agreement with a world leader in package delivery and supply chain services for approximately $500,000 in additional development services.

-- Magic's Solution Partner, Access Data Corp. (ADC) of Angel Fire, N.M., has successfully deployed and integrated the Magic-based Sleuth(C) system, which is a comprehensive public safety records management solution, for the State of Colorado, Department of Corrections.

-- United Kingdom-based Denholm Logistics Ltd. will upgrade and enhance their freight and haulage systems using eDeveloper 9.4, Magic Software's flagship application development environment.

-- Magic Software's iBOLT Integration Suite was named in the SD Times 100 for "Innovative Leadership In The Software Development Industry."

About Magic Software Enterprises
Magic Software Enterprises, a subsidiary of Formula Systems (Nasdaq:FORTY), develops, markets and supports software development, deployment and integration technology (www.magicsoftware.com/ibolt) that enables enterprises to accelerate the process of building and deploying applications that can be rapidly customized and integrated with existing systems. Magic technology, applications and professional services are available through a global network of subsidiaries, distributors and Magic solutions partners in approximately 50 countries. The Company's North American subsidiary is located at 17310 Redhill Avenue #270, Irvine, CA 92614-5637, telephone 800-345-6244, 949-250-1718, fax 949-250-7404, http://www.magicsoftware.com/.

Formula Systems is an international information technology company principally engaged, through its subsidiaries and affiliates, in providing software consulting services, developing proprietary software products and producing computer-based solutions.

The Magic Quadrant is copyrighted June 30, 2004 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner's analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the "Leaders" quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Except for the historical information contained herein, the matters discussed in this news release include forward-looking statements that may involve a number of risks and uncertainties. Actual results may 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 here and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in the Company's most recent annual report and other filings with the Securities and Exchange Commission.

*T Consolidated Balance Sheets (U.S. Dollars in Thousands) June 30, December 31, 2004 2003 (Unaudited) Assets Current assets Cash and cash equivalents $9,220 $13,581 Short-term marketable securities 4,226 ---- Accounts receivable Trade receivables 21,697 19,725 Other receivables and prepaid expenses 3,500 3,269 Inventory 397 188 Total current assets 39,040 36,763 Severance pay fund 1,947 1,781 Long-term deposits 226 279 Investments in affiliated companies 190 100 Fixed assets, net 7,445 7,855 Goodwill 21,472 20,776 Other assets, net 10,186 10,246 Total assets $80,506 $77,800 Liabilities Current liabilities Short-term bank debt $1,871 $2,368 Trade payables 2,745 3,249 Accrued expenses and other liabilities 16,364 14,348 Total current liabilities 20,980 19,965 Long-term loans 78 288 Accrued severance pay 2,323 2,166 Minority interests 790 1,457 Shareholders' equity Share capital 826 805 Capital surplus 105,443 104,685 Treasury stock (5,773) (5,773) Accumulated deficit (44,161) (45,793) Total shareholders' equity 56,335 53,924 Total liabilities and shareholders' equity $80,506 $77,800 Unaudited Consolidated Statement of Operations (U.S. Dollars in Thousands) Three Months Six Months ended ended June 30, June 30, 2004 2003 2004 2003 Revenues Software sales $5,481 $4,525 $10,942 $8,602 Applications 1,778 1,661 3,442 3,324 Maintenance 3,070 2,666 5,865 5,245 Consultancy & other services 6,338 6,449 12,872 13,256 Total Revenues $16,667 $15,301 $33,121 $30,427 Cost of Revenues Software sales $1,099 $1,128 $2,347 $1,944 Applications 416 220 1,035 464 Maintenance 892 664 1,696 1,255 Consultancy & other services 4,074 3,867 7,843 8,450 Total Cost of Revenues $6,481 $5,879 12,921 12,113 Gross Profit $10,186 $9,422 $20,200 $18,314 Research & development, net 869 1,142 2,074 2,147 Sales, marketing, and general & administrative expenses 7,927 7,125 15,404 14,346 Depreciation 495 397 934 809 Operating Income $895 $758 $1,788 $1,012 Financial expenses (income), net 41 (185) 156 (230) Income before taxes 854 943 1,632 1,242 Taxes on income - (95) - 14 Income before minority interests 854 848 1,632 1,228 Minority interests in income of subsidiaries 30 96 90 204 Equity gains 90 90 Net income $914 $752 $1,632 $1,024 Basic Earnings per Share $0.03 $0.03 $0.05 $0.03 Diluted Earnings per Share $0.03 $0.03 $0.05 $0.03 Weighted Avg. Shares Outstanding (000) 31,162 29,474 31,109 29,492 Diluted Weighted Avg. Shares Outstanding (000) 32,335 30,021 32,335 29,768 *T

Contact:
Magic Software Enterprises Ltd.
Gil Trotino, Vice President, Worldwide Marketing
(949)-250-1718, x299
gtrotino@magicsoftware.com