BluePhoenix Solutions reports first quarter results

May 9, 2005

Herzlia , Israel – May 9, 2005 – BluePhoenix Solutions Ltd. (NASDAQ:BPHX), the leader in Enterprise IT Modernization, today announced financial results for first quarter of 2005.

Our operating results for the first quarter of 2005 were in line with the corresponding first quarter in 2004. Revenues were $14.1 million. Operating income was $815 thousand representing 6% operating margin, as compared to $987 thousand in the first quarter of 2004, representing an operating margin of 7%. Net income for the quarter was $309 thousand or $0.02 per fully diluted share, as compared to net profit of $1.1 or $0.08 per share in the first quarter of 2004. The decline in net profit is mainly attributable to non-cash financial expenses related to the $5 million convertible debentures and underlying warrants that were issued in 2004, and to valuation changes caused by the devaluation of the euro currency as compared to the US dollar.

“In this first quarter we received 9 new modernization deals, as compared to 11 during the last two quarters of 2004 the second half of 2004, thereby almost doubling the number of new deals won. These new projects are going to be delivered over the next four quarters. It is our main objective to further increase the deal flow, and benefit from the growth which is expected in the legacy modernization market. We believe that the demand for highly automated modernization solutions is going to grow. As repeatedly verified through our customers, they need a reliable process which reduces the risk of the change in the system, while increasing its productivity. Our automated tools are the right solution,” said Arik Kilman , Chief Executive Officer.

“We have implemented a growth plan, which assumes an increased deal flow of small low margin orders, which is then going to be followed by larger full scale projects with higher margins. Our plan consists of a combination of rapid development efforts and increased marketing activities to improve the awareness of our unique wide range of solutions. These combined efforts, are expected to materialize into visible and measurable results in the near future” concluded Mr. Kilman

Arik Kilman, BluePhoenix Chief Executive Officer, and Iris Yahal , Chief Financial Officer, will discuss the first quarter results, and will be available to answer questions in a conference call.

Conference Call Details:
The conference call will be held on Monday, May 9 th , 2005 at 9:00 A.M. (EST)

Interested parties are welcome to call the telephone numbers listed below, 5–10 minutes prior to the start of the conference call.

In the US call: 877-209-0397

Outside the US call: (1) 612-332-1025

Callers should reference “BluePhoenix Solutions First Quarter Results 2005” to the AT&T conference call operator.

An automated replay of the conference call will be available from May 9 th at 01:30 P.M. until May 11 th at 11:59 P.M. (EST).

To access the replay call (USA) (800) 475-6701, (International) 1-(320) 365-3844, and enter the BluePhoenix Solutions access code of 781023.

About BluePhoenix Solutions
BluePhoenix Solutions leads the IT Modernization market by developing unique solutions that enable companies to automate the process of modernizing and upgrading their mainframe and distributed IT infrastructure, thus quickly and cost-effectively extending the ROI of their existing IT systems. The Company’s comprehensive suite of tools and services (including technology for Understanding, Presentment, Migration, Remediation, and Redevelopment) reduces the cost of renovation and speeds up the renewal process. BluePhoenix has 12 offices throughout the world, including locations in the US , UK , Denmark , Germany , Italy , The Netherlands , Israel , and Australia .

The Company’s major shareholder is the Formula Group (NADSAQ: FORTY ), an international Information Technology company principally engaged in providing software products, solutions, and services in various vertical markets.

For more information, please visit our web site at www.bphx.com

(Tables to Follow)

SAFE HARBOR: Certain statements contained in this release may be deemed forward-looking statements, with respect to plans, projections, or future performance of the Company, the occurrence of which involves certain risks and uncertainties that could cause actual plans to differ materially from these statements. These risks and uncertainties include but are not limited to: market demand for the Company’s tools, successful implementation of the Company’s tools, competitive factors, the ability to manage the Company’s growth, the ability to recruit and retrain additional software personnel, and the ability to develop new business lines.

Company Contacts
Iris Yahal
BluePhoenix Solutions
+972-9-9526110

		Three months ended				Year ended
		March 31,				December 31,
		2005		2004		2004
		Unaudited
Revenues		$14,101		$14,139		$57,186
Cost of revenues		6,072		6,064		24,253
Gross profit		8,029		8,075		32,933
Software development costs, net		1,931		2,039		8,055
Selling, general and administrative expenses		4,976		4,690		19,981
		1,122		1,346		4,897
Depreciation		307		359		1,407
Operating income		815		987		3,490
Financial expenses, net		(658)		(173)		(882)
Other income, net		31		233		1,087
Income before taxes		188		1,047		3,695
Taxes on income		--		5		260
		188		1,042		3,435
Minority interest		121		159		(73)
Equity in losses of affiliated companies		--		(141)		(516)
Net income		309		1,060		2,846
Basic earnings per share		0.02		0.08		0.21
Diluted earnings per share		0.02		0.08		0.21
Common shares outstanding		13,554		13,475		13,523
Common shares assuming dilution		14,966		14,121		14,679