Bluephoenix Solutions Reports Fy2005 Second Quarter & Midyear Results

• First Half 2005 versus First Half 2004:EBITDA at $4.2 Million vs. $3.5 Million

• Current Pipeline and Backlog Expected to Generate Strong Orders and Revenues Starting in Second Half of 2005

August 9, 2005

Herzlia , Israel –August 9, 2005 – BluePhoenix Solutions Ltd. (NASDAQ:BPHX), the leader in Enterprise IT Modernization, today reported it results for the second quarter and first six months ending June 30, 2005.

For the first half of fiscal 2005, BluePhoenix reported sales of $28.5 million, up 1% from $28.3 million in the same period a year ago. First half 2005 EBITDA (earnings before interests, taxes, depreciation and amortization of intangible assets) was $4.2 million as compared to $3.5 million in the first six months of 2004. First half adjusted net income - excluding amortization of intangible assets, depreciation and non-cash financial expenses mainly related to the convertible debentures - was $3.7 million, or $0.26 per share, as compared to $3.9 million, or $0.28 per share in the first half of 2004.

On a GAAP basis, the operating income for the first half of 2005 was $1.5 million as compared to $2.0 million in the first half of 2004. Net income was $0.5 million as compared to $1.9 million respectively. The results of the second quarter and first six months of 2005 were affected by an increased rate of amortization of intangible assets as well as the rapid decrease of the Euro currency versus the US dollar. The Euro currency was devaluated by 9.4% in the first half of 2005 as compared to 3.9% in the first six months of 2004.

Second quarter results were, as expected, in the range of the first quarter. Revenues were $14.4 million, a slight increase over $14.2 million in the first quarter of 2005. Second quarter EBITDA rose to $2.2 million, from $2.1 million in the first quarter. Adjusted net income - excluding amortization of intangible assets, depreciation and non-cash financial expenses mainly related to the convertible debentures - was $1.9 million, or $0.13 per share, as compared to $1.8 million, or $0.13 per share, in the first quarter this year.

On a GAAP basis, operating income for the second quarter of 2005 was $718,000, as compared to $815,000 in the first quarter of 2005. Net income was $186,000, or $0.01 per share, as compared to $309,000 or $0.02 per share, respectively.

"As we expected, the 2005 second quarter results were in the same range as the first quarter. We believe that the pipeline generated in the first half of this year will materialize into orders that will generate revenue growth starting from the second half of this year." Said Arik Kilman , Chief Executive Officer of BluePhoenix Solutions Ltd. "We have closed 17 deals with new customers for our modernization solutions during the first half of 2005 at a total value of $10 million. The lead generation created through our marketing efforts is expected to add about 20 new deals to the backlog in the second half of the year. The current pipeline consists of both new pilot projects as well as second phase contracts, which are based on the successful delivery of the initial projects with those customers." Added Mr. Kilman.

"We have built our leadership position in the $20 billion IT Modernization market on our proprietary comprehensive suite of mature automated tools, considered to be unique in their wide range of technological capabilities. Having passed the market and technological barriers, we now expect to clearly see visible improvements in both top and bottom line results. In the second quarter we have further aligned our cost structure for greater efficiencies. As a result of all of these developments, our operating results, as reflected in both revenues and EBITDA, are expected to markedly improve in the second half of this year. We look forward to reporting to you on our progress in the months ahead." concluded Mr. Kilman.

Reconciliation of As-Adjusted results:

Arik Kilman, BluePhoenix CEO, and Iris Yahal, Chief Financial Officer, will review and discuss the 2005 second quarter results, and will be available to answer investor questions in a conference call on

Tuesday, August 9th 2005 at 11:00 A.M. EST / 6:00 P.M. Israel time.

Interested parties are invited to participate by calling one of the telephone numbers listed below, five to ten minutes prior to the start of the conference call. Callers should reference “BluePhoenix Second Quarter Results” to the AT&T conference call operator.

In the US call: (800) 553-5275
Outside the US call: +1-(612)-332-0630

An automated replay of the conference call will be available from August 9th 02:00P.M. until August 11th at 11:59 P.M. (EST).

To access the replay please call ( USA ) (800)-475-6701 or (International) +1-320-365-3844, and enter the access code: 790780.

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 , Australia and Israel . The company’s major shareholder is Formula Systems (NASDAQ: 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.

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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.