Tuesday December 26, 6:18 pm Eastern Times

Magic Software Enterprises Lowers Fourth Quarter Revenue and Earnings Expectations

IRVINE, Calif.--(BUSINESS WIRE) - Magic Software Enterprises (Nasdaq:MGIC - news), Tuesday announced that revenue and earnings for its fourth quarter ending Dec. 31, 2000, will be below the company's previous expectations.

Revenues are expected to be approximately $23 million, with an estimated net loss of $6 million, of which approximately half will come from non-recurring expenses, mostly restructuring charges. The revised expectations represent the current economic outlook, as well as the slowdown in corporate IT spending.

In addition, fourth quarter results will reflect one-time restructuring costs related to significant management changes brought about by the company's transition into the business solutions arena, a move that is expected to result in improved performance over the long-term. Magic will provide details of the restructuring charges when it announces fourth quarter results in early February.

"Like many other technology companies, the current weakness in worldwide economic conditions, coupled with a slowdown in corporate IT spending, has had a negative impact on Magic's results," said Dan Goldstein, chairman of Magic.

"Many deals have been postponed until 2001 while companies reassess their own spending in light of the current market. We are quite confident that these deals will be realized in the coming quarters.

"Because solutions carry higher price tags, companies often will prolong the decision-making process until they have explored and exhausted every available option. This can move the purchase decision from one quarter to the next," added Goldstein. "The mere fact that these are more considered decisions means that, if even one deal is lost or delayed, there is very little room to replace it with other business during any single quarter."

Still the company remains confident that its long-term outlook is favorable. According to Magic, it has been receiving positive reviews from customers for its new product releases, and is making significant progress in restructuring its management. Already, the company has appointed new corporate vice presidents for sales and professional services, both of whom have strong backgrounds in the business solutions arena.

In addition, Magic is making significant management changes. Jack Dunietz, CEO of Magic and Israel Teiblum, president of Magic will leave the company at the end of this year. Goldstein will assume the additional responsibility of CEO of Magic. All of these changes are being factored into fourth quarter restructuring charges.

Finally, Magic is proceeding with integration of its recent acquisition, CoreTech Consulting Group, into its North American operations. According to Goldstein, the process is both ahead of schedule and working well.

"We have completed the downsizing that we felt was necessary at CoreTech to increase its profitability, and we are now moving forward with merging the remaining capabilities with our North American operations and placing them under a single steward," said Goldstein. "We plan to announce more details of these integration efforts with CoreTech after the first of the year."

About Magic Software Enterprises

Magic Software Enterprises, a member of the Formula Group (Nasdaq: FORTY - news), develops, markets and supports software development and deployment technology 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 1642 Kaiser Ave., Irvine, Calif., 92614, telephone: 949/250-1718, fax: 949/250-7404, http://www.magicsoftware.com.

The Formula Group 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.

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.

Contact:
Magic Software Enterprises, Irvine
Katharine Hanley (IR/PR), 949/250-1718, ext. 220
khanley@magic-sw.com
or
Magic Software Enterprises Ltd.
David Leichner, 011-972-3-538-9338
davidl@magic-sw.com