BluePhoenix Solutions Reports Record Results in Second Half of FY 2005

Q4 Record Revenues; Operating Income up 91% vs. Q4 '04 & 78% vs. Q3 '05

Four Quarters of Sequentially Growing Revenues

Second Half Operating Income Climbs to $2.4 Million vs. $1.5 Million in First Half; Operating Margin Doubles Over the Year to 10%

Febuary 15, 2006

HERZLIA, Israel, February 15 - BluePhoenix Solutions Ltd. (NASDAQ: BPHX - News), the leader in Enterprise IT Modernization, today reported its financial results for the fourth quarter and year ended December 31, 2005.

For the fourth quarter of fiscal 2005, BluePhoenix reported record sales of $15.4 million, up from $14.5 million in the fourth quarter of 2004, and $15 million in the prior quarter. This was the fourth quarter of sequential growth. Operating income for the fourth quarter was a record $1.55 million, up 91% from $810,000 in the fourth quarter of 2004 and up 78% from $871,000 in the prior quarter. As a percentage of revenues, the operating income for the fourth quarter climbed to a record 10% as compared to 6% in the previous quarters this year and in the comparable fourth quarter of 2004.

Fourth quarter adjusted net income, excluding noncash financial expenses mainly related to the convertible debentures, was $900,000, or $0.06 per share, as compared to $729,000, or $0.05 per share, in the fourth quarter of 2004. Net income for the fourth quarter was $809,000, or $0.06 per share, as compared to $632,000, or $0.05 per share, in the fourth quarter of 2004 and $485,000, or $0.04 per share, in the prior quarter.

For the year ended December 31, 2005, BluePhoenix reported record sales of $58.9 million, up 3% from $57.2 in the previous year. The annual operating income for 2005 was $3.9 million as compared to $3.5 million in 2004. Significantly, operating income in the second half of 2005 rose to $2.4 million from $1.5 million in the first half of the year. FY 2005 adjusted net income excluding noncash financial expenses mainly related to the convertible debentures was $2.3 million or $0.17 per share, as compared to $3.3 million, or $0.24 per share in 2004. Net income was $1.8 million as compared to $2.8 million respectively.

"The second half of 2005 was truly a pivotal and watershed period for BluePhoenix in terms of business growth and development, technological advancements and maturation of our business model. BluePhoenix' anticipated growth is now becoming a reality. We have closed a record number of contracts with new clients from the financial services, automotive industry, and retail sectors.

- In the fourth quarter, the Company closed and thus increased its backlog by $15 million of new business.

- Our backlog of signed purchase orders at the start of the new year with FY 2006 deliverables is over $50 million, compared to $35 million at the start of 2005, and steadily growing. An increasing number of these new clients are working directly with BluePhoenix rather than through system integrators, thereby increasing both revenues and operating margins.

- We have reached the target of 10% operating margin, and expect to see further improvement going into 2006.

This is just our 2006 starting point, since it does not yet include orders from new contracts signed and to be signed in 2006." Said Arik Kilman, Chief Executive Officer of BluePhoenix Solutions.

Kilman continued, "In the past two years we have created the company's technological advantage, built the supporting infrastructure, and managed to be ready for mass deliveries as the market for our solutions started to grow. We have recently added important features to our offering, by offering our customers the ability to outsource the migrated applications and take them to a Service Oriented Architecture ("SOA"). The benefits for the customers are obvious: save resources and costs while their modernized applications are being maintained and upgraded to meet the changes in their business needs. Such additional add-on services are expected to be provided out of our off-shore facilities. By offering a complete A to Z modernization, maintenance and facility management solution, BluePhoenix expects to generate recurring revenues with increased margins."

"There is no other way; it is inevitable that all major enterprises with large legacy installations will have to modernize their IT systems. The increased demand for our solutions is cross industry. Whether banking, financial or industrial organizations, the need to upgrade the legacy systems is there and growing. Business cannot afford to replace all their legacy software at once, since the risks and costs are far too high. As a result, they choose to selectively modernize by replacing some of their applications with new packages, and use our automated solutions to upgrade their databases and other applications. I believe that this great quarter is only the starting point for the 'new wave' in our business," concluded Mr. Kilman.

BluePhoenix has scheduled a conference call Conference Call on Wednesday, February 15th, 2006 at 10:00 A.M. EST (17:00 Israel Time) where Arik Kilman, Chief Executive Officer, and Iris Yahal, Chief Financial Officer will discuss the FY 2005 Fourth Quarter and year-end results and will be available to answer questions.

Interested parties are welcome to call the telephone numbers listed below, five to ten minutes prior to the start of the conference call:

In the US call: (800)-288-8974, Outside the US call: +1-(612)-234-9960
Callers should reference "BluePhoenix Solutions Fourth Quarter and Year End Results 2005" to the AT&T conference call operator.

An automated replay of the conference call will be available from February 15th 02:00 P.M. until February 17th at 11:59 P.M. (EST).

To access the replay, please call (USA) (800)-475-6701 (International) +1-(320)-365-3844 and enter the BluePhoenix Solution access code of 818681.

The automated replay can also be accessed at any time through our Web site, under the investor relations section.

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, 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 USA, UK, Denmark, Germany, Italy, The Netherlands, Australia, and Israel. The company's major shareholder is Formula Systems (NASDAQ: FORTY - News), an international Information Technology company principally engaged in providing software products, solutions, and services in various vertical markets.

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.

This press release is also available at www.bphx.com. All names and trademarks are their owners' property.

Click here to download BPHX Q4 05 Results

Contact:
Iris Yahal
+972-9-9526110

Investor Contact:
Paul Holm,
+1-212-4967238