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BluePhoenix Solutions Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

			Three months ended December 31,						Year ended December 31,
			2008*			2007**			2008*			2007**
Revenues			$	22,652		$	22,730		$	91,745		$	81,222
Cost of revenues				12,035			10,972			46,032			36,529
Gross profit				10,617			11,758			45,713			44,693
Research and development costs, net				4,278			3,949			18,378			12,653
Selling, general and administrative expenses				7,177			8,152			32,359			28,370
Restructuring													694
Total operating expenses				11,455			12,101			50,737			41,717
Operating income (loss)				(838	)		(343	)		(5,024	)		2,976
Financial expenses, net				1,199			281			2,237			4,343
Other income				125			759			398			892
Income (loss) before taxes				(1,912	)		135			(6,863	)		(475	)
Taxes on income (benefit)							(110	)		(330	)		68
				(1,912	)		245			(6,533	)		(543	)
Equity profit (loss) in affiliate				(49	)		35			(49	)		35
Minority interest				76			(120	)		(179	)		(199	)
Net income (loss) from continued operation			$	(1,885	)	$	160		$	(6,761	)	$	(707	)
Net income (loss) from discontinued operation				509			(7,458	)		(8,512	)		(7,489	)
Net loss			$	(1,376	)	$	(7,298	)	$	(15,273	)	$	(8,196	)
Net loss per share:
Basic			$	(0.06	)	$	(0.38	)	$	(0.72	)	$	(0.48	)
Diluted			$	(0.06	)	$	(0.38	)	$	(0.72	)	$	(0.48	)
Shares used in per share calculation:
Basic				21,230			19,286			21,196			17,145
Diluted				21,230			19,286			21,196			17,145

* Excludes any potential write-down of goodwill.
** Presented after reclassification of Mainsoft Inc. as discontinued operation.

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UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share data)

			Three months ended December 31,
			2008									2007
			GAAP (a)			Adjustments			Non-GAAP			Non-GAAP
Revenues			$	22,652					$	22,652		$	22,730
Cost of revenues				12,035			(2,637	)(b)		9,398			6,859
Gross profit				10,617			2,637			13,254			15,871
Research and development costs, net				4,278						4,278			4,283
Selling, general and administrative expenses				7,177			(677	)(c)		6,500			7,372
Total operating expenses				11,455			(677	)		10,778			11,655
Operating income (loss)				(838	)		3,314			2,476			4,216
Financial expenses, net				1,199						1,199			298
Other income				125						125			307
Income (loss) before taxes				(1,912	)		3,314			1,402			4,225
Taxes on income (benefit)													(110	)
				(1,912	)		3,314			1,402			4,335
Equity profit (loss) in affiliate				(49	)					(49	)		35
Minority interest				76						76			(120	)
Net income (loss) from continued operation			$	(1,885	)	$	3,314		$	1,429		$	4,250
Net loss from discontinued operation				509			(509	)
Net income (loss)			$	(1,376	)	$	2,805		$	1,429		$	4,250
Net (loss) income per share:
Diluted			$	(0.06	)				$	0.07		$	0.21
Shares used in per share calculation				21,230						21,230			20,717

Notes:
(a) Excludes any potential write-down of goodwill.
(b) Amortization of intangible assets.
(c) Stock-based compensation.

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UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share data)

			Year 2008									Year 2007
			GAAP (a)			Adjustments			Non-GAAP			Non-GAAP
Revenues			$	91,745					$	91,745		$	81,222
Cost of revenues				46,032			(9,110	)(b)		36,922			26,011
Gross profit				45,713			9,110			54,823			55,211
Research and development costs, net				18,378						18,378			16,597
Selling, general and administrative expenses				32,359			(2,825	)(c)		27,196			24,612
							(2,338	)(d)
Total operating expenses				50,737			(5,163	)		45,574			41,209
Operating income (loss)				(5,024	)		14,273			9,249			14,002
Financial expenses, net				2,237						2,237			2,589
Other income				398						398			434
Income (loss) before taxes				(6,863	)		14,273			7,410			11,847
Taxes on income (benefit)				(330	)					(330	)		68
				(6,533	)		14,273			7,740			11,779
Equity profit (loss) in affiliate				(49	)					(49	)		35
Minority interest				(179	)					(179	)		658
Net income (loss) from continued operation			$	(6,761	)	$	14,273		$	7,512		$	12,472
Net loss from discontinued operation				(8,512	)		8,512
Net income (loss)			$	(15,273	)	$	22,785		$	7,512		$	12,472
Net (loss) income per share:
Diluted			$	(0.72	)				$	0.34		$	0.68
Shares used in per share calculation				21,196						21,919			18,276

Notes:
(a) Excludes any potential write-down of goodwill.
(b) Amortization of intangible assets.
(c) Stock-based compensation.
(d) One-time expenses due to global cost savings plan

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BluePhoenix Solutions Ltd.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

			December 31,			December 31,
			2008*			2007**
ASSETS
Current Assets:
Cash and cash equivalents			$	30,308		$	22,571
Marketable securities				423			668
Trade accounts receivable				28,232			22,233
Other current assets				3,217			2,140
Assets attributed to discontinued operation				-			17,100
Total Current Assets				62,180			64,712
Non-Current Assets:
Long-term trade receivable				-			512
Investment in affiliated company				157			207
Property and equipment, net				2,493			2,313
Goodwill				65,334			49,683
Intangible assets and other, net				23,151			29,431
Total Non-Current Assets				91,135			82,146
TOTAL ASSETS			$	153,315		$	146,858
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term bank credit			$	1,021			-
Convertible Debenture				-			67
Trade accounts payable				5,133			3,673
Deferred revenues				5,541			5,453
Other current liabilities				18,125			16,365
Liabilities attributed to discontinued operation				-			7,146
Total Current Liabilities				29,820			32,704
Non-Current Liabilities
Accrued severance pay, net				1,797			1,549
Loans from banks				15,048			135
Total Non-Current Liabilities				16,845			1,684
Minority interests				827			762
Shareholders' Equity				105,823			111,708
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			$	153,315		$	146,858

* Excludes any potential write-down of goodwill.
** Presented after reclassification of Mainsoft Inc. as discontinued operation.

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BluePhoenix Solutions Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

			Three months ended December 31,						Year ended December 31,
			2008*			2007**			2008*			2007**
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(1,376	)	$	(7,298	)	$	(15,273	)	$	(8,196	)
Adjustments to reconcile net income to net cash provided      by operating activities:
Loss from discontinued operation				(509	)		7,458			8,512			7,489
Minority interests in profits of subsidiaries				(76	)		120			179			199
Share in loss (earnings) of an affiliated company				49			(2	)		49			(2	)
Depreciation and amortization				2,879			4,126			10,107			10,407
Increase (decrease) in accrued severance pay, net				278			(369	)		248			(132	)
Gain on sale of property				10			(5	)		10			4
Change in value of long term-loans and liabilities				-			7			-			2,311
Stock-based and non cash compensation				677			701			2,825			2,794
Decrease in provision for losses in formerly consolidated subsidiaries				-			(300	)		-			(300	)
Deferred income taxes, net				(127	)		(1,025	)		(894	)		(1,025	)
Tax benefit related to exercise of stock options				-			594			-			594
Changes in operating assets and liabilities:
Marketable securities				29			(462	)		-			560
Decrease (increase) in trade receivables				(1,652	)		5,615			(4,702	)		4,213
Decrease (increase) in other current assets				114			(231	)		(407	)		936
Increase (decrease) in trade payables				39			(1,468	)		992			(601	)
Decrease in other current liabilities and deferred revenues				(1,286	)		(2,903	)		(744	)		(3,155	)
Net cash provided by (used in) operating activities				(951	)		4,558			902			16,096
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment				(193	)		(451	)		(1,200	)		(1,029	)
Proceeds from sale of property and equipment				5			-			6			10
Proceeds from sale of previously consolidated subsidiary				1,700						1,700
Capitalization of research and development costs				-			(359	)		-			(3,944	)
Additional consideration for previously acquired subsidiaries and   purchase of activity				(1,844	)		198			(7,869	)		(1,310	)
Purchase of activity and newly-consolidated subsidiaries				-			(1,817	)		(2,269	)		(9,077	)
Net cash used in investing activities				(332	)		(2,429	)		(9,632	)		(15,350	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank credit, net				-			(3,497	)		-			(936	)
Repayment of long-term loans, net				-			(28,590	)		-			(20,609	)
Receipt of long-term loans				69						16,069
Repayment of provision for losses in formerly consolidated subsidiary				-			(1,671	)		-			(1,671	)
Issuance of shares				-			33,213						33,213
Purchase of Company's shares				(1,018	)		-			(1,609	)		-
Exercise of employee share options and warrants				-			372			2,007			3,761
Net cash provided by (used in) financing activities				(949	)		(173	)		16,467			13,758
NET CASH PROVIDED BY (USED IN) ONGOING OPERATION				(2,232	)		1,956			7,737			14,504
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				32,540			20,615			22,571			8,067
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	30,308		$	22,571		$	30,308		$	22,571
CASH FLOWS - DISCONTINUED OPERATION:
Cash flow provided by (used in) operating activity				(508	)		1,246			(1,260	)		(367	)
Cash flow used in investment activity				-			(1,415	)		(64	)		25
NET CASH PROVIDED BY (USED IN) DISCONTINUED          OPERATION				(508	)		(169	)		(1,324	)		(342	)

* Excludes any potential write-down of goodwill.
** Presented after reclassification of Mainsoft Inc. as discontinued operation.