Investors 

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

			Three months ended September 30,						Nine months ended September 30,
			2008			2007*			2008			2007*
			Unaudited						Unaudited
Revenues			$	22,029		$	21,087		$	69,093		$	58,491
Cost of revenues				12,375			9,209			33,997			25,556
Gross profit				9,654			11,878			35,096			32,935
Research and development costs, net				4,498			3,252			14,100			8,705
Selling, general and administrative expenses				10,362			6,896			25,182			20,217
Restructuring							205						694
Total operating expenses				14,860			10,353			39,282			29,616
Operating income (loss)				(5,206	)		1,525			(4,186	)		3,319
Financial expenses, net				1,042			907			1,038			4,166
Other income				-			133			273			133
Income (loss) before taxes				(6,248	)		751			(4,951	)		(714	)
Taxes on income (benefit)							(51	)		(330	)		73
				(6,248	)		802			(4,621	)		(787	)
Minority interest				142			21			255			79
Net income (loss) from continued operation			$	(6,390	)	$	781		$	( 4,876	)	$	(866	)
Net loss from discontinued operation				(449	)		(39	)		(9,021	)		(32	)
Net income (loss)			$	(6,839	)	$	742		$	(13,897	)	$	(898	)
Net (loss) income per share:
Basic			$	(0.32	)	$	0.04		$	(0.66	)	$	(0.05	)
Diluted			$	(0.32	)	$	0.04		$	(0.66	)	$	(0.05	)
Shares used in per share calculation:
Basic				21,368			17,967			21,183			16,425
Diluted				21,368			19,288			21,183			16,425

* 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 September 30, 2008									Three months ended September 30, 2007
			As Reported			Non-GAAP Adjustments			Non-GAAP			As Reported			Non-GAAP Adjustments			Non-GAAP
Revenues			$	22,029					$	22,029		$	21,087					$	21,087
Cost of revenues				12,375			(2,160	)(a)		10,215			9,209			(2,187	)(a)		7,022
Gross profit				9,654			2,160			11,814			11,878			2,187			14,065
Research and development costs, net				4,498						4,498			3,252			880	(d)		4,132
Selling, general and administrative expenses				10,362			(537	)(b)		7,486			6,896			(274	)(b)		6,030
							(2,339	)(c)								(592	)(e)
Restructuring				-						-			205			(205	)(f)		-
Total operating expenses				14,860			(2,876	)		11,984			10,353			(191	)		10,162
Operating income (loss)				(5,206	)		5,036			(170	)		1,525			2,378			3,903
Financial expenses, net				1,042						1,042			907			(72	)(g)		835
Other income										-			133						133
Income (loss) before taxes				(6,248	)		5,036			(1,212	)		751			2,450			3,201
Taxes on income (benefit)													(51	)					(51	)
				(6,248	)		5,036			(1,212	)		802			2,450			3,252
Minority interest				142						142			21						21
Net income (loss) from continued operation			$	(6,390	)	$	5,036		$	(1,354	)	$	781		$	2,450		$	3,231
Net loss from discontinued operation				(449	)		449						(39	)		39
Net income (loss)			$	(6,839	)	$	5,485		$	(1,354	)	$	742		$	2,489		$	3,231
Net (loss) income per share:
Diluted			$	(0.32	)				$	(0.06	)	$	0.04					$	0.17
Shares used in per share calculation				21,368						21,368			19,288						19,288

Notes:

(a)	Amortization of intangible assets.

(b)	Stock-based compensation.

(c)	One-time expenses due to global cost savings plan

(d)	Capitalization of research and development expenses.

(e)	Acquisition related and integration charges

(f)	Restructuring charges

(g)	Non-cash financial expenses

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			Nine months ended September 30, 2008									Nine months ended September 30, 2007
			As Reported			Non-GAAP Adjustments			Non-GAAP			As Reported			Non-GAAP Adjustments			Non-GAAP
Revenues			$	69,093					$	69,093		$	58,491					$	58,491
Cost of revenues				33,997			(6,473	)(a)		27,524			25,556			(5,690	)(a)		19,866
Gross profit				35,096			6,473			41,569			32,935			5,690			38,625
				51	%					60	%		56	%					66	%
Research and development costs, net				14,100						14,100			8,705			3,676	(d)		12,381
				64	%					64	%		15	%					21	%
Selling, general and administrative expenses				25,182			(2,146)	(b)		20,697			20,217			(2,291	)(g)		16,458
							(2,339	)(c)								(1,468	)(e)		78	%
Restructuring				-						-			694			(694	)(h)		-
Total operating expenses				39,282			(4,485	)		34,797			29,616			(777	)		28,839
Operating income (loss)				(4,186	)		10,958			6,772			3,319			6,467			9,786
				(19	)%					31	%		16	%					46	%
Financial expenses, net				1,038						1,038			4,166			(2,621	)(f)		1,545
Other income				273						273			133						133
Income (loss) before taxes				(4,951	)		10,958			6,007			(714	)		9,088			8,374
Taxes on income (benefit)				(330	)					(330	)		73						73
				(4,621	)		10,958			6,337			(787	)		9,088			8,301
Minority interest				255						255			79						79
Net income (loss) from continued operation			$	(4,876	)	$	10,958		$	6,082		$	(866	)	$	9,088		$	8,222
				(22	)%					28	%		(4	)%					39	%
Net loss from discontinued operation				(9,021	)		9,021						(32	)		32
Net income (loss)			$	(13,897	)	$	19,979		$	6,082		$	(898	)	$	9,120		$	8,222
Net (loss) income per share:
Diluted			$	(0.66	)				$	0.28		$	(0.05	)				$	0.47
Shares used in per share calculation				21,183						22,017			16,425						17,488

Notes:

(a)	Amortization of intangible assets.

(b)	Stock-based compensation.

(c)	One-time expenses due to global cost savings plan

(d)	Capitalization of research and development expenses.

(e)	Acquisition related and integration charges

(f)	Non-cash financial expenses

(g)	One time non-cash executive compensation related to the Formula sale of shareholdings in BluePhoenix, offset against paid-in capital for $1,769K,plus Q1/07 depreciation for $199K and $323K stock based compensation.

(h)	Restructuring charges

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

			September 30,			December 31,
			2008			2007*
			Unaudited
ASSETS
Current Assets:
Cash and cash equivalents			$	32,540		$	22,571
Marketable securities				790			668
Trade accounts receivable				26,630			22,233
Other current assets				3,450			2,163
Assets attributed to discontinued operation				4,503			17,100
Total Current Assets				67,913			64,735
Non-Current Assets:
Long-term trade receivable				-			512
Investment in affiliated company				207			207
Property and equipment, net				2,606			2,313
Goodwill				58,880			49,683
Intangible assets and other, net				23,060			29,408
Total Non-Current Assets				84,753			82,123
TOTAL ASSETS			$	152,666		$	146,858
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term bank credit			$	750			-
Convertible Debenture				-			67
Trade accounts payable				5,012			3,673
Deferred revenues				4,985			5,453
Other current liabilities				12,772			16,365
Liabilities attributed to discontinued operation				3,572			7,146
Total Current Liabilities				27,091			32,704
Non-Current Liabilities
Accrued severance pay, net				1,519			1,549
Loans from banks				15,301			135
Total Non-Current Liabilities				16,820			1,684
Minority interests				1,015			762
Shareholders' Equity				107,740			111,708
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			$	152,666		$	146,858

* 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 September 30,						Nine months ended September 30,
			2008			2007*			2008			2007*
			Unaudited						Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	(6,839	)	$	742		$	(13,897	)	$	(898	)
Adjustments to reconcile net income to net cash provided by operating activities:
loss from discontinued operation				449			39			9,021			32
Minority interests in profits of subsidiaries				142			21			255			79
Depreciation and amortization				2,500			2,435			7,229			6,281
Increase (decrease) in accrued severance pay, net				(128	)		(54	)		(30	)		237
Gain on sale of property				-			1			-			9
Change in value of long term-loans and liabilities				-			665			-			2,304
Stock-based and non cash compensations				537			274			2,148			2,093
Deferred income taxes, net				(278	)		-			(767	)		-
Changes in operating assets and liabilities:
Marketable securities				(29	)		13			(29	)		1,022
Decrease (increase) in trade receivables				946			(1,615	)		(3,050	)		(1,402	)
Decrease (increase) in other current assets				668			1,110			(521	)		1,170
Increase in trade payables				221			1,061			953			867
Increase (decrease) in other current liabilities and deferred revenues				1,041			1,568			565			(254	)
Net cash provided by (used in) operating activities				(770	)		6,260			1,877			11,540
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment				(540	)		(262	)		(1,027	)		(578	)
Proceeds from sale of property and equipment				22			-			22			8
Capitalization of research and development costs				-			(810	)		-			(3,585	)
Additional consideration of previously acquired subsidiaries and purchase of activiy				(1,509	)		(929	)		(7,252	)		(1,508	)
Purchased of activity and newly-consolidated subsidiaries				(58	)		(5,220	)		(992	)		(7,260	)
Net cash used in investing activities				(2,085	)		(7,221	)		(9,249	)		(12,923	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank credit, net				-			(1,838	)		-			2,561
Repayment of long-term loans, net				-			(13,923	)		(75	)		(19,957	)
Receipt of long-term loans				16,000			21,938			16,000			27,938
Purchase of Company's shares				-			-			(591	)		-
Exercise of employee share options and warrants				-			912			2,007			3,389
Net cash provided by financing activities				16,000			7,089			17,341			13,931
NET CASH PROVIDED BY ONGOING OPERATION				13,145			6,128			9,969			12,548
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				19,395			14,487			22,571			8,067
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	32,540		$	20,615		$	32,540		$	20,615
CASH FLOWS - DISCONTINUED OPERATION:
Cash flow provided by (used in) operating activity				(631	)		(489	)		(752	)		1,613
Cash flow used in investment activity				(19	)		(330	)		(64	)		(1,440	)
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATION				(650	)		(819	)		(816	)		173

* Presented after reclassification of Mainsoft Inc. as discontinued operation.