Financial Highlights for the Quarter

Revenues for the third quarter were $13.5 million compared to $13.6 million in the second quarter of 2009.

Operating income in the third quarter was $0.8 million compared to $1.0 million in the second quarter of 2009.

Net income for the third quarter was $0.9 million, compared to $1.1 million in the second quarter of 2009.

Total cash, cash equivalents and short-term investments as of September 30, 2009 were $37 million, compared to $33 million as of December 31, 2008.

Financial Highlights for the First Nine Months

Cash flow from operations for the first nine months of 2009 amounted to $4.3 million.

Revenues reached $40.9 million, compared to $46.9 million for the first nine months of 2008.

Operating income was $2.5 million, compared to $3.1 million for the first nine months of 2008.

Net income was $2.7 million, compared to $3.4 million for the first nine months of 2008.

Comments of Management

Guy Bernstein, Chairman of Magic Software, commented on the results: "We are pleased to report an eleventh consecutive quarter of profitability for the company, which comes despite the continuing challenges in the global economy. Notwithstanding these challenges, we have been successful in obtaining new business this year, including twenty new customers in the U.S. alone. While cautiously encouraged by the reviving markets in the U.S. and Japan, we continue to exercise fiscal and operational restraint. To ensure ongoing stability and profitability, we continue to invest in our core growth engines."

Summary of the Quarter

Eyal Pfeifel has been appointed as the company's new CTO. Eyal brings with him previous Magic Software experience and 20 years in planning and managing large-scale and innovative technology projects.

The company's U.S. branch continues to gain new customers, and increased revenues and profits this quarter.

The company's Japanese branch also showed improved revenues and profitability thanks to careful planning, and provides a basis for cautious optimism in the Japanese market recovery.

The uniPaaS application platform continues to be adopted worldwide. The company is now implementing close to 100 uniPaaS RIA projects in Japan alone.

Other significant uniPaaS deals include uniPaaS RIA for KLAFS, Europe's leading sauna and spa manufacturer; and Bank Leumi, Israel's leading commercial bank, which is migrating 60 of its applications to uniPaaS.

The company has won a number of new iBOLT deals, including a SaaS/on-premise integration for Clinical Financial Services in the U.S.; a Lotus Notes integration for MintWave in Japan; a Salesforce.com/SAP R/3 integration for AVL in Austria; and a SAPR/3 integration for KLAFS in Germany. The company also entered into a new partnership agreement with nefos GmbH, a leading consulting partner for Salesforce.com, based in Zurich, Switzerland.

Magic Software's executives continue to speak at industry events, including the recent Software Business 2009 Conference and the 2009 Quest West Conference.

Magic Software joined Salesforce.com Foundation's 'Power of Us' partner program.

The company was ranked 250 among the World's Largest Software Companies by Software Magazine.

The company's uniPaaS and iBOLT solutions gained significant media coverage in the quarter from specialist IT media publications including IT-Business, banking technology, ebizQ, Channel Pro, ITBusinessEdge, ITWeb, manufacturing.net, SaaS Directory, BCW, Software Mag.com, and Retail Technology. For a full listing of our media coverage read here.

Magic Software was included in five Gartner and Forrester industry analyst reports this quarter. Magic Software's uniPaaS was recently added to Gartner's Magic Quadrant for Enterprise Application Servers, (Gartner Report, 24 September 2009, Yefim V. Natis, Massimo Pezzini, Kimihiko Iijima).

Non-GAAP Financial Measures

This release includes non-GAAP operating income, net income, basic and diluted earnings per share and other non-GAAP financial measures. These non-GAAP measures exclude the following items:

Amortization of purchased intangible assets;

In-process research and development capitalization and amortization and;

Equity-based compensation expense.

Magic Software's management believes that the presentation of non-GAAP measures provide useful information to investors and management regarding financial and business trends relating to the Company's financial condition and results of operations as well as the net amount of cash generated by its business operations after taking into account capital spending required to maintain or expand the business.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.