From: Katharine_Hanley@magic-sw.com To: nfo@lsl.com, lwn@lwn.net, editor@lwn.net, mkelleher@mfi.com, Date: Tue, 27 Jul 1999 07:45:07 -0700 Subject: Linux International Board Member Magic Software Enterprises Post Third Straight Quarter of Record Sales and Earnings Linux International Board member, Magic Software Enterprises, announced today that it had posted record sales and earnings for the third quarter in a row. The company attributed its success to its increased awareness resulting from its involvement with the Linux community. Magic, who will be bringing a LIVE penguin to LinuxWorld Expo on August 10-12, 1999, in San Jose to help introduce its new e-commerce solution for the Linux platform, provides its application development technology free to Linux developers to help motivate development of solutions for this ever-growing operating system. Mad Dog Hall, one of the original founders of the Linux movement, will be participating in the Magic press conference on Tuesday, August 10, at 9:00 a.m. in Meeting Room K of the San Jose Convention Center where both MeL (the LIVE penguin) and eMerchant (Magic's ecommerce solution) will be introduced. The attached press release provides further details of Magic's record quarter. Please feel free to contact me should you have any additional questions or require any additional information. We look forward to seeing you at the LinuxWorld Expo and the Magic press conference. Best regards, Katharine Hanley khanley@magic-sw.com 949/250-1718 ext. 220 PRESS RELEASE Contact: Katharine Hanley Public Relations Magic Software Enterprises, Inc. (949) 250-1718 ext. 220 khanley@magic-sw.com Israel Teiblum Chief Financial Officer Magic Software Enterprises, Ltd. +972-3-538-9311 or 9489 iteiblum@magic-sw.com MAGIC SOFTWARE CONTINUES TO POST RECORD RESULTS OR YEHUDA, ISRAEL (July 27, 1999) - Magic Software Enterprises, Ltd. reported its second quarter financial results. For the third quarter in a row, Magic's sales and earnings reached record levels despite some negative impact from foreign currency exchange rates. Second Quarter Results Total revenues for the second quarter 1999 were $15.32 million as compared to $8.84 million for the comparable three-month period in l998, a 73% increase over last year and a 13% increase over revenues posted in the first quarter of 1999. Net income for the quarter rose to $2.28 million ($0.29 earnings per share) from the $6.52 million loss ($1.15 loss per share) posted for the corresponding period of 1998, a 61% increase over the first quarter of 1999. Software sales for the period increased to $8.82 million, or 90% greater than the same quarter last year, representing 57% of total revenues. The increase was due primarily to the strong performance in Southeast Asia (particularly Japan), Israel and the Netherlands. The Americas also turned in a strong performance, almost doubling their previous quarterly revenues. Maintenance, support and service revenues were up 55% compared to the second quarter of 1998, representing 43% of total revenues. This result was in line with general market trends and the increased confidence in Magic's core technology. Jack Dunietz, Chief Executive Officer of Magic, commented, "The Asian market continues to have a positive impact on Magic's sales and profitability, supporting the Company's decision to expand its presence in this region. In addition, positive market acceptance for our increased solutions offerings and for our involvement with the Linux community has intensified awareness of Magic, particularly in businesses seeking to grow their profitability through powerful e-commerce and other business solutions." Second Quarter Developments Several major developments occurred during the second quarter, which are expected to add to Magic's growth in the future. The Company acquired a majority interest in Magic Software Thailand ("MST") to further exploit opportunities in the Asian Pacific region. Magic's 70% interest in MST comes on top of the controlling interest (80%) the Company purchased in Magic Software Japan. Japan has made a sizeable contribution to the Company's financial results in both the first and second quarters of this year. Another significant development during the quarter was Magic's selection by IBM to build internal business applications for the AS/400 in Brazil. Because of Magic's ability to complement and co-exist with native AS/400 technologies, and easily extend applications to the Internet, IBM is now shipping a Magic CD with each new AS/400 sold in that country. This development should help Magic increase its AS/400 sales in Brazil, as well as add credibility to the Company's efforts to grow markets in other Latin American countries. Also during the second quarter, Magic introduced Magic Web Online, its innovative new Java-based technology that brings interactive processing to Web applications to help simplify Web page updates and increase business' transaction processing capacity. Magic Web Online is included in the new Magic Enterprise Edition V8.3, as well as in Magic's awarding-winning e-commerce solution, eMerchant(. In addition, Magic continued to add new, sizeable corporate accounts during the second quarter. In Spain, Magic signed a major new deal with El Corte Ingles, one of the country's largest systems integrators. In Taiwan, FGIT (the country's largest security investment fund management company) will use Magic to develop and deploy an e-commerce system for Web-based real-time trading of investments and securities. Other new deals included General Electric Financial Assurance (U.S.); Allium, SEPEPN and CNOUS:/Civitas (France); GetPak and Hapit (Netherlands); Marketing Tools & Technologies (Italy); and the Inverclyde District Council (United Kingdom). In addition, Magic Software Thailand contributed by closing major deals with Loxley Information Services Co., Ltd. to build a comprehensive billing solution, Alpha Office Automation to develop a high school library management system, and TIP and Associate to provide a jewelry business package. Conference Call Magic will host a conference call on Wednesday, July 28, at 1:00 p.m. EST (10:00 a.m. PST), to discuss the Company's second quarter financial results. To participate, interested parties should call the appropriate number listed below five to ten minutes prior to the start of the conference call. United States: 1 (800) 288-8960 Internationally: (612) 332-1214 Callers should reference "Magic Software Earnings Release" with the AT&T Operator. In addition, investors will have the opportunity to listen to the conference call over the Internet through Vcall, a service of the Investor Broadcast Network, at http://www.vcall.com. To listen to the "live" call, investors should go to the website at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay of the conference call will be available for up to 90 days on the Vcall website. About Magic Software Magic Software Enterprises offers the most productive, state-of-the-art development technology, customizable applications, and services for cost-effectively solving business problems. Using Magic, companies can efficiently leverage their existing resources and take advantage of emerging technologies. Magic technology, applications and services are available through a global network of subsidiaries, distributors and solutions partners in more than 50 countries. The Company is located at 1642 Kaiser Avenue, Irvine, Calif., 92614, telephone (949) 250-1718, fax (949) 250-7404, http://www.magic-sw.com. 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 demand, the impact of competitive products and pricing, changing economic 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. Unaudited Consolidated Statement of Operations (US Dollars in Thousands) Three Months ended June 30, Six Months ended June 30, 1999 1998 1999 1998 Revenues . . . Software sales $8,815 $4,642 $16,419 $9,236 Maintenance 2,540 1,210 4,525 2,286 Consultancy & other services 3,968 2,990 8,010 5,506 Total Revenues $15,323 $8,842 $28,954 $17,028 Cost of Revenues Software sales 1,021 725 1,817 1,329 Maintenance 861 939 1,659 1,839 Consultancy & other services 2,777 2,214 5,377 4,287 Total Cost of Revenues 4,659 3,878 8,853 7,455 Gross Profit $10,664 $4,964 $20,101 $9,573 Research & development, net 679 717 1,294 1,523 Sales & marketing, net 4,809 4,453 9,472 7,899 General & administrative expenses 2,505 3,565 4,806 5,028 Restructuring costs & non-recurring expenses 2,677 2,677 Operating Income (Loss) $2,671 ($6,448) $4,529 ($7,554) Financial (income) expenses, net 239 47 530 159 Income (Loss) before taxes 2,432 (6,495) 3,999 (7,713) Taxes on income 20 11 62 36 Income (Loss) before minority interest 2,412 (6,506) 3,937 (7,749) Minority interest in losses (income) of subsidiaries (154) (29) (290) 44 Equity in earnings (losses) of affiliate 22 16 46 (54) Net Income (Loss) $2,280 ($6,519) $3,693 ($7,759) Income (Loss) per share $0.29 ($1.15) $0.47 ($1.47) Diluted income (loss) per share $0.27 ($1.15) $0.43 ($1.47) Weighted average number of shares outstanding 7946 5671 7910 5271 Diluted weighted average number of shares outstanding 8,513 5,671 8,523 5,217 Unaudited Balance Sheet (US Dollars in Thousands) June 30, 1999 December 31, 1998 Assets Current Assets Cash and cash equivalents $7,053 $5,828 Accounts receivable : Trade receivables 13,483 11,466 Related parties - 40 Other receivables and prepaid Expenses 2,777 1,724 Total Current Assets $23,312 $19,058 Severance pay fund 1,138 988 Investments in an affiliated companies 223 404 Fixed assets, net 7,009 5,108 Other assets, net 9,274 6,823 Total Assets $40,956 $32,381 Liabilities Current Liabilities Short-term bank debt $118 $436 Trade payables 3,302 1,918 Payables - parent and affiliated companies 145 - Accrued expenses and other liabilities 11,771 11,435 Total Current Liabilities $15,336 $13,789 Long-term loans 1,412 - Accrued severance pay 2,249 1,445 Minority interests 411 11 Shareholders' Equity Share capital 264 261 Capital surplus 29,828 29,113 Retained earnings (8,545) (12,238) Total Shareholders' Equity $21,548 $17,136 $40,956 $32,381