SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 20-F/A
                                 Amendment No. 1

        [ ]     REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
                THE SECURITIES EXCHANGE ACT OF 1934

                                       or

        [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004

                                       or

        [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission file number 0-21388

                           Magal Security Systems Ltd.
             (Exact name of Registrant as specified in its charter)

                                     Israel
                 (Jurisdiction of incorporation or organization)

                P.O. Box 70, Industrial Zone, Yehud 56100, Israel
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act:
                                      None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                  Ordinary Shares, NIS 1.0 par value per share
                                (Title of Class)

        Securities for which there is a reporting obligation pursuant to
                         Section 15(d) of the Act: None
                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:

                  Ordinary Shares, NIS 1.0 par value per share
             as of December 31, 2004 ..................... 8,672,448

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                     Yes [X] No [ ]

Indicate by check mark which financial statement item the registrant has elected
to follow.

                              [ ]Item 17 [X]Item 18

This Annual Report on Form 20-F/A is incorporated by reference into the
Registrant's Registration Statements on Form F-3, File Nos. 333-9050 and
333-123265, as amended.
<PAGE>




                                Explanatory Note

         This Amendment No. 1 on Form 20-F/A hereby amends Items 18 and 19 of
Magal Security Systems Ltd. Annual Report on Form 20-F for the fiscal year ended
December 31, 2004, which was filed on June 30, 2005. This Amendment No. 1 is
being filed for the purpose of providing additional details to our disclosures
in the original report pursuant to comments received from the Staff of the U.S.
Securities and Exchange Commission in connection with its review of our periodic
filings.

         This Amendment is not intended to revise other information presented in
our Annual Report on Form 20-F for the fiscal year ended December 31, 2004 as
originally filed and all such other information in the original filing, which
remains unchanged.

         This Amendment does not reflect events occurring after the filing of
the original Form 20-F and does not modify or update the disclosure therein in
any way other than as required to reflect the amendments discussed above. As a
result, this Amendment continues to speak as of June 30, 2005.




                                       i

<PAGE>


                                  INTRODUCTION

         Magal Security Systems Ltd. develops, manufactures, markets and sells
complex computerized security systems, including a line of perimeter security
systems, a video motion detection system, a hardware and software "all in one"
security solution which integrates Closed Circuit Television related
applications, security management and control systems, personal emergency
location systems, a pipeline security system, and provides video monitoring
services. Our predecessor commenced operations in 1969 as a department
specializing in perimeter security systems within the electronics division of
Israel Aircraft Industries Ltd., or IAI. Effective April 1984, we purchased from
IAI substantially all of the assets, and assumed substantially all of the
related liabilities, of that department. In March 1993, we completed an initial
public offering of 1,380,000 ordinary shares, in February 1997, we completed a
public offering of an additional 2,085,000 ordinary shares and in April 2005, we
completed an offering of an additional 1,700,000 ordinary shares. Our ordinary
shares are traded on the NASDAQ National Market and on the Tel Aviv Stock
Exchange under the symbol MAGS.

         Except for the historical information contained in this annual report,
the statements contained in this annual report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to our business, financial condition and results of operations. Actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including all the risks discussed in
Item 3.D. "Key Information-Risk Factors" and elsewhere in this annual report.

         Statements which use the terms "believe," "do not believe," "expect,"
"plan," "intend," "estimate," "anticipate" and similar expressions are intended
to identify forward-looking statements. These statements reflect our current
views with respect to future events and are based on assumptions and are subject
to risks and uncertainties. Except as required by applicable law, including the
securities laws of the U.S., we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

         We have trademark rights in the United States and other national
jurisdictions arising out of our trademark registrations, applications, and/or
use of the following trademarks and service marks: SENSTAR-STELLAR logo, the S
logos, SENSTAR-STELLAR, SENSTAR-STELLAR (and design) SENSTAR, STELLAR, STELLAR
SYSTEMS, STELLAR SYSTEMS (and design) PANTHER, GUIDAR, REPELS, SENNET,
PERIMITRAX, INTELLI-FLEX, INTELLI-FIELD, X-FIELD, OMNITRAX. FRONTLINE, E-FIELD,
H-FIELD, E-FLEX, ARMOURFLEX, OMNINET, SIMPL, CROSSFIRE, PLC, ECHOCHECK, FLASH,
FLARE, and all other marks used to identify particular products and services
associated with our businesses.

         Any other trademarks and trade names appearing in this annual report
are owned by their respective holders.

         Our consolidated financial statements appearing in this annual report
are prepared in U.S. dollars and in accordance with U.S. generally accepted
accounting principles, or U.S. GAAP. All references in this annual report to
"dollars" or "$"are to U.S. dollars and all references in this annual report to
"NIS" are to New Israeli Shekels. The representative exchange rate between the
NIS and the dollar as published by the Bank of Israel on June 24, 2005 was NIS
4.538 per $1.00.

         As used in this annual report, the terms "we," "us" and "our" mean
Magal Security Systems Ltd. and its subsidiaries, unless otherwise indicated.


                                       ii

<PAGE>



         Statements made in this annual report concerning the contents of any
contract, agreement or other document are summaries of such contracts,
agreements or documents and are not complete descriptions of all of their terms.
If we filed any of these documents as an exhibit to this annual report or to any
registration statement or annual report that we previously filed, you may read
the document itself for a complete description of its terms.





                                      iii

<PAGE>


                                TABLE OF CONTENTS
                                                                        Page No.
                                                                        --------

PART III....................................................................1

    ITEM 18.     Financial Statements.......................................1
    ITEM 19.     Exhibits...................................................1

SIGNATURE...................................................................3




                                       iv


<PAGE>


                                    PART III

ITEM 18. Financial Statements

         The Financial Statements required by this item are found at the end of
this annual report, beginning on page F-1.

ITEM 19. Exhibits

         The exhibits filed with or incorporated into this annual report are
listed on the index of exhibits below:

  Exhibit
    No.          Description
  -------        ---------------------------------------------------------------

  1.1*           Memorandum of Association of the Registrant
  1.2**          Articles of Association of the Registrant
  2.1***         Specimen Share Certificate for Ordinary Share
  2.2****        The Registrant's Stock Option Plan (1993), as amended
  2.4*****       Form of Underwriters' Warrant Agreement
  2.5*****       Registration Rights Agreement, dated as of November 18, 1996,
                 by and among the Registrant, Mira Mag Inc., Israel Aircraft
                 Industries Ltd. and Jacob Even-Ezra
  4.1*****       Form of Underwriting Agreement
  8******        List of Subsidiaries of the Registrant
 12.1            Certification of Chief Executive Officer pursuant to Rule
                 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
                 as amended
 12.2            Certification of Chief Financial Officer pursuant to Rule
                 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
                 as amended
 13.1            Certification of Chief Executive Officer pursuant to 18 U.S.C.
                 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                 Act of 2002
 13.2            Certification of Chief Financial Officer pursuant to 18 U.S.C.
                 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                 Act of 2002
 15.1******      Schedule of Valuation and Qualifying Accounts
 15.2            Consent of Kost Forer Gabbay & Kasierer

---------------

* Previously filed as an exhibit to our Registration Statement on Form F-1 (No.
33-57438), filed with the Commission on January 26, 1993, as amended, and
incorporated herein by reference.

** Previously filed as an exhibit to our Registration Statement on Form F-1 (No.
33-57438), filed with the Commission on January 26, 1993, as amended, and
incorporated herein by reference and an amendment thereto previously filed as an
exhibit to our Registration Statement on Form S-8 (No. 333-6246), filed with the
Commission on January 7, 1997 and incorporated herein by reference and further
amendments thereto previously filed as an exhibit to our Annual Report on Form
20-F for the fiscal year ended December 31, 2000, filed with the Commission on
June 29, 2001 and incorporated herein by reference.

*** Previously filed as an exhibit to our Registration Statement on Form 8-A,
filed with the Commission on March 18, 1993, as amended, and incorporated herein
by reference.


                                       1

<PAGE>


**** Previously filed as an exhibit to our Registration Statement on Form S-8
(No. 333-6246), filed with the Commission on January 7, 1997 and incorporated
herein by reference and further amendments thereto previously filed as an
exhibit to our Annual Report on Form 20-F for the fiscal year ended December 31,
2000, filed with the Commission on June 29, 2001 and incorporated herein by
reference.

***** Previously filed as an exhibit to our Registration Statement on Form F-2
(No.333-5970), filed with the Commission on November 8, 1996, as amended, and
incorporated herein by reference.

****** Previously filed as an exhibit to our Annual Report on Form 20- F filed
with the Commission on June 30, 2005, and incorporated herein by reference.


                                       2
<PAGE>









                MAGAL SECURITY SYSTEMS LTD. AND ITS SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS


                             AS OF DECEMBER 31, 2004


                                 IN U.S. DOLLARS




                                      INDEX


                                                                       Page
                                                                       ----

 Report of Independent Registered Public Accounting Firm               F-2

 Consolidated Balance Sheets                                        F-3 - F-4

 Consolidated Statements of Income                                     F-5

 Statements of Changes in Shareholders' Equity                         F-6

 Consolidated Statements of Cash Flows                              F-7 - F-8

 Notes to Consolidated Financial Statements                         F-9 - F-38





                                 - - - - - - - -



                                      F-1


<PAGE>


ERNST & YOUNG





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                             To the Shareholders of

                           MAGAL SECURITY SYSTEMS LTD.


     We have  audited  the  accompanying  consolidated  balance  sheets of Magal
Security  Systems Ltd. (the  "Company") and its  subsidiaries as of December 31,
2003 and 2004, and the related consolidated statements of income,  shareholders'
equity and cash flows for each of the three years in the period  ended  December
31, 2004. Our audits  included the financial  statement  schedule  listed in the
Index  at Item 2.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and schedule based on our audits.


     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  circumstances,  but not
for the purpose of expressing an opinion on the  effectiveness  of the Company's
internal  control  over  financial  reporting.  Accordingly,  we express no such
opinion. An audit also includes examining,  on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.


     In our opinion,  based on our audits, the consolidated financial statements
referred to above present fairly,  in all material  respects,  the  consolidated
financial  position of the Company and its  subsidiaries as of December 31, 2003
and 2004, and the consolidated  results of their operations and their cash flows
for each of the three years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles.

     Also,  in our  opinion,  the related  financial  statement  schedule,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.




                                            /s/Kost Forer Gabbay & Kasierer
 Tel-Aviv, Israel                              KOST FORER GABBAY & KASIERER
 February 13, 2005                           A Member of Ernst & Young Global



                                      F-2


<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands


<TABLE>
<CAPTION>
                                                                     December 31,
                                                                  ------------------
                                                                    2003     2004
                                                                  --------   -------
<S>                                                               <C>       <C>
   ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                       $ 4,389   $11,964
  Short-term bank deposits                                          9,000       -
  Trade receivables (net of allowance for doubtful accounts of
  $187 and $320 as of December 31, 2003 and 2004, respectively)    14,885    13,232
  Unbilled accounts receivable                                      5,072     7,465
  Other accounts receivable and prepaid expenses                    3,857     3,858
  Deferred income taxes                                               454       488
  Inventories                                                      11,777    12,702
                                                                  -------   -------
Total current assets                                               49,434    49,709
                                                                  -------   -------
LONG-TERM INVESTMENTS AND TRADE RECEIVABLES:
  Long-term trade receivables                                         300       344
  Long-term bank deposits                                             -       2,994
  Structured notes                                                  3,051     3,000
  Severance pay fund                                                1,960     2,142
                                                                  -------   -------
Total long-term investments and trade receivables                   5,311     8,480
                                                                  -------   -------
PROPERTY AND EQUIPMENT, NET                                        11,505    14,659
                                                                  -------   -------
DEFERRED INCOME TAXES                                                 335       186
                                                                  -------   -------
INTANGIBLE ASSETS, NET                                                713       656
                                                                  -------   -------
GOODWILL                                                            4,145     4,286
                                                                  -------   -------
Total assets                                                      $71,443   $77,976
                                                                  =======   =======
</TABLE>






The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


                                      F-3

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and par value data)


<TABLE>
<CAPTION>
                                                                        December 31,
                                                                    -------------------
                                                                      2003       2004
                                                                    --------   --------
<S>                                                               <C>       <C>
   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term bank credit                                            $ 12,597   $ 15,618
  Current maturities of long-term debt                                 3,841      1,849
  Trade payables                                                       5,077      3,189
  Other accounts payable and accrued expenses                          6,518      7,450
                                                                    --------   --------
Total current liabilities                                             28,033     28,106
                                                                    --------   --------
LONG-TERM LIABILITIES:
  Unrealized losses on hedging forward contracts                         561        650
  Long-term debt                                                       1,873      3,500
  Accrued severance pay                                                1,992      2,172
                                                                    --------   --------
Total long-term liabilities                                            4,426      6,322
                                                                    --------   --------
COMMITMENTS AND CONTINGENT LIABILITIES

SHAREHOLDERS' EQUITY:
  Share capital:
   Ordinary shares of NIS 1 par value:
     Authorized: 19,748,000 shares at December 31, 2003 and 2004;
     Issued and outstanding: 8,035,779 and 8,672,448 shares at
     December 31, 2003 and 2004, respectively                          2,683      2,825
  Additional paid-in capital                                          24,098     32,526
  Deferred stock compensation                                            -         (477)
  Accumulated other comprehensive income                                 479      1,639
  Retained earnings                                                   11,724      7,035
                                                                    --------   --------
Total shareholders' equity                                            38,984     43,548
                                                                    --------   --------
Total liabilities and shareholders' equity                          $ 71,443   $ 77,976
                                                                    ========   ========
</TABLE>




The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-4


<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
U.S. dollars in thousands (except per share data)

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                           -------------------------------
                                                             2002       2003        2004
                                                           --------   --------    --------
<S>                                                        <C>        <C>         <C>
Revenues                                                   $ 42,966   $ 59,361    $ 60,974
Cost of revenues                                             23,924     33,378      33,725
                                                           --------   --------    --------
Gross profit                                                 19,042     25,983      27,249
                                                           --------   --------    --------
Operating expenses:
  Research and development, net                               3,128      4,773       4,683
  Selling and marketing, net                                  8,642     11,585      12,679
  General and administrative                                  4,938      5,305       5,771
  Award granted by principal shareholders                       -          -         1,200
                                                           --------   --------    --------
Total operating expenses                                     16,708     21,663      24,333
                                                           --------   --------    --------
Operating income                                              2,334      4,320       2,916
Financial income (expenses), net                                199     (1,003)       (762)
                                                           --------   --------    --------
Income before taxes on income                                 2,533      3,317       2,154
Taxes on income                                                 645        913       1,101
                                                           --------   --------    --------
Net income                                                 $  1,888   $  2,404    $  1,053
                                                           ========   ========    ========
Basic net earnings per share                               $   0.24   $   0.30    $   0.12
                                                           ========   ========    ========
Diluted net earnings per share                             $   0.23   $   0.30    $   0.12
                                                           ========   ========    ========
</TABLE>






The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-5

<PAGE>





                                                     MAGAL SECURITY SYSTEMS LTD.
                                                           AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. dollars in thousands
<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                       Additional  Deferred        other                    Total          Total
                                              Ordinary paid-in       stock      comprehensive Retained  comprehensive  shareholders'
                                               shares   capital   compensation  income (loss) earnings     income         equity
                                              -------- -----------------------  ------------- --------  -------------  -------------
<S>                                           <C>       <C>       <C>           <C>           <C>         <C>          <C>
Balance as of January 1, 2002                 $  2,583 $  21,670  $     (20)    $   (1,294)   $  9,761                 $   32,700
Exercise of stock options                           13       125          -              -           -                        138
Exercise of warrants                                 4        (4)         -              -           -                          -
Amortization of deferred stock compensation          -         -         17              -           -                         17
Comprehensive income:
  Net income                                         -         -          -              -       1,888    $     1,888       1,888
  Foreign currency translation adjustments           -         -          -            288           -            288         288
                                              -------- -----------------------  ------------- --------  -------------  -------------
Total comprehensive income                                                                                $     2,176
                                                                                                        =============

Balance as of December 31, 2002                  2,600    21,791         (3)        (1,006)     11,649                     35,031
Declared dividend                                    -         -          -              -        (401)                      (401)
Exercise of stock options                           30       432          -              -           -                        462
Amortization of deferred stock compensation          -         -          3              -           -                          3
Stock dividend                                      53     1,875          -              -      (1,928)                         -
Comprehensive income:
  Net income                                         -         -          -              -       2,404    $     2,404       2,404
  Unrealized losses on forward contracts, net        -         -          -           (807)          -           (807)       (807)
  Foreign currency translation adjustments           -         -          -          2,292           -          2,292       2,292
                                              -------- -----------------------  ------------- --------  -------------   ------------
Total comprehensive income                                                                                $     3,889
                                                                                                        =============

Balance as of December 31, 2003               $  2,683 $  24,098  $       -     $      479    $ 11,724                 $   38,984
Exercise of stock options                           51       916          -              -           -                        967
Deferred stock compensation related to
  officers' options grant                            -       661       (661)             -           -                          -
Amortization of deferred stock compensation
  related to officers' options grant                 -         -        184              -           -                        184
Award granted by principal shareholders                    1,200          -              -                                  1,200
Stock dividend                                      91     5,651          -              -      (5,742)                         -
Comprehensive income:
  Net income                                         -         -          -              -       1,053    $     1,053       1,053
  Unrealized gains on forward contracts, net         -         -          -            103           -            103         103
  Foreign currency translation adjustments           -         -          -          1,057           -          1,057       1,057
                                              -------- -----------------------  ------------- --------  ------------   ------------
Total comprehensive income                                                                                $     2,213
                                                                                                        =============
Balance as of December 31, 2004               $  2,825 $  32,526  $    (477)    $    1,639    $  7,035                 $   43,548
                                              ======== =======================  ============= ========                 ============
Accumulated unrealized losses on forward
contracts, net                                                                  $     (704)
Accumulated foreign currency translation
adjustments                                                                           2,343
                                                                                  -------------
Accumulated other comprehensive income as of
December 31, 2004                                                                 $     1,639
                                                                                  ==============
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-6

<PAGE>




                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                                  -----------------------------
                                                                     2002      2003      2004
                                                                  --------   --------   -------
<S>                                                               <C>        <C>        <C>
Cash flows from operating activities:
-------------------------------------
   Net income                                                     $ 1,888    $ 2,404    $ 1,053
   Adjustments required to reconcile net income to net
    cash provided by (used in) operating activities:
    Depreciation and amortization                                   1,096      1,378      1,966
    Gain on sale of property and equipment                            (15)        (9)       (18)
    Decrease (increase) in accrued interest on
        short-term and long-term bank deposits                        133       (199)       657
    Amortization of deferred stock compensation                        17          3        184
    Decrease (increase) in trade receivables                       (2,861)    (4,103)     2,049
    Decrease in related parties receivables                             1         28        -
    Decrease (increase) in unbilled accounts receivable            (2,101)     2,708     (2,373)
    Decrease (increase) in other accounts receivable and
      prepaid expenses                                             (1,822)      (836)        16
    Decrease (increase) in deferred income taxes                      444        (88)       178
    Decrease (increase) in inventories                                468     (2,586)      (588)
    Decrease (increase) in long-term trade receivables                705      1,210        (44)
    Increase (decrease) in trade payables                             786         10     (1,956)
    Increase (decrease) in other payables and accrued
    expenses                                                         (532)     1,727        880
    Accrued severance pay, net                                        (72)        77         (2)
    Award granted by principal shareholders                           -          -        1,200
       Realized losses on hedging forward contract                    -          -          476
                                                                  -------    -------    -------
 Net cash provided by (used in) operating activities               (1,865)     1,724      3,678
                                                                  -------    -------    -------
 Cash flows from investing activities:
 -------------------------------------
   Purchase of long-term bank deposits                             (8,389)       -       (3,000)
   Purchase of structured notes                                       -       (3,000)       -
   Proceeds from sale of short-term bank deposits                   7,748      3,505      8,400
   Proceeds from sale of property and equipment                        35         33         59
   Purchase of property and equipment                              (1,527)    (3,194)    (4,858)
   Purchase of know-how and patents                                   (14)       (48)       (89)
   Acquisition of the business activity of Dominion
    Wireless Inc.(a)                                                  -         (902)       -
                                                                  -------    -------    -------
 Net cash used in investing activities                             (2,147)    (3,606)       512
                                                                  -------    -------    -------
</TABLE>






The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-7

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands


<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                                --------------------------------
                                                                    2002        2003        2004
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
Cash flows from financing activities:
-------------------------------------
  Short-term bank credit, net                                   $  3,911    $  3,098    $  2,895
  Proceeds from long-term bank loans                                 -            43         -
  Principal payment of long-term bank loans                         (158)       (103)       (365)
  Proceeds from exercise of employee stock options                   138         462         967
  Dividend paid                                                      -           -          (401)
                                                                --------    --------    --------
Net cash provided by financing activities                          3,891       3,500       3,096
                                                                --------    --------    --------
Effect of exchange rate changes on cash and cash
equivalents                                                          (98)        252         289
                                                                --------    --------    --------
Increase (decrease) in cash and cash equivalents                    (219)      1,870       7,575
Cash and cash equivalents at the beginning of the year             2,738       2,519       4,389
                                                                --------    --------    --------
Cash and cash equivalents at the end of the year                $  2,519    $  4,389    $ 11,964
                                                                ========    ========    ========
Supplemental disclosures of cash flows activities:
--------------------------------------------------

     (i)  Cash paid during the year for:

          Interest                                              $    932    $  1,099    $  1,093
                                                                ========    ========    ========
          Taxes                                                 $  1,415    $  1,544    $  1,164
                                                                ========    ========    ========
     (ii) Non-cash activities:

          Declared dividend                                     $    -      $    401    $    -
                                                                ========    ========    ========
</TABLE>

(a)  Acquisition of the business activity of Dominion Wireless Inc.:

         Net fair value of the assets acquired at the
           acquisition date was as follows:
            Inventory                                           $   376
            Property and equipment                                   90
            Technology                                              436
                                                               ---------
                                                                $   902
                                                               =========



The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-8

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL

          a.   Magal Security  Systems Ltd. (the "Company") and its subsidiaries
               (together   "the   Group")  are   engaged  in  the   development,
               manufacturing,  marketing  and  sales  of  compleHx  computerized
               security  systems  used to  automatically  detect and deter human
               intrusion for both civilian and military  markets.  A majority of
               the Group's sales is generated in the U.S.A.,  Canada, Europe and
               Israel.

               As for major customer data, see Note 14b.

          b.   Acquisition of the business activity of Dominion Wireless Inc.:

               On July 1, 2003, the Company's  subsidiary  acquired the business
               activity  of   Dominion   Wireless   Inc.   ("DW")  for  a  total
               consideration  of $902 (including $74 of transaction  costs) paid
               in cash.

               The Asset Purchase  Agreement with DW,  stipulated for additional
               payments to be made conditioned upon the achievement of operating
               income milestones during the periods ending on December 31, 2003,
               2004 and 2005.  Since such goals have not been met, no additional
               payments  were due for the periods  ending  December 31, 2003 and
               2004. Should DW reach the earn out goals as of December 31, 2005,
               an  additional  payment  will become due.  Such  payment  will be
               recorded as additional goodwill in accordance with the provisions
               of Statement of Financial  Accounting  Standards ("SFAS") No. 141
               "Business Combinations".

               DW develops  manufactures,  sells and  supports  personal  duress
               alarm  systems  that  locate  an  individual  with  accuracy  and
               reliability  in   correctional   and  other   institutions.   The
               acquisition  of the  business  activity  of DW has  expanded  the
               Company's  product line  offerings  and enabled it to provide its
               customers a comprehensive range of security systems.

               The  acquisition  was accounted for under the purchase  method of
               accounting in accordance with SFAS No. 141, and accordingly,  the
               purchase price has been allocated to the assets acquired based on
               their estimated fair values at the date of acquisition.

               Based  upon  a  valuation  of  tangible  and  intangible   assets
               acquired,  the Company's  subsidiary  allocated the total cost of
               the acquisition to the assets acquired, as follows:

                                                    At July 1,
                                                       2003
                                                  ---------------
                                                     Unaudited
                                                  ---------------

                  Inventories                      $      376
                  Property and equipment                   90
                  Technology                              436
                                                  ---------------
                                                   $      902
                                                  ===============

               The value assigned to the tangible and intangible assets has been
               determined as follows:

               a.   DW's inventories and property and equipment are presented at
                    current replacement cost.

                                      F-9

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL (Cont.)

               b.   The value assigned to technology  was  determined  using the
                    Income  Approach on the basis of the  present  value of cash
                    flows  attributable  to the  intellectual  property over its
                    expected   future  life.   Technology   is  amortized  on  a
                    straight-line basis over a period of 8 years.

                 The results of operations of DW have been included in the
                 consolidated financial statements since July 1, 2003.

                 The following unaudited pro forma information does not purport
                 to represent what the Group's results of operations would have
                 been had the acquisition been consummated on January 1, 2002
                 and 2003, nor does it purport to represent the Group's results
                 of operations for any future period. Pro forma results of
                 operations for the period:

                                                            Year ended
                                                           December 31,
                                                     -------------------------
                                                        2002          2003
                                                     -----------   -----------
                  Revenues                            $  47,474     $  59,933
                                                     ===========   ===========
                  Net income                          $     680     $   1,910
                                                     ===========   ===========
                  Basic net earnings per share        $   0.09      $   0.24
                                                     ===========   ===========
                  Diluted net earnings per share      $   0.08      $   0.24
                                                     ===========   ===========

          c.   Award granted by principal shareholders:

               In June 2004,  two  principal  shareholders  awarded  the Group's
               employees an amount of net $1.2 million.  The award was allocated
               among the employees  according to their  position and  seniority.
               The Group recorded the award expense  against  additional paid in
               capital in  accordance  with Staff  Accounting  Bulletin  ("SAB")
               Topic  5T  "Accounting  for  Expenses  or  Liabilities   Paid  by
               Principal Stockholder".

                                      F-10

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

          The consolidated financial statements have been prepared in accordance
          with United  States  generally  accepted  accounting  principles  ("US
          GAAP").

          a.   Use of estimates:

               The  preparation  of  financial  statements  in  conformity  with
               generally accepted  accounting  principles requires management to
               make estimates and assumptions  that effect the amounts  reported
               in  the  financial  statements  and  accompanying  notes.  Actual
               results could differ from those estimates.

          b.   Financial statements in U.S. dollars:

               Significant  portion of the  Company's  revenues is  generated in
               U.S.  dollars  ("dollars").  Financing and  investing  activities
               including credit, loans, equity transactions and cash investments
               are executed in dollars.  The Company's  management believes that
               the dollar is the primary currency of the economic environment in
               which the Company  operates.  Thus,  the functional and reporting
               currency of the Company is the dollar.

               The dollar was also  determined to be the functional  currency of
               the Company's U.S. subsidiaries.

               Accordingly,  monetary  accounts  maintained in currencies  other
               than the dollar are  remeasured  into dollars in accordance  with
               SFAS No. 52,  "Foreign  Currency  Translation".  All  transaction
               gains and losses from the remeasured monetary balance sheet items
               are reflected in the  statement of income as financial  income or
               expenses, as appropriate.

               The  financial  statements  of  all  foreign  subsidiaries  whose
               functional  currency is their local currency,  excluding the U.S.
               ones,  have been  translated  into  dollars.  All  balance  sheet
               accounts have been translated  using the exchange rates in effect
               at the balance sheet date.  Statement of income amounts have been
               translated  using the  average  exchange  rate for the year.  The
               resulting translation  adjustments are reported as a component of
               shareholders'  equity in accumulated other  comprehensive  income
               (loss).

          c.   Principles of consolidation:

               The consolidated financial statements include the accounts of the
               Company and its wholly-owned subsidiaries.  Intercompany balances
               and transactions  including  intercompany  sales not yet realized
               outside the Group, have been eliminated upon consolidation.

          d.   Cash equivalents:

               Cash  equivalents are short-term  highly liquid  investments that
               are readily  convertible  into cash with  original  maturities of
               three months or less at the date acquired.

                                      F-11

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          e.   Short-term and long-term bank deposits:

               Short-term  bank  deposits are deposits  with  maturities of more
               than three months and less than one year,  and presented at their
               cost.

               Bank deposits with  maturities of more than one year are included
               in long-term  bank  deposits,  and  presented at their cost.  The
               deposits are in U.S. dollars and bear interest at an average rate
               of 2.3% and mature in 2006.

          f.   Structured Notes:

               During 2003, the Company purchased structured notes ("the Notes")
               at par value totaling $3 million to be settled in 2013. Under the
               terms of the Notes, the Notes bear interest at 10% over the first
               year.  Thereafter,  interest  is  determined  based on six months
               LIBOR rates using the following formula:  10% minus two times six
               months  LIBOR  rate.  The Notes are  callable  immediately  after
               accumulating 12% interest payments.

               The  Company  accounts  for  investment  in  structured  notes in
               accordance with SFAS No. 115, "Accounting for Certain Investments
               in Debt and Equity  Securities"  and FASB  Emerging  Issues  Task
               Force Issue ("EITF") No. 96-12,  "Recognition  of Interest Income
               and Balance Sheet Classification of Structured Notes". Management
               determines the appropriate  classification  of its investments in
               debt  securities  at the time of purchase  and  reevaluates  such
               determinations  at each  balance  sheet  date.  Structured  notes
               securities are classified as  held-to-maturity  since  management
               believes  the  Company  has the intent and  ability to hold these
               securities  to maturity and are stated at amortized  cost.  As of
               December  31,  2003  and  2004,  the  investments  in  the  Notes
               approximate their fair market value.

          g.   Inventories:

               Inventories are stated at the lower of cost or market value.  The
               Group  periodically  evaluates the quantities on hand relative to
               historical and projected  sales  volumes,  current and historical
               selling prices and  contractual  obligations to maintain  certain
               levels of parts. Based on these evaluations, inventory write-offs
               are  provided  to cover risks  arising  from  slow-moving  items,
               discontinued  products,  excess inventories,  market prices lower
               than cost and adjusted  revenue  forecasts.  Such  write-offs are
               included in cost of revenues.

               Cost is determined as follows:

               Raw  materials,   parts  and  supplies  -  using  the  "first-in,
               first-out" method.

               Work in progress and  finished  products - on the basis of direct
               manufacturing  costs  with the  addition  of  allocable  indirect
               manufacturing costs.


                                      F-12

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               During  2002,  2003 and  2004,  the  Group  recorded  inventories
               write-offs in the amount of $244, $601 and $224, respectively.  A
               significant  portion  of the 2003  write-off  was  attributed  to
               discontinued products.

          h.   Long-term trade receivables:

               Long-term   trade   receivables   derive  from  operating   lease
               arrangements and from long-term payment arrangements.

          i.   Property and equipment:

               Property and  equipment  are stated at cost,  net of  accumulated
               depreciation.  Depreciation  is calculated  by the  straight-line
               method  over the  estimated  useful  lives of the  assets  at the
               following annual rates:

                                                              %
                                             -----------------------------------

          Buildings                                           4
          Machinery and equipment
            (including machinery
            and equipment leased to
            customers under
            operating leases)                        10-33 (mainly at 10)
          Motor vehicles                                      15
          Promotional display                               25-50
          Office furniture and equipment                     6-33
          Leasehold improvements              By the shorter of the term of the
                                                lease and the life of the assets

          j.   Intangible assets:

               Intangible  assets are amortized  over their useful lives using a
               method of  amortization  that  reflects  the pattern in which the
               economic  benefits  of the  intangible  assets  are  consumed  or
               otherwise used up, in accordance  with SFAS No. 142 "Goodwill and
               Other Intangible Assets".

               Know-how is amortized  over 8 to 10 years,  patents are amortized
               over a period  of 10 years and  technology  is  amortized  over 8
               years.

                                      F-13


<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          k.   Impairment of long-lived assets:

               The   Group's   long-lived   assets  and   certain   identifiable
               intangibles  are reviewed for impairment in accordance  with SFAS
               No. 144 "Accounting for the Impairment or Disposal of Long- Lived
               Assets" whenever events or changes in circumstances indicate that
               the carrying  amount of a group of assets may not be recoverable.
               Recoverability  of a  group  of  assets  to be held  and  used is
               measured by a comparison  of the carrying  amount of the group to
               the future  undiscounted  cash flows  expected to be generated by
               the group.  If such group of assets is considered to be impaired,
               the  impairment  to be  recognized  is  measured by the amount by
               which the carrying amount of the assets exceeds their fair value.
               During  2002,  2003 and  2004,  no  impairment  losses  have been
               identified.

          l.   Goodwill:

               Goodwill  represents  excess of the costs over the net fair value
               of the assets of the  businesses  acquired.  Under SFAS No,  142,
               goodwill  acquired in a business  combination on or after July 1,
               2001,  shall not be  amortized,  and  goodwill  acquired in prior
               periods ceased to be amortized since January 1, 2002.

               SFAS No. 142  requires  goodwill to be tested for  impairment  on
               adoption and at least annually thereafter or between annual tests
               in certain circumstances,  and written down when impaired, rather
               than being amortized as previous  accounting  standards required.
               Goodwill  attributable  to each of the reporting  units is tested
               for impairment by comparing the fair value of each reporting unit
               with  its  carrying  value.   Fair  value  is  determined   using
               discounted  cash  flows.   Significant   estimates  used  in  the
               methodologies  include  estimates  of future cash  flows,  future
               short-term and long-term  growth rates and weighted  average cost
               of capital for each of the reportable  units.  During 2002,  2003
               and 2004, no impairment losses have been identified.

               Differences  between the  balance of goodwill as of December  31,
               2003  and  2004  derive  from  functional  currency   translation
               adjustments. The entire goodwill balance relates to the Perimeter
               segment.

          m.   Revenue recognition:

               The Group generates its revenues mainly from (1)  installation of
               comprehensive  security  systems for which revenues are generated
               from  long-term  fixed  price  contracts;  (2) sales of  security
               products;  and (3) services and maintenance,  which are performed
               either  on  fixed-price  basis  or  a  time-and-materials   basis
               contracts.

               Revenues from installation of comprehensive  security systems are
               generated from fixed price contracts  according to which the time
               between  the  signing  of the  contract  and the  final  customer
               acceptance is over a period  generally  exceeding one year.  Such
               revenues are recognized in accordance  with Statement of Position
               ("SOP") No. 81-1 "Accounting for Performance of Construction-Type
               and Certain Production-Type Contracts," using contract accounting
               on a percentage of  completion  method,  in  accordance  with the
               "Input Method".  The amounts of revenues  recognized are based on
               the  total  fees  under  the  agreements  and the  percentage  to
               completion achieved.

                                      F-14
<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               Project costs include  material  purchased to produce the system,
               related labor and overhead  expenses and  subcontractor's  costs.
               The percentage to completion is measured by monitoring  costs and
               efforts devoted using records of actual costs incurred to date in
               the project compared to the total estimated project  requirement,
               which  corresponds  to the  costs  related  to  earned  revenues.
               Estimates  of  total  project  requirements  are  based  on prior
               experience of installing  and  integrating  security  systems,  a
               history of no  collection  issues,  delivery  and  acceptance  of
               similar services and a history of no cancellation problems, which
               are reviewed and updated regularly by management.  Provisions for
               estimated losses on uncompleted  contracts are made in the period
               in which such losses are first  determined,  in the amount of the
               estimated loss on the entire contract.

               Estimated  gross  profit or loss  from  long-term  contracts  may
               change due to changes in  estimates  resulting  from  differences
               between actual performance and original  forecasts.  Such changes
               in estimated  gross profit are recorded in results of  operations
               when  they  are  reasonably  determinable  by  management,  on  a
               cumulative catch-up basis.

               The Group  believes that the use of the  percentage of completion
               method  is  appropriate  as the  Group  has the  ability  to make
               reasonably dependable estimates of the extent of progress towards
               completion,  contract  revenues and contract  costs. In addition,
               contracts  executed  include  provisions that clearly specify the
               enforceable rights regarding services to be provided and received
               by  the  parties  to  the  contracts,  the  consideration  to  be
               exchanged and the manner and the terms of  settlement,  including
               in cases of terminations for convenience.  In all cases the Group
               expects to perform its contractual  obligations and its customers
               are expected to satisfy their obligations under the contract.

               Accounting     for     long-term      contracts     using     the
               percentage-of-completion   method  stipulates  that  revenue  and
               expense are recognized throughout the life of the contract,  even
               though the project is not completed  and the  purchaser  does not
               have possession of the project.

               Fees are payable upon  completion of agreed upon  milestones  and
               subject to customer acceptance.  Amounts recognized in advance of
               contractual  billing,  mainly  as a result  of using  the  "Input
               Method", are recorded as unbilled accounts receivable. The period
               between most  instances of advanced  recognition  of revenues and
               the customers' billing generally range between one to six months.

               The Group sells  security  products  to  customers  according  to
               customers'  orders without  installation  work. The customers are
               not  entitled  to return the  products.  Revenues  from  security
               product  sales are  recognized  in  accordance  with SAB No.  104
               "Revenue Recognition in Financial Statements",  when delivery has
               occurred,   persuasive  evidence  of  an  agreement  exists,  the
               vendor's  fee is fixed or  determinable,  no  further  obligation
               exists and collectability is probable.

               Services and maintenance  are performed under either  fixed-price
               basis or  time-and-materials  basis contracts.  Under fixed-price
               contracts,  the Group agrees to perform  certain work for a fixed
               price.   Under   time-and-materials   contracts,   the  Group  is
               reimbursed for labor hours


                                      F-15

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               at  negotiated  hourly  billing  rates  and for  materials.  Such
               service  contracts  are not in the  scope  of SOP No.  81-1,  and
               accordingly,  related  revenues are recognized in accordance with
               SAB No. 104, as those  services are performed or over the term of
               the  related   agreements   provided  that,  an  evidence  of  an
               arrangement  has been obtained,  fees are fixed and  determinable
               and collectibillity is reasonably assured.

               One  of  the  Company's   subsidiaries  provides  security  video
               monitoring services. The majority of contracts executed are for a
               five  year  term and do not  include  terms  that  result  in the
               transfer of title of the  equipment  to the  customer.  Under the
               contracts  service is not  dependent on specific  equipment.  The
               subsidiary's obligation is related to the provision of monitoring
               services.  In accordance with EITF No. 01-08 "Determining Whether
               an Arrangement  Contains a Lease" and SFAS No. 13 "Accounting for
               Leases," the service  contract does not meet the  definition of a
               lease and as such the subsidiary  recognizes monthly service fees
               over the term of the agreement.

               Deferred  revenue includes  unearned  amounts under  installation
               services, service contracts and maintenance agreements.

          n.   Accounting for stock-based compensation:

               The  Company  has elected to follow  Accounting  Principle  Board
               Opinion   ("APB")  No.  25,   "Accounting  for  Stock  Issued  to
               Employees," and FASB  Interpretation  ("FIN") No. 44, "Accounting
               for  Certain  Transactions   Involving  Stock  Compensation,"  in
               accounting for its employee stock option plans. Under APB No. 25,
               when the exercise  price of the  Company's  share options is less
               than the  market  price of the  underlying  shares on the date of
               grant, compensation expense is recognized.

               The Company  adopted the  disclosure  provisions  of SFAS No. 148
               "Accounting   for   Stock-Based   Compensation   transition   and
               disclosure",  which amended  certain  provisions of SFAS No. 123,
               "Accounting for Stock-Based Compensation", to provide alternative
               methods of transition for an entity that  voluntarily  changes to
               the  fair  value  based  method  of  accounting  for  stock-based
               employee compensation, effective as of the beginning of the prior
               fiscal year. The Company continues to apply the provisions of APB
               No. 25 in accounting for stock-based compensation.

               Proforma  information  regarding  net income and net earnings per
               share is required by SFAS No. 123, and has been  determined as if
               the Company had  accounted  for its employee  stock options under
               the fair value method prescribed by SFAS No. 123.

               The fair  value for  options  granted in 2004 is  amortized  over
               their  vesting  period and  estimated at the grant date using the
               Black  and  Scholes  option  pricing  model  with  the  following
               weighted-average assumptions for 2004: risk-free interest rate of
               2.46%, dividend yields of 0%, a volatility factor of the expected
               market price of the  Company's  Ordinary  shares of 0.979,  and a
               weighted average life of the option of 1.5 years.

                                      F-16

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               Proforma information under SFAS No. 123:

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                            -----------------------------------------
                                                                2002           2003          2004
                                                            ------------   ------------   -----------
                <S>                                          <C>            <C>            <C>
                Net income as reported:                      $    1,888     $    2,404     $   1,053
                  Add: stock based compensation
                    expenses determined under the
                    intrinsic value based method
                    included in the reported net income              17              3           184
                  Deduct: stock based compensation
                    expenses determined under fair
                    value based method for all awards              (246)          (111)         (198)
                                                            ------------   ------------   -----------
                Proforma net income                          $    1,659     $    2,296     $   1,039
                                                            ============   ============   ===========
                Basic net earnings per share-as reported     $     0.24     $     0.30     $    0.12
                                                            ============   ============   ===========
                Diluted  net   earnings   per   share-as
                  reported                                   $     0.23     $     0.30     $    0.12
                                                            ============   ============   ===========
                Proforma basic net earnings per share        $     0.21     $     0.29     $    0.12
                                                            ============   ============   ===========
                Proforma diluted net earnings per share      $     0.21     $     0.29     $    0.12
                                                            ============   ============   ===========
</TABLE>

          o.   Research and development costs:

               Research  and  development  costs  incurred  in  the  process  of
               developing product  improvements or new products,  are charged to
               expenses as incurred,  net of grants  received and investment tax
               credit.

          p.   Warranty costs:

               The Group  provides a warranty  for up to 24 months,  at no extra
               charge.  The Group estimates the costs that may be incurred under
               its  warranty and records a liability in the amount of such costs
               at the time product  revenue is recognized in accordance with FIN
               No. 45 "Guarantor's  Accounting and Disclosure  Requirements  for
               Guarantees,  Including  Indirect  Guarantees of  Indebtedness  of
               Others" and SFAS No. 5 "Accounting  for  Contingencies".  Factors
               that affect the Group's warranty  liability include the number of
               units,  historical and  anticipated  rates of warranty claims and
               cost per claim. The Group  periodically  assesses the adequacy of
               its  recorded  warranty  liabilities  and  adjusts the amounts as
               necessary. A tabular reconciliation of the changes in the Group's
               aggregate  product  warranty  liability  is not  provided  due to
               immateriality.

                                      F-17

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          q.   Royalty-bearing grants:

               Royalty-bearing  grants from the Government of Israel for funding
               research and development  projects are recognized at the time the
               Company is  entitled  to such  grants on the basis of the related
               costs  incurred  and  recorded  as a reduction  of  research  and
               development  costs.  Research and development  grants  recognized
               amounted  to  $318,  $128  and  $228  in  2002,  2003  and  2004,
               respectively.

               The Company also  received  royalty-bearing  grants from the Fund
               for  Encouragement  of  Marketing  Activity.   These  grants  are
               recognized  at the time the Company is entitled to such grants on
               the basis of the costs  incurred  and  included as a deduction of
               selling and marketing expenses.  Total grants recognized amounted
               to $82, $0 and $0 in 2002, 2003 and 2004, respectively.

          r.   Net earnings per share:

               Basic net  earnings  per share is computed  based on the weighted
               average number of shares of Ordinary  shares  outstanding  during
               each year.  Diluted net earnings  per share is computed  based on
               the  weighted   average  number  of  shares  of  Ordinary  shares
               outstanding  during each year, plus dilutive  potential shares of
               Ordinary  shares  considered  outstanding  during  the  year,  in
               accordance with SFAS No. 128 , "Earnings Per Share."

          s.   Concentrations of credit risk:

               Financial  instruments  that  potentially  subject  the  Group to
               concentrations  of credit risk  consist  principally  of cash and
               cash   equivalents,   short-term  and  long-term  bank  deposits,
               structured notes, unbilled accounts receivable, trade receivables
               and long-term trade receivables.

               Cash and cash equivalents, short-term and long-term bank deposits
               and  structured  notes are mainly  invested in major  Israeli and
               U.S. banks. Cash and cash equivalents in the United States may be
               in  excess  of  insured  limits  and are  not  insured  in  other
               jurisdictions.    Management    believes   that   the   financial
               institutions  that hold the Group's  investments  are financially
               sound and,  accordingly,  minimal credit risk exists with respect
               to these investments.

               The short-term and long-term  trade  receivables of the Group, as
               well as the unbilled accounts receivable,  are derived from sales
               to large  and  solid  organizations  and  government  authorities
               located mainly in Israel,  the United States,  Canada and Europe.
               The Group performs  ongoing  credit  evaluations of its customers
               and  to  date  have  not  experienced  any  material  losses.  An
               allowance  for doubtful  accounts is  determined  with respect to
               those  amounts  that the Group has  determined  to be doubtful of
               collection  and in  accordance  with an  aging  key.  In  certain
               circumstances,  the Group may  require  letters of credit,  other
               collateral or additional guarantees.

               The Group has no significant  off-balance sheet  concentration of
               credit  risks,  such as  foreign  exchange  contracts  or foreign
               hedging arrangements,  except derivative  instruments,  which are
               detailed in Note 2x.

                                      F-18

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          t.   Income taxes:

               The Group  accounts for income taxes in accordance  with SFAS No.
               109 "Accounting for Income Taxes." This statement  prescribes the
               use of the  liability  method  whereby  deferred  tax  assets and
               liability  account  balances are determined  based on differences
               between   financial   reporting  and  tax  bases  of  assets  and
               liabilities and are measured using the enacted tax rates and laws
               that will be in  effect  when the  differences  are  expected  to
               reverse. The Group provides a valuation allowance,  if necessary,
               to  reduce  deferred  tax  assets to their  estimated  realizable
               value.

          u.   Severance pay:

               The Company's  liability for its Israeli employees  severance pay
               is calculated pursuant to Israel's Severance Pay Law based on the
               most recent salary of the  employees  multiplied by the number of
               years of employment,  as of the balance sheet date. Employees are
               entitled to one month's  salary for each year of  employment or a
               portion  thereof.  The  Company's  liability for its employees in
               Israel is fully  provided  by  monthly  deposits  with  insurance
               policies  and by an  accrual.  The  value  of these  policies  is
               recorded as an asset in the Company's balance sheet.

               The deposited  funds include  profits  accumulated  up to balance
               sheet date.  The deposited  funds may be withdrawn  only upon the
               fulfillment of the obligation  pursuant to Israel's Severance Pay
               Law or labor  agreements.  The  value of the  deposited  funds is
               based  on the cash  surrendered  value  of  these  policies,  and
               includes immaterial profits.

               Severance  expenses for the years ended  December 31, 2002,  2003
               and  2004,   amounted  to  approximately   $60,  $313  and  $306,
               respectively.

          v.   Fair value of financial instruments:

               The following  methods and assumptions  were used by the Group in
               estimating its fair value disclosures for financial instruments:

               (i)  The   carrying   amounts  of  cash  and  cash   equivalents,
                    short-term  bank  deposits,   trade  receivables,   unbilled
                    accounts  receivable,   short-term  bank  credit  and  trade
                    payables  approximate their fair value due to the short-term
                    maturity of such instruments.

               (ii) The  carrying   amount  of  the  Group's   long-term   trade
                    receivables,  long-term bank deposits and  structured  notes
                    approximate  their fair value.  The fair value was estimated
                    using  discounted cash flows analyses,  based on the Group's
                    investment    rates   for   similar   type   of   investment
                    arrangements.

                                      F-19

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               (iii)The  carrying  amounts  of the  Group's  long-term  debt are
                    estimated by discounting the future cash flows using current
                    interest rates for loans of similar terms and maturities. As
                    of  December  31,  2003,  the  fair  value  of  the  Group's
                    long-term  borrowing  was $5,564,  compared to the  carrying
                    amount of $5,714. As of December 31, 2004, the fair value of
                    the Company's  long-term  borrowing was $5,318,  compared to
                    the carrying amount of $5,349.

               (iv) The fair value of foreign currency contracts (used for hedge
                    purposes)  is estimated  by  obtaining  current  quotes from
                    investment bankers.

          w.   Advertising expenses:

               Advertising  costs  are  charged  to the  statement  of income as
               incurred.  Advertising  expenses for the years ended December 31,
               2002, 2003 and 2004, were $372, $422 and $495, respectively.

          x.   Derivative instruments:

               SFAS No. 133, "Accounting for Derivative  Instruments and Hedging
               Activities",   requires  a  company  to  recognize   all  of  its
               derivative  instruments  as either assets or  liabilities  in the
               statement of financial position at fair value. The accounting for
               changes in the fair value (i.e., gains or losses) of a derivative
               instrument   depends  on  whether  it  has  been  designated  and
               qualifies as part of a hedging  relationship and further,  on the
               type of hedging  relationship.  For those derivative  instruments
               that are designated and qualify as hedging instruments, a company
               must  designate the hedging  instrument,  based upon the exposure
               being hedged.

               To  protect  against  the change in value of  forecasted  foreign
               currency cash flows resulting from certain sale arrangements, the
               Company has entered  during 2003 and 2004 into forward  contracts
               in order to hedge portions of its forecasted revenue and unbilled
               accounts receivable denominated in euro.

               For derivative  instruments  designated as cash flow hedge (i.e.,
               hedging the exposure to variability in expected future cash flows
               that is attributable to a particular risk). The effective portion
               of the gain or loss on the derivative instrument is reported as a
               component of other  comprehensive  income and  reclassified  into
               earnings  in the same line item  associated  with the  forecasted
               transaction in the same period or periods during which the hedged
               transaction affects earnings. For derivative instruments that are
               designated  and qualify as a fair value hedge (i.e.,  hedging the
               exposure  to changes in the fair value of an asset or a liability
               or an  identified  portion  thereof  that  is  attributable  to a
               particular  risk), the gain or loss on the derivative  instrument
               as  well as the  offsetting  loss  or  gain  on the  hedged  item
               attributable  to the hedged risk are  recognized in the same line
               item associated  with the hedged item in current  earnings during
               the period of the change in fair values.


                                      F-20

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               As of December 31, 2004, the Company  expects to reclassify  $649
               of net losses on derivative instruments from unrealized losses on
               forward  contracts  to earnings  during the next 12 months due to
               actual sales and related payments.

          y.   Reclassification:

               Certain  amounts  from  prior  years  have been  reclassified  to
               conform to the previous year's presentation. The reclassification
               had no  effect on  previously  reported  net loss,  shareholders'
               equity or cash flows.

          z.   Impact of recently issued accounting standards:

               In November 2004, the FASB issued SFAS No. 151, "Inventory Costs,
               an  amendment  of ARB No.  43,  Chapter  4." SFAS No.  151 amends
               Accounting  Research  Bulletin  ("ARB")  No.  43,  Chapter  4, to
               clarify that abnormal amounts of idle facility  expense,  freight
               handling  costs  and  wasted  materials   (spoilage)   should  be
               recognized as current-period  charges. In addition,  SFAS No. 151
               requires  that  allocation of fixed  production  overheads to the
               costs of conversion be based on normal capacity of the production
               facilities.  SAFS  No.  151  is  effective  for  inventory  costs
               incurred  during fiscal years  beginning after June 15, 2005. The
               Company  does not expect  that the  adoption of SFAS No. 151 will
               have a material  effect on its  financial  position or results of
               operations.

               On December 16, 2004,  the FASB issued SFAS No.  123(R)  (revised
               2004),  "Share-Based  Payment,"  which is a revision  of SFAS No.
               123, "Accounting for Stock-Based  Compensation."  Generally,  the
               approach in Statement 123(R) is similar to the approach described
               in SFAS  No.  123.  However,  SFAS  No.  123  permitted,  but not
               required,  share-based  payments to  employees  to be  recognized
               based on  their  fair  values  while  SFAS  123(R)  requires  all
               share-based payments to employees to be recognized based on their
               fair  values.  SFAS 123(R) also  revises,  clarifies  and expands
               guidance  in  several  areas,  including  measuring  fair  value,
               classifying an award as equity or as a liability and  attributing
               compensation cost to reporting periods.  The new standard will be
               effective for the Company in the first interim  period  beginning
               after June 15, 2005.  The adoption of SFAS 123(R) will not have a
               significant effect on the Company's results of operations.

                                      F-21


<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 3:- INVENTORIES
<TABLE>
<CAPTION>

                                                                              December 31,
                                                                     -------------------------------
                                                                          2003             2004
                                                                     --------------   --------------

            <S>                                                        <C>              <C>
            Raw materials                                              $    6,843       $    6,806
            Work in progress                                                2,513            2,320
            Finished products                                               2,421            3,576
                                                                      -------------    -------------
                                                                       $   11,777       $   12,702
                                                                      =============    =============
</TABLE>


NOTE 4:- PROPERTY AND EQUIPMENT, NET

          a.   Composition:

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                     --------------------------------
                                                                          2003             2004
                                                                     ---------------  ---------------
                  <S>                                                  <C>              <C>
                  Cost:
                    Land and buildings                                 $    8,215       $    8,790
                    Machinery and equipment                                 4,170            4,411
                    Machinery and equipment leased to customers
                     under operating leases                                 2,083            4,952
                    Motor vehicles                                          1,414            1,341
                    Promotional display                                     3,659            4,236
                    Office furniture and equipment                          2,609            2,924
                    Leasehold improvements                                     23              784
                                                                      --------------   --------------
                                                                           22,173           27,438
                                                                      --------------   --------------
                  Accumulated depreciation:
                    Buildings                                               2,098            2,404
                    Machinery and equipment                                 2,648            2,958
                    Machinery and equipment leased to customers
                     under operating leases                                   292              845
                    Motor vehicles                                            738              833
                    Promotional display                                     2,891            3,322
                    Office furniture and equipment                          1,980            2,356
                    Leasehold improvements                                     21               61
                                                                      --------------   --------------
                                                                           10,668           12,779
                                                                      --------------   --------------
                  Depreciated cost                                     $   11,505       $   14,659
                                                                      ==============   ==============
</TABLE>

          b.   Depreciation  expenses amounted to $1,014,  $1,241 and $1,822 for
               the years ended December 31, 2002, 2003 and 2004, respectively.

          c.   As for charges, see Note 9g.

                                      F-22


<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 5:- OTHER INTANGIBLE ASSETS, NET

          a.   Composition:

                                                         December 31,
                                                ------------------------------
                                                    2003             2004
                                                -------------    -------------
                  Cost:
                    Know-how                     $   1,502        $     502
                    Patents                          2,381            2,639
                    Technology                         436              436
                                                -------------    -------------
                                                     4,319            3,577
                                                -------------    -------------
                  Accumulated amortization:
                    Know-how                         1,342              396
                    Patents                          2,237            2,443
                    Technology                          27               82
                                                -------------    -------------
                                                     3,606            2,921
                                                -------------    -------------
                 Amortized cost                  $     713        $     656
                                                =============    =============

          b.   Amortization  expenses  related to intangible  assets amounted to
               $82,  $137 and $144 for the years ended  December 31, 2002,  2003
               and 2004, respectively.

          c.   Estimated amortization of intangible assets for the years ended:

                                                    December 31,
                                                  ----------------
                  2005                                  148
                  2006                                  139
                  2007                                   77
                  2008                                   74
                  2009                                   73
                                                  ----------------
                                                        511
                                                  ================


NOTE 6:- SHORT-TERM BANK CREDIT

          a.   Classified by currency, linkage terms and interest rates:

<TABLE>
<CAPTION>
                                                       Interest rate                December 31,
                                                   ---------------------    -----------------------------
                                                     2003        2004           2003            2004
                                                   ---------   ---------    ------------   --------------
                                                             %
                                                   ---------------------
                 <S>                                 <C>         <C>         <C>            <C>
                 In or linked to U.S. Dollars (1)    3.02        4.08        $    4,300     $    8,600
                 In or linked to NIS (1)             6.83        5.47             6,613          5,556
                 In or linked to Canadian
                   Dollars (2)                       5.01        4.75             1,684          1,462
                                                                            ------------   --------------
                                                                             $   12,597     $   15,618
                                                                            ============   ==============
                 Weighted average interest
                   rates at the end of the year                                   5.28%          4.64%
                                                                            ============   ==============
                 Total authorized credit lines
                   approximate                                                                $ 33,245
                                                                                           ==============
                 Unutilized credit lines
                   approximate                                                                $  6,352
                                                                                           ==============
</TABLE>

                                      F-23

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 6:- SHORT-TERM BANK CREDIT (Cont.)

          (1)  The Company has  undertaken to maintain the  following  financial
               ratios and terms in respect of its used credit line:

               1.   A ratio of at least 40% of consolidated shareholders' equity
                    out of the consolidated total assets.

               2.   Minimal  annual  consolidated  net income in the amount of $
                    1,000.

               3.   The same  shareholders  maintain  the core of control in the
                    Company.

               As of December 31, 2004, management believes that the Company was
               in compliance with these ratios and terms.

          (2)  The loan to a subsidiary is  collateralized by a general security
               agreement and has  undertaken to maintain  general  covenants and
               the following  financial ratios, with respect to the subsidiary's
               financial  statements,  and terms in respect  of its used  credit
               lines:

               1.   A quick ratio of not less than 1.25.

               2.   A ratio of total  liabilities  to tangible  net worth of not
                    greater than 0.75.

               3.   Tangible net worth of at least $9 million.

               As of December 31, 2004,  management believes that the subsidiary
               was in compliance with these ratios and terms.

          b.   As for charges, see Note 9g.


NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                                                   December 31,
                                                           ------------------------------
                                                               2003             2004
                                                           --------------  --------------
            <S>                                             <C>              <C>
            Employees and payroll accruals                  $    1,951       $    1,380
            Accrued expenses                                     2,116            3,911
            Deferred revenues                                      324               81
            Unrealized losses on hedging forward contracts         489              781
            Government authorities                                   -              308
            Declared dividend                                      401                -
            Income tax payable                                     641                3
            Others                                                 596              986
                                                           --------------   -------------
                                                            $    6,518       $    7,450
                                                           ==============   =============
</TABLE>

                                      F-24


<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 8:- LONG-TERM DEBT

          a.   Classified by currency, linkage terms and interest rates:
<TABLE>
<CAPTION>
                                                       Interest rate              December 31,
                                        Linkage    -----------------------  ---------------------------
                                         terms        2003        2004          2003          2004
                                      -----------  ----------- -----------  ------------- -------------
                                                              %
                                                   -----------------------
            <S>                         <C>           <C>         <C>        <C>           <C>
            Bank loan                   U.S. $        4.60        3.10       $     2,500   $     2,500
            Bank loan                   U.S. $        4.60         -                 250             -
            Bank promissory note (1)    U.S. $        2.87        3.05               500           500
            Bank promissory note (1)    U.S. $        5.66        3.50               500           500
                                                                            ------------- -------------
                                                                                   3,750         3,500
            Mortgage payable            U.S. $        8.25        8.25             1,964         1,849
                                                                            ------------- -------------
                                                                                   5,714         5,349
            Less - current
              maturities                                                           3,841         1,849
                                                                            ------------- -------------
                                                                             $     1,873   $     3,500
                                                                            ============= =============
            Weighted average
              interest rates at the
              end of the year                                                      5.80%         4.91%
                                                                            ============= =============
</TABLE>

          (1) As for financial  ratios and terms in respect of long-term  loans,
          the two $500  promissory  notes both have  covenants  that require the
          Group to maintain $1 million in  deposits at all times  otherwise  the
          interest rate on the notes become the bank's rate plus 0.25% until the
          minimum deposit is maintained.  The Group is also required to maintain
          tangible net worth and subordinated debt of not less than $170 for one
          note and not less than $100 for the second note.

          As of December 31,  2004,  management  believes  that the Group was in
          compliance with these ratios and terms.

          b.   As of December 31, 2004, the aggregate  annual  maturities of the
               long-term loans are as follows:

                2005                                      $   1,849
                2006                                          3,500
                                                         ------------
                                                          $   5,349
                                                         ============

          c.   As for charges, see Note 9g.

                                      F-25


<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES

          a.   Royalty  commitments to the Office of the Chief  Scientist of the
               Israeli Ministry of Industry and Trade ("OCS"):

               Under the research and development agreements of the Company with
               the OCS and pursuant to applicable  laws, the Company is required
               to pay  royalties  at the rate of  3%-4.5%  of sales of  products
               developed  with funds  provided by the OCS, up to an amount equal
               to 100% of the OCS  research  and  development  grants  received,
               linked to the U.S.  dollars  plus  interest on the unpaid  amount
               received  based on the 12-month  LIBOR rate  applicable to dollar
               deposits.   The  Company  is   obligated  to  repay  the  Israeli
               Government for the grants  received only to the extent that there
               are sales of the funded products.

               Royalties  paid amounted to $131, $80 and $61 for the years ended
               December 31, 2002,  2003 and 2004,  respectively.  As of December
               31, 2004, the Company had remaining contingent obligations to pay
               royalties in the amount of approximately $1,868.

          b.   Royalty  commitments  to the Fund of  Encouragement  of Marketing
               Activities:

               The Israeli Government, through the Fund for the Encouragement of
               Marketing   Activities,    awarded   the   Company   grants   for
               participation in expenses for foreign  marketing.  The Company is
               committed  to pay  royalties at the rate of 3% of the increase in
               export sales, up to the amount of the grants received.

               Royalties paid during the years ended December 31, 2002, 2003 and
               2004,  amounted to $53, $0 and $0,  respectively.  As of December
               31, 2004, the aggregate contingent obligation amounted to $95.

          c.   Royalty commitments to third party:

               During 2002, the Company entered into a development agreement for
               planning,  developing and  manufacturing a security system with a
               third party.  Under the agreement,  the Company agreed to pay the
               third party  royalty  fees,  based on a formula as defined in the
               agreement. Under this agreement the Company has also committed to
               purchase  a certain  volume of  products  at a minimum  amount of
               approximately  $300 over 2.5 years after  achievement  of certain
               milestones. As of December 31, 2004, no royalty commitment, under
               the agreement, exists.

          d.   Lease commitments:

               The Group  rents its  facilities  and some of its motor  vehicles
               under various operating lease agreements, which expire on various
               dates, the latest of which is in 2008.

                                      F-26
<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

               Future  minimum lease  payments  under  non-cancelable  operating
               lease agreements as of December 31, are as follows:


                 2005                $     441
                 2006                      290
                 2007                      156
                 2008                       99
                                    -----------
                                     $     986
                                    ===========

                  Total rent expenses for the years ended December 31, 2002,
                  2003 and 2004, were approximately $183, $368 and $671,
                  respectively.

          e.   Guarantees:

               1.   As of December 31, 2004, the Group obtained bank performance
                    guarantees,   advance   payment   guarantees  and  bid  bond
                    guarantees from several banks mainly in Israel in the amount
                    of $3,837.

               2.   As  of  December  31,  2004,   the  Company   obtained  bank
                    guarantees  in an  amount  of  $1,849  in  order  to  secure
                    mortgage payable by a subsidiary.

          f.   Legal proceedings:

               1.   In  April  2003,  a  competitor  filed a civil  action  suit
                    against the Company and others.  The plaintiff  alleged that
                    the  failure  of  its  perimeter  systems  in  field  trials
                    executed by the  Ministry  of Defense  during 1996 and 1997,
                    resulted from intentional  damage to the fence and diversion
                    of the results of certain tests by a former  employee of the
                    Company,  who was  then a  soldier  in the  Israeli  Defense
                    Force. The plaintiff alleged that the Company, which was the
                    employer of this employee during 1995, still employed him as
                    an agent during the field  trials,  and directed the actions
                    of the former employee.  The plaintiff  requested the courts
                    to annul the field trial and sought,  approximately  $760 in
                    damages. The Company denied all of the above allegations and
                    claimed that the  plaintiff's  perimeter  system failure was
                    not  the  result  of  the  former  employee's  actions.  The
                    Company's legal counsel believes that, the Company has valid
                    defenses against the aforementioned  claims and,  therefore,
                    no provision was recorded in the financial  statements.  The
                    action is in the preliminary stage.

               2.   In June 2000,  Rapiscan Security Products Inc.  ("Rapiscan")
                    filed a lawsuit against the Company  claiming $1,600 was due
                    it in the context of an agreement  between  Rapiscan and the
                    Company.  The Company filed a counter-claim in the amount of
                    approximately   $1,350.  The  financial   statements  as  of
                    December 31, 2003 included a reserve  computed by management
                    for this litigation of approximately $1,000. On February 18,
                    2004, the court approved a settlement  agreement between the
                    Company and Rapiscan,  according to which,  the Company paid
                    Rapiscan  approximately  $653.  The reduction of $347 of the
                    $1,000 estimated  reserve was recorded in operations  during
                    the first quarter of 2004.

                                      F-27

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

          g.   Charges:

               As collateral for all of the Group liabilities to banks:

               1.   A fixed charge has been placed on the Company's property.

               2.   The Company  agreed not to pledge any of its assets  without
                    the consent of several banks.

               3.   A fixed  charge in the amount of $3,000  has been  placed on
                    the Company's bank deposits.

               4.   The Company's  subsidiary has two bank  promissory  notes in
                    the  aggregate  amount  of  $1,000  due on April  15,  2006,
                    collateralized  by  substantially  all of  the  subsidiary's
                    assets,  and a $1,849 mortgage note payable,  collateralized
                    by a first mortgage on its land and building.

NOTE 10:- SHAREHOLDERS' EQUITY

          a.   Pertinent rights and privileges conferred by Ordinary shares:

               The Ordinary shares of the Company are listed for trade on NASDAQ
               National  Market and in Israel,  on the Tel-Aviv Stock  Exchange.
               The  Ordinary  shares  confer  upon  their  holders  the right to
               receive notice to participate and vote in the General Meetings of
               the Company and the right to receive dividends, if declared.

          b.   Stock Option Plan:

               On October 27, 2003,  the Company's  Board of Directors  approved
               the 2003 Israeli  Share Option Plan ("the 2003 Plan").  Under the
               2003  Plan,  stock  options  will  be  periodically   granted  to
               employees,  directors, officers and consultants of the Company or
               its subsidiaries, in accordance with the decision of the Board of
               Directors  of the Company (or a committee  appointed  by it). The
               Board of Directors  has the  authority to determine the number of
               options,   if  any,   which  will  be  granted  to  each  of  the
               aforementioned,  the dates of the grant of such options, the date
               of their exercise as well as their rate of conversion into shares
               in respect of each stock option,  and the purchase price thereof.
               The 2003 Plan is effective  for ten years and shall  terminate on
               October 2013. Any options that are cancelled or forfeited  before
               expiration become available for future grant.

               As of December 31, 2004, there were 537,606 options available for
               future grant.

                                      F-28

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHAREHOLDERS' EQUITY (Cont.)

               A summary of the Company's stock options activities in 2002, 2003
               and 2004, is as follows:

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                 -------------------------------------------------------------
                                       2002               2003                 2004
                                 ------------------ ------------------  ----------------------
                                           Weighted           Weighted               Weighted
                                  Number   average   Number    average   Number      average
                                    of     exercise    of     exercise     of        exercise
                                  options   price    options    price    Options       price
                                  -------   -----    -------    -----    -------       -----
                 <S>               <C>      <C>       <C>      <C>       <C>         <C>
                 Outstanding
                  at the
                  beginning
                  of the year      412,400  $ 3.93    358,234  $ 4.23    223,216     $  4.61

                 Granted                 -  $   -          -   $    -    100,000     $  7.66

                 Adjustment as
                  a result of
                  stock
                  dividend          11,232  $   -      10,256  $   -       7,652     $    -
                 Exercised         (63,750) $ 2.17   (137,446) $ 3.55   (225,338)       4.61
                 Forfeited          (1,648) $   -      (7,828)      -       (530)    $    -
                                  --------           --------           --------
                 Outstanding
                  at the
                  end of the
                  year             358,234  $ 4.23    223,216  $ 4.61    105,000     $  7.66
                                  ========  ======   ========  ======   ========     =======
                Exercisable
                 options
                 at the end
                 of the year       118,450  $ 2.14    223,216  $ 4.61          -     $    -
                                  ========  ======   ========  ======   ========     =======

</TABLE>

               All options  outstanding as of December 31, 2004 have an exercise
               price of $7.66 and a weighted average remaining  contractual life
               of 1.5 years.

               Where the Company has recorded  deferred stock  compensation  for
               options issued with an exercise price below the fair market value
               of the Ordinary shares,  the deferred stock compensation has been
               amortized and recorded as  compensation  expense ratably over the
               vesting   period  of  the   options.   Compensation   expense  of
               approximately  $17, $3 and $184 were recognized  during the years
               ended December 31, 2002, 2003 and 2004, respectively.

          c.   Dividends:

               1.   Dividends,  if  any,  will  be  declared  and  paid  in U.S.
                    dollars.  Dividends paid to  shareholders  in Israel will be
                    converted  into  NIS  on the  basis  of  the  exchange  rate
                    prevailing   at  the  date  of  payment.   The  Company  has
                    determined  that it will  not  distribute  dividends  out of
                    tax-exempt profits.

               2.   The Company's  Board of Directors  decided on a distribution
                    of stock  dividends  of 3%, 3% and 5% in May 2002,  May 2003
                    and July 2004,  respectively.  All  shares,  options and net
                    earnings per share data have been retroactively  adjusted to
                    reflect the stock dividend.

               3.   At the Annual General Meeting of  Shareholders  held on July
                    29,  2004,  the  shareholders  approved  the  payment  of an
                    interim  cash  dividend in the amount of $0.05 per  Ordinary
                    Share  of  NIS 1 par  value  each,  which  was  declared  in
                    December 2003.

                                      F-29
<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 10:- SHAREHOLDERS' EQUITY (Cont.)

          d.   Warrants to underwriters:

               In  connection  with the 1997  follow-on  Offering,  the  Company
               issued to the underwriters,  200,000 warrants to purchase 200,000
               Ordinary  shares of the  Company.  The  warrants  were  initially
               exercisable  at an  exercise  price of 120% of the 1997  offering
               price per share  ($5.50) for a period of four  years,  commencing
               one year from the date of the 1997  offering.  As of December 31,
               2002, all 200,000 warrants were exercised on a net cash basis and
               60,703 Ordinary shares of NIS 1 par value were issued.

          e.   In May  2002,  the  Company's  Board  of  Directors  approved  an
               increase in the  authorized  Ordinary share capital to 19,748,000
               shares of NIS 1 par value.


NOTE 11:- BASIC AND DILUTED NET EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                           ------------------------------------------
                                                               2002           2003           2004
                                                           -------------  -------------  ------------
            <S>                                             <C>            <C>            <C>
            Numerator:

            Net income                                      $    1,888     $    2,404     $    1,053
                                                           =============  =============  ============
            Denominator:

            Denominator for basic net earnings per share
              - weighted-average number of shares
              outstanding                                    7,866,477      7,947,778      8,581,348
            Effect of diluting securities:
            Employee stock options and warrants to
              underwriters                                     202,661         80,848         55,031
                                                           -------------  -------------  ------------
            Denominator for diluted net earnings per
              share - adjusted weighted average shares
              and assumed exercises                          8,069,138      8,028,626      8,636,379
                                                           =============  =============  ============
</TABLE>


NOTE 12:- TAXES ON INCOME

          a.   Tax  benefits in Israel  under the Law for the  Encouragement  of
               Capital Investments, 1959, (the "Law"):

               The  Company  has  been   granted  the  status  of  an  "Approved
               Enterprise" under the Law.  Currently,  there are three expansion
               programs under which the Company is entitled to tax benefits:

               1.   In 1992,  a program of the Company was granted the status of
                    an "Approved  Enterprise".  The Company has elected to enjoy
                    the  "alternative  benefits"  track - waiver  of  grants  in
                    return for tax exemption - and,  accordingly,  the Company's
                    income from this program was tax-exempt for a period of four
                    years,  and was subject to a reduced tax rate of 15%-25% for
                    a period  ranging  between three to six years  (depending on
                    the  percentage of foreign  ownership of the  Company).  The
                    period of  benefits  under  this  program  began in 1994 and
                    terminated in 2003.

                                      F-30

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 12:- TAXES ON INCOME (Cont.)

               2.   On March 18,  1997, a program of the Company was granted the
                    status of an "Approved  Enterprise".  The Company elected to
                    enjoy the "alternative benefits" track - waiver of grants in
                    return for tax  exemption  and  accordingly,  the  Company's
                    income from this program was tax-exempt for a period of four
                    years, and is subject to a reduced tax rate of 15%-25% for a
                    period ranging between three to six years  (depending on the
                    percentage of foreign ownership of the Company).  The period
                    of  benefits  under  this  program  began  in 1998  and will
                    terminate in 2007.

               3.   On August 13, 2002, a program of the Company was granted the
                    status of an "Approved  Enterprise".  The Company elected to
                    enjoy the "alternative benefits" track - waiver of grants in
                    return for tax exemption - and,  accordingly,  the Company's
                    income from this program is  tax-exempt  for a period of two
                    years, and is subject to a reduced tax rate of 15%-25% for a
                    period of five to eight years (depending upon the percentage
                    of foreign ownership of the Company). The benefit period for
                    this program began in 2003 and will terminate in 2012.

               The  entitlement to the above  benefits is  conditional  upon the
               Company   fulfilling  the  conditions   stipulated  by  the  Law,
               regulations published there under and the letters of approval for
               the specific investments in "approved enterprises".  In the event
               of failure to comply with these  conditions,  the benefits may be
               canceled  and the Company may be required to refund the amount of
               the  benefits,  in whole or in part,  including  interest.  As of
               December 31,  2004,  management  believes  that the Company is in
               compliance with all of the aforementioned conditions.

               The period of tax benefits detailed above is subject to limits of
               the earlier of 12 years from the commencement of production or 14
               years from receiving the approval.

               Income from sources other than "Approved Enterprise",  during the
               benefit period will be subject to tax at regular rate of 35%.

               By  virtue  of  the  Law,   the  Company  is  entitled  to  claim
               accelerated  depreciation  on  equipment  used  by the  "Approved
               Enterprise" during five tax years.

               Since the Company is  operating  under more than one approval and
               since part of its taxable  income is not entitled to tax benefits
               under  the  aforementioned  law and is  taxed  at  regular  rates
               (currently  35%),  its  effective  tax  rate is the  result  of a
               weighted   combination  of  the  various   applicable  rates  and
               tax-exemptions.  The  computation is made for income derived from
               each program on the basis of formulas  determined  in the law and
               in the approvals.

               The tax-exempt income attributable to the "Approved  Enterprises"
               can be distributed to shareholders without subjecting the Company
               to taxes only upon the complete  liquidation  of the Company.  If
               the retained  tax-exempt  income is distributed in a manner other
               than in the  complete  liquidation  of the  Company,  it would be
               taxed at the corporate tax rate  applicable to such profits as if
               the  Company  had  not  chosen  the   alternative   tax  benefits
               (currently - 15%).

                                      F-31

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 12:- TAXES ON INCOME (Cont.)

          b.   Measurement of taxable income under the Income Tax  (Inflationary
               Adjustments) Law, 1985:

               Under  the  Income  Tax  (Inflationary  Adjustments)  Law,  1985,
               results  for  tax  purposes  are  measured  in  real  terms,   in
               accordance  with the changes in the Israeli  Consumer Price Index
               ("Israeli  CPI").  Accordingly,   until  2002,  results  for  tax
               purposes  were measured in terms of earnings in NIS after certain
               adjustments  for  increases  in the Israeli  CPI.  Commencing  in
               taxable year 2003, the Company has elected to measure its taxable
               income  and file its tax  return  under the  Israeli  Income  Tax
               Regulations  (Principles  Regarding  the  Management  of Books of
               Account of Foreign  Invested  Companies and Certain  Partnerships
               and the  Determination  of Their Taxable  Income),  1986. Such an
               elective  obligates  the  Company for three  years.  Accordingly,
               commencing  taxable  year  2003,  results  for tax  purposes  are
               measured in terms of earnings in dollar.

          c.   Tax benefits (in Israel) under the Law for the  Encouragement  of
               Industry (Taxes), 1969:

               The  Company is an  "industrial  company"  as defined by this law
               and,  as such,  is entitled  to certain  tax  benefits  including
               accelerated  depreciation,  deduction  of the  purchase  price of
               patents and know-how and deduction of public offering expenses.

          d.   Tax rates:

               1.   On  June  29,  2004,  the  Israeli   Government  passed  the
                    Amendment to the Income Tax Ordinance (No. 140 and Temporary
                    Provision),  2004, which progressively reduces the tax rates
                    applicable to companies from 36% to 35% in 2004 to a rate of
                    30% in 2007.  The  amendment  had no impact on the Company's
                    financial statements.

               2.   The tax rates of the  Company's  subsidiaries  range between
                    25%-40%.

          e.   Investment tax credit:

               One of the Company's  subsidiaries is eligible for investment tax
               credits on its research and development activities and on certain
               current and capital  expenditures.  During fiscal year 2004,  the
               subsidiary  recognized  $176  of  investment  tax  credits  as  a
               reduction of research and  development  expenses.  In total,  the
               subsidiary has investment tax credits  available to reduce future
               federal  income  taxes  payable,  amounting  to $436,  which will
               expire at various dates from 2012 through 2014.

                                      F-32

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 12:- TAXES ON INCOME (Cont.)

          f.   Reconciliation between the theoretical tax expense,  assuming all
               income is taxed at the Israeli statutory rate, and the actual tax
               expense, is as follows:
<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                           ------------------------------------
                                                               2002         2003        2004
                                                           -----------  -----------  ----------
                 <S>                                        <C>          <C>           <C>
                 Income before taxes as reported in the     $  2,533     $  3,317     $  2,154
                   statements of income
                                                           ===========  ===========  ==========
                 Tax rate                                        36%          36%          35%
                                                           ===========  ===========  ==========
                 Theoretical tax expense                    $    912     $  1,194     $    754
                 Increase (decrease) in taxes:
                   Tax adjustments in respect of
                     inflation in Israel                          11            -            -
                   Non-deductible items, net                     (24)          17         (400)
                   Deferred taxes on losses for which
                     valuation allowance was provided            442          298        1,163
                   Tax exemption applicable to "Approved
                     Enterprises" and exempted income           (293)        (443)        (281)
                   Taxes in respect of prior years              (279)        (107)         (23)
                   Other                                        (124)         (46)        (112)
                                                           -----------  -----------  ----------
                 Taxes on income in the statements of
                   income                                   $    645     $    913     $  1,101
                                                           ===========  ===========  ==========
                 Per share amounts (basic and diluted)
                   of the tax benefit resulting from
                   "Approved Enterprises"                   $   0.04     $   0.06     $   0.03
                                                           ===========  ===========  ==========
</TABLE>

          g.   Taxes on income included in the statements of income:

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                           ------------------------------------
                                                               2002         2003         2004
                                                           -----------  -----------  ----------
                 <S>                                        <C>          <C>          <C>
                 Current taxes:
                   Domestic                                 $    269     $    398     $    428
                   Foreign                                       211          534          518
                 Deferred income taxes:
                   Domestic                                      (30)           -          (70)
                   Foreign                                       474           88          248
                 Taxes in respect of prior years:
                   Domestic                                     (279)        (107)           -
                   Foreign                                         -            -          (23)
                                                           -----------  -----------  ----------
                 Taxes on income                            $    645     $    913     $  1,101
                                                           ===========  ===========  ==========
</TABLE>

                                      F-33

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 12:- TAXES ON INCOME (Cont.)

          h.   Deferred income taxes:

               Deferred  income  taxes  reflect the net tax effects of temporary
               differences   between   the   carrying   amounts  of  assets  and
               liabilities for financial reporting purposes and the amounts used
               for  income tax  purposes.  Significant  components  of the Group
               deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                       ----------------------------
                                                                           2003            2004
                                                                       ------------    ------------
                <S>                                                     <C>             <C>
                Operating loss carryforward                             $   1,813       $   2,992
                Reserves and tax allowances                                   658             (26)
                                                                       ------------    ------------
                Total deferred assets before valuation allowance            2,471           2,966
                Valuation allowance                                        (1,682)         (2,292)
                                                                       ------------    ------------
                Net deferred tax assets                                 $     789       $     674
                                                                       ============    ============
                Domestic                                                $     212       $     288
                Foreign                                                       577             386
                                                                       ------------    ------------
                                                                        $     789       $     674
                                                                       ============    ============
</TABLE>

               During  2004,  the  Company's  subsidiaries  have  increased  the
               valuation  allowance in the amount of  approximately  $300,  as a
               result  of  change  in  circumstances  that  caused a  change  in
               judgment about the certainty of  realization of related  deferred
               tax assets in future  years.  The total net  change in  valuation
               allowance during 2004 amounted to $610.

          i.   The domestic and foreign components of income before taxes are as
               follows:

                                              Year ended December 31,
                                      ------------------------------------
                                          2002         2003         2004
                                      -----------  -----------  ----------

                 Domestic              $   2,217    $   2,217    $  2,137
                 Foreign                     316        1,100          17
                                      -----------  -----------  ----------

                                       $   2,533    $   3,317    $  2,154
                                      ===========  ===========  ==========




                                      F-34

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 12:- TAXES ON INCOME (Cont.)

          j.   Net operating losses carryforward:

               The  Company's  subsidiaries  in  the  U.S.  and  the  U.K.  have
               estimated total available  carryforward  tax losses of $7,139 and
               $795,  respectively,  to offset against future taxable profit for
               16 to 20 years,  and an indefinite  period,  respectively.  As of
               December  31,  2004,  the  Company   recorded  a  full  valuation
               allowance  due  to  the  uncertainty  of the  tax  assets  future
               realization.

               Utilization  of U.S.  net  operating  losses  may be subject to a
               substantial  annual  limitation  due to the "change in ownership"
               provisions of the Internal Revenue Code of 1986 and similar state
               provisions. The annual limitation may result in the expiration of
               net operating losses before utilization.

NOTE 13:- RELATED PARTIES TRANSACTIONS

                                                   Year ended December 31,
                                             ----------------------------------
                                                2002        2003        2004
                                             ----------  ----------  ----------
            Sales to related parties (1)     $      188  $      196  $      386
                                             ==========  ==========  ==========

          (1)  Sales  to  related  parties  represent  services  provided  b the
               Company's subsidiary.

NOTE 14:- SEGMENTS INFORMATION

          The Group  adopted  SFAS No. 131  "Disclosures  about  Segments  of an
          Enterprise and Related Information". The Group operates in three major
          reportable segments, which represent the Group's operating segments as
          follows:

          1.   Perimeter  security  systems  - The  Group's  line  of  perimeter
               security systems consists of the following:  Microprocessor-based
               central control units,  taut wire perimeter  intrusion  detection
               systems,   INNO  Fences,   vibration  detection  systems,   field
               disturbance sensors, and other.

          2.   Security  turnkey  projects  - The  Group  is  executing  turnkey
               projects based on the Company's  security  management  system and
               acting as an integrator.

          3.   Video  monitoring  services - The Group supplies video monitoring
               services through Smart  Interactive  Systems,  Inc., a subsidiary
               established in the U.S. in June 2001.

                                      F-35

<PAGE>




                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 14:- SEGMENTS INFORMATION (Cont.)


          a.   The following data present the revenues, expenditures, assets and
               other operating data of the Group's operating segments:

<TABLE>
<CAPTION>
                                                         Year ended December 31,
                 ----------------------------------------------------------------------------------------------------------------
                                        2002                                                  2003
                 ----------------------------------------------------   ---------------------------------------------------------
                                          Video                                                Video
                 Perimeter   Projects   monitoring    Other     Total   Perimeter   Projects   monitoring    Other      Total
                 ---------   --------   ----------    -----     -----   ---------   --------   ----------    -----      -----
<S>               <C>        <C>          <C>        <C>       <C>      <C>         <C>         <C>         <C>         <C>
Revenues          $ 36,435   $   5,340    $   238    $   953   $42,966  $  51,077   $  6,720    $    403    $  1,161    $59,361
                  ========   =========    =======    =======   =======  =========   ========    ========    ========    =======
Depreciation
   and
   amortization   $    927   $       9    $   149    $    11   $ 1,096  $   1,056   $     20    $    292    $     10     $1,378
                  ========   =========    =======    =======   =======  =========   ========    ========    ========     ======
Operating
   income,
   before
   financial
   expenses and
   taxes on
   income         $  4,045   $     794    $(1,556)   $  (949)  $ 2,334  $   5,803   $     936   $ (1,870)   $   (549)    $4,320
                  ========   =========    =======    =======            =========   =========   ========    ========
Financial
   income
   (expenses),
    net                                                            199                                                   (1,003)
Taxes on income                                                    645                                                      913
                                                                   ---                                                      ---
Net income                                                     $ 1,888                                                   $2,404
                                                               =======                                                   ======
</TABLE>

<TABLE>
<CAPTION>
                                Year ended December 31,
                ---------------------------------------------------
                                     2004
                 ---------------------------------------------------
                                         Video
                 Perimeter   Projects  monitoring    Other     Total
                 ---------   --------  ----------    -----     -----

<S>              <C>         <C>         <C>        <C>       <C>
Revenues         $ 46,341    $11,375     $ 2,060    $ 1,198   $60,974
                 ========    =======     =======    =======   =======
Depreciation
   and
   amortization  $  1,252    $    11     $   698    $     5    $1,966
                 ========    =======     =======    =======    ======
Operating
   income,
   before
   financial
   expenses and
   taxes on
   income         $  4,978   $ 1,430     $(2,262)   $(1,230)   $2,916
                  ========   =======     =======    =======
Financial
   income
   (expenses),
    net                                                          (762)
Taxes on income                                                 1,101
                                                                -----
Net income                                                     $1,053
                                                               ======

</TABLE>






<TABLE>
<CAPTION>
                                                          December 31,
                 ----------------------------------------------------------------------------------------------------------------
                                        2002                                                  2003
                 ----------------------------------------------------   ---------------------------------------------------------
                                          Video                                                 Video
                 Perimeter   Projects   monitoring    Other     Total   Perimeter   Projects   monitoring    Other      Total
                 ---------   --------   ----------    -----     -----   ---------   --------   ----------    -----      -----
<S>               <C>        <C>          <C>        <C>       <C>       <C>         <C>         <C>          <C>       <C>
Total
long-lived
assets            $ 12,408   $    30      $  867     $   21    $ 13,326  $ 13,476    $    88     $  2,787     $  12     $ 16,363
                  ========   =======      ======     ======    ========  ========    =======     ========     =====     ========
</TABLE>
<TABLE>
<CAPTION>
                                December 31,
                ----------------------------------------------------
                                     2004
                 ---------------------------------------------------
                                         Video
                 Perimeter   Projects  monitoring    Other     Total
                 ---------   --------  ----------    -----     -----

<S>              <C>         <C>       <C>           <C>     <C>
Total
long-lived
assets           $ 13,576    $   192   $ 5,814       $  19   $19,601
                 ========    =======   =======       =====   =======
</TABLE>



                                      F-36


<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)


NOTE 14:- SEGMENTS INFORMATION (Cont.)

          b.   Major customer data (percentage of total revenues):


<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                           -----------------------------------------
                                                               2002           2003           2004
                                                           -------------  -------------  -----------
                 <S>                                        <C>             <C>          <C>
                 Israel's Ministry of Defense and
                   Israel's Defense Forces                        15.9%          27.2%   *)     -%
                                                           =============  =============  ===========
                 C.N. Aeroportul international Bucuresti
                   Otopeni                                  *)       -%    *)       -%       15.6%
                                                           =============  =============  ===========
</TABLE>

          *) Less then 10% of total revenues.

          c.   Geographical information:

               The following is a summary of revenues  within  geographic  areas
               based on end customer's location and long-lived assets:

<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                           ------------------------------------------
                                                               2002           2003           2004
                                                           -------------  -------------  ------------
                 <S>                                        <C>            <C>            <C>
                 1. Revenues:

                        Israel                              $   11,350     $   20,503     $   10,123
                        Romania                                  1,023          5,151          9,521
                        Europe (excluding Romania)               5,376          5,465          9,150
                        USA                                     12,641         13,292         17,871
                        Canada                                   4,324          6,338          4,068
                        Others                                   8,252          8,612          10,241
                                                           -------------  -------------  ------------
                                                            $   42,966     $   59,361     $   60,974
                                                           =============  =============  ============
</TABLE>
<TABLE>
<CAPTION>
                                                                          December 31,
                                                           ------------------------------------------
                                                               2002           2003           2004
                                                           -------------  -------------  ------------
                 <S>                                        <C>            <C>            <C>
                 2. Long-lived assets:

                        Israel                              $    3,802     $    3,626     $    3,211
                        Europe                                     786            980           1,069
                        USA                                      6,299          8,655          11,518
                        Canada                                   2,392          2,998           3,649
                        Others                                      47            104            154
                                                           -------------  -------------  ------------
                                                            $   13,326     $   16,363     $   19,601
                                                           =============  =============  ============
</TABLE>

                                      F-37



<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except share and per share data)

NOTE 15:- SELECTED STATEMENTS OF INCOME DATA

          a.   Research and development expenses, net:

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                            ------------------------------------------
                                                                2002           2003          2004
                                                            ------------   ------------  -------------
         <S>                                                 <C>            <C>           <C>
                  Expenses                                   $    3,750     $    5,128    $    5,088
                  Less - royalty-bearing grants and
                    investment tax credit                           622            355           405
                                                            ------------   ------------  -------------
                                                             $    3,128     $    4,773    $     4,683
                                                            ============   ============  =============

          b.   Financial income (expenses):

                 Financial expenses:
                   Interest on long-term debt               $     (371)    $     (298)    $     (289)
                   Interest on short-term bank credit             (640)          (808)          (849)
                   Foreign exchange losses                          (6)          (692)          (161)
                                                           -------------  -------------  ------------
                                                                (1,017)        (1,798)        (1,299)
                                                           -------------  -------------  ------------
                 Financial income:
                   Interest on short-term and long-term
                     bank deposits and structured notes            732            672            496
                   Foreign exchange gains                          484            123             41
                                                           -------------  -------------  ------------
                                                                 1,216            795            537
                                                           -------------  -------------  ------------
                                                            $      199     $   (1,003)    $     (762)
                                                           =============  =============  ============
</TABLE>


NOTE 16:- SUBSEQUENT EVENTS (UNAUDITED)

          In 2005, the Company intends to raise additional equity to fund future
          growth.



                                - - - - - - - - -


                                      F-38




<PAGE>




                                    SIGNATURE

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.


                                          MAGAL SECURITY SYSTEMS LTD.


                                          By: /s/Jacob Even-Ezra
                                              ------------------
                                              Name: Jacob Even-Ezra
                                              Title: Chairman of the Board
                                                     and Chief Executive Officer




Date:    September 8, 2005




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