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, 2002

                                       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, Yahud 56100, Israel
                -------------------------------------------------
                    (Address of principal executive offices)

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

    Title of each class                Name of each exchange on which registered
    -------------------                -----------------------------------------
           None                                          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:

             7,696,517 Ordinary Shares, NIS 1.0 par value per share

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
<PAGE>



                                Explanatory Note

         This Amendment No. 1 on Form 20-F/A hereby amends Items 18 and 19 of
Magal Security Systems Ltd.'s annual report on Form 20-F for the fiscal year
ended December 31, 2002, which was filed on June 27, 2003. This Amendment No. 1
is being filed for the purpose of providing additional details to our
disclosures in the original report pursuant to comments we received from the
Staff of the U.S. Securities and Exchange Commission in connection with its
review of our periodic filings. The Amendment deals specifically with the
inclusion of a new Note 2x in the financial statements.

         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, 2002 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. We are
not amending Item 15 with respect to our internal controls and procedures since
we do not believe that the cause of this Amendment was the result of any problem
with our internal controls and procedures.

         As a result, this Amendment continues to speak as of June 27, 2003.



<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 and a security management 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 and in
February 1997, we completed a public offering of an additional 2,085,000
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.

         We urge you to consider that 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.

         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 17, 2003 was NIS
4.353 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.

         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.



<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

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

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


                                       i

<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 Shares
     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
    10.1*****    Form of Underwriting Agreement
    21******     List of Subsidiaries of the Registrant
    23.1         Consent of Kost Forer Gabbay & Kasierer
    23.2         Consent of BDO Seidman, LLP
    31.1         Certification of Chief Executive Officer pursuant to Rule
                 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
                 amended
    31.2         Certification of Chief Financial Officer pursuant to Rule
                 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
                 amended
    32.1         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
    32.2         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
_________

*       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



<PAGE>


         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.

****    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 Form 20-F for the Fiscal Year
        ended December 31, 2002 and incorporated herein by reference.

                                       2

<PAGE>



                MAGAL SECURITY SYSTEMS LTD. AND ITS SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS


                             AS OF DECEMBER 31, 2002


                                 IN U.S. DOLLARS




                                      INDEX


                                                                     Page
                                                                     ----

 Reports of Independent Auditors                                      F-2

 Consolidated Balance Sheets                                       F-4 - F-5

 Consolidated Statements of Income                                    F-6

 Statements of Changes in Shareholders' Equity                        F-7

 Consolidated Statements of Cash Flows                             F-8 - F-9

 Notes to Consolidated Financial Statements                       F-10 - F-37




                                 - - - - - - - -

                                      F-1

<PAGE>








                         REPORT OF INDEPENDENT AUDITORS

                             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,
2001 and 2002,  and the related  consolidated  statements of income,  changes in
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2002. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial  statements  based  on our  audits.  We did not  audit  the  financial
statements of certain wholly owned subsidiaries,  which statements reflect total
revenues of 11.4% of total consolidated revenues for the year ended December 31,
2000.  Those  statements were audited by other  auditors,  whose report has been
furnished to us, and our opinion,  insofar as it relates to the amounts included
for those subsidiaries, is based solely on the report of the other auditors.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance as to whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe  that our  audits and the  reports of other
auditors provide a reasonable basis for our opinion.

     In our opinion,  based on our audits and the report of other auditors,  the
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, 2001 and 2002, and the  consolidated  results of
their  operations and cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in the United States.




Tel-Aviv, Israel                       /s/ Kost Forer Gabbay and Kasierer
                                       KOST FORER GABBAY & KASIERER
                                      (Formerly: KOST, FORER & GABBAY)
                                      A Member of Ernst & Young Global
February 10, 2003
Except for Note 18 which the Date is June 26, 2003
Except for Note 2x which the Date is March 22, 2004

                                      F-2


<PAGE>


Report of Independent Certified Public Accountants

The Board of Directors and Shareholders
Perimeter Products, Inc. (A Wholly Owned Subsidiary of Kobb, Inc.)

We have audited the statements of  operations,  shareholder's  equity,  and cash
flows of Perimeter Products,  Inc. (A Wholly Owned Subsidiary of Kobb, Inc.) for
the  year  ended  December  31,  2000.   These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform our audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting  principles used by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

The value of inventory as of December 31, 2000 was  overstated  by $241,000 as a
result of a duplicate inventory adjustment. In addition, the balance for accrued
warranty  expense as of December  31,  2000 was  overstated  by $35,000.  If the
inventory and warranty  accrual had been  adjusted as of December 31, 2000,  the
cost of revenue and loss before  income  taxes in 2000 would have  increased  by
$206,000,  the income tax benefit in 2000 would have  increased by $83,000,  the
net loss in 2000 would have  increased  by  $123,000  and  retained  earnings at
December 31, 2000 would have decreased by $123,000.

In our opinion, except for the effects of the prior year inventory overstatement
and the accrued warranty  overstatement as described in the preceding paragraph,
the  financial  statements  referred to above  present  fairly,  in all material
respects,  the results of operations and cash flows of Perimeter Products,  Inc.
(A Wholly Owned  Subsidiary of Kobb,  Inc.) for the year ended December 31, 2000
in conformity with accounting principles generally accepted in the United States
of America.



/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP


San Jose, California
February 2, 2001, except for the matters
     discussed in the third paragraph of our report,
     as to which the date is January 25, 2002

                                      F-3

<PAGE>




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


                                                                 December 31,
                                                           ---------------------
                                                              2001        2002
                                                           ---------  ----------
     ASSETS

  CURRENT ASSETS:
    Cash and cash equivalents                                2,738      2,519
    Short-term bank deposits (Note 11c)                      8,289      3,708
    Trade receivables:
     Related parties                                            58         57
     Other (net of allowance for doubtful accounts -
       $ 192 in 2001 and $ 150 in 2002)                      6,113      9,076
     Unbilled accounts receivable                            5,586      7,691
    Other accounts receivable and prepaid expenses             575      2,256
    Deferred income taxes                                      473        602
    Inventories (Note 3)                                     8,549      8,251
                                                           ---------  ----------
  Total current assets                                      32,381     34,160
  -----                                                   ---------- -----------

  LONG-TERM INVESTMENTS AND TRADE RECEIVABLES:
    Long-term trade receivables (Note 4)                     2,213      1,510
    Long-term bank deposits                                  3,560      8,649
    Severance pay fund                                       1,592      1,724
                                                           ---------  ----------
  Total long-term investments and trade receivables          7,365     11,883
  -----                                                    ---------  ----------
  PROPERTY AND EQUIPMENT, NET (Note 5)                       8,550      8,989
                                                           ---------  ----------
  INTANGIBLE ASSETS AND OTHER (Note 6)                       1,318        853
                                                           ---------  ----------
  GOODWILL (Note 6)                                          3,733      3,856
                                                           ---------  ----------
  Total assets                                              53,347     59,741
  -----                                                    =========  ==========




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


                                      F-4

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


<TABLE>
<CAPTION>
                                                                             December 31,
                                                                       -----------------------
                                                                          2001         2002
                                                                       ---------    ----------
  <S>                                                                   <C>         <C>
     LIABILITIES AND SHAREHOLDERS' EQUITY
  CURRENT LIABILITIES:
    Short-term bank credit (Note 7)                                      5,355        9,266
    Current maturities of long-term loans (Note 9)                         909        1,091
    Trade payables                                                       3,394        4,192
    Other accounts payable and accrued expenses (Note 8)                 4,332        3,784
                                                                       ---------    ----------
  Total current liabilities                                             13,990       18,333
  -----                                                                ---------    ----------
  LONG-TERM LIABILITIES:
    Long-term loans (Note 9)                                             5,038        4,698
    Accrued severance pay                                                1,619        1,679
                                                                       ---------    ----------
  Total long-term liabilities:                                           6,657        6,377
  -----                                                                ---------    ----------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)

  SHAREHOLDERS' EQUITY (Note 12):
    Share capital:
     Ordinary shares of NIS 1 par value:
       Authorized: 9,748,000 and 19,748,000 shares at December 31,
         2001 and 2002, respectively; Issued and outstanding:
         7,363,866 and 7,666,370 shares at December 31, 2001 and
         2002, respectively                                              2,583        2,600
    Additional paid-in capital                                          21,670       21,791
    Deferred stock compensation                                            (20)          (3)
    Accumulated other comprehensive loss                                (1,294)      (1,006)
    Retained earnings                                                    9,761       11,649
                                                                       ---------    ----------
  Total shareholders' equity                                            32,700       35,031
  -----                                                                ---------    ----------
  Total liabilities and shareholders' equity                            53,347       59,741
  -----                                                                =========    ==========

</TABLE>

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

                                      F-5

<PAGE>

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


                                                      Year ended December 31,
                                                --------------------------------
                                                   2000       2001        2002
                                                ---------   ---------  ---------
 Revenues (Note 16)                              38,571      41,020     42,966
 Cost of revenues                                20,523      21,505     23,924
                                                ----------  ---------  ---------
 Gross profit                                    18,048      19,515     19,042
                                                ----------  ---------  ---------
 Operating expenses:
   Research and development, net (Note 17a)       2,975       3,054      3,128
   Sales and marketing, net                       7,129       7,933      8,642
   General and administrative                     4,661       4,949      4,938
                                                ----------  ---------  ---------
 Total operating expenses                        14,765      15,936     16,708
                                                ----------  ---------  ---------
 Operating income                                 3,283       3,579      2,334
 Financial income (expenses), net (Note 17b)       (214)         40        199
                                                ----------  ---------  ---------
 Income before taxes on income                    3,069       3,619      2,533
 Taxes on income (Note 14)                          180         452        645
                                                ----------  ---------  ---------
 Net income                                       2,889       3,167      1,888
                                                ==========  =========  =========
 Basic net earnings per share (Note 13)            0.39        0.42       0.25
                                                ==========  =========  =========
 Diluted net earnings per share (Note 13)          0.38        0.41       0.24
                                                ==========  =========  =========






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


                                      F-6

<PAGE>





                                                     MAGAL SECURITY SYSTEMS LTD.
                                                           AND ITS SUBSIDIARTIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. dollars in thousands
<TABLE>
<CAPTION>
                                                                                Accumulated
                                                       Additional  Deferred         other                   Total        Total
                                  Deferred  Ordinary    paid-in    stock        comprehensive  Retained  comprehensive shareholders'
                                    shares   shares     capital   compensation     loss        earnings     incomee     equity
                                  --------- --------- ----------- ------------ -------------- --------- -------------- ------------
<S>                                  <C>    <C>        <C>          <C>          <C>           <C>           <C>         <C>
Balance as of January 1, 2000         72    2,472      19,313         (30)         (434)        7,481                    28,874
  Dividend paid                        -        -           -           -             -          (722)                     (722)
  Exercise of share options            -        6          48           -             -             -                        54
  Deferred stock compensation          -        -         113        (113)            -             -                         -
  Amortization of deferred stock
   compensation                        -        -           -          85             -             -                        85
  Comprehensive income:
   Net income                          -        -           -           -             -         2,889        2,889        2,889
   Foreign currency translation
     adjustments                       -        -           -           -          (281)            -         (281)        (281)
                                  --------- --------- ----------- ------------ -------------- --------- -------------  ------------
Total comprehensive income                                                                                   2,608
                                                                                                        =============
Balance as of December 31, 2000       72    2,478      19,474         (58)         (715)        9,648                    30,899
  Dividend paid                        -        -           -           -             -          (942)                     (942)
  Exercise of share options            -       19         125           -             -             -                       144
  Exercise of warrants                 -       11         (11)          -             -             -                         -
  Purchase of deferred shares        (72)       -          11           -             -             -                       (61)
  Deferred stock compensation          -        -          34         (34)            -             -                         -
  Amortization of deferred stock
  compensation                         -        -           -          72             -             -                        72
  Stock dividend                       -       75       2,037           -             -        (2,112)                        -
  Comprehensive income:
   Net income                          -        -           -           -             -         3,167        3,167        3,167
   Foreign currency translation
   adjustments                         -        -           -           -          (579)            -         (579)        (579)
                                  --------- --------- ----------- ------------ -------------- --------- -------------  ------------
Total comprehensive income                                                                                   2,588
                                                                                                        =============
Balance as of December 31, 2001        -    2,583       21,670        (20)       (1,294)        9,761                    32,700
  Exercise of share 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
                                  ========= ========= =========== ============ ============== =========                ============
</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,
                                                          ------------------------------------------
                                                              2000           2001           2002
                                                          -------------  ------------   ------------
 <S>                                                         <C>            <C>            <C>
 Cash flows from operating activities:
 -------------------------------------
   Net income                                                 2,889          3,167          1,888
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation and amortization                             1,384          1,362          1,096
    Gain on sale of property and equipment                       (2)           (27)           (15)
    Accrued interest on short and long term deposits           (620)            38           (508)
    Amortization of deferred stock compensation                  85             72             17
    Decrease (increase) in trade receivables                    648           (595)        (2,861)
    Decrease in related parties receivables                      50             65              1
    Decrease (increase) in unbilled accounts receivable         883         (3,151)        (2,101)
    Decrease (increase) in other accounts receivable and
      prepaid expenses                                          399             (4)        (1,822)
    Decrease (increase) in deferred income taxes               (259)          (136)           444
    Decrease (increase) in inventories                       (2,925)           766            400
    Decrease (increase) in long-term trade receivables          115         (2,213)           705
    Increase (decrease) in other payables and
      accrued expenses                                          765            682           (532)
    Increase (decrease) in trade payables                     1,125           (392)           786
    Accrued severance pay, net                                   15             (2)           (72)
                                                          -------------  ------------   ------------
 Net cash provided by (used in) operating activities          4,552           (368)        (2,574)
                                                          -------------  ------------   ------------
 Cash flows from investing activities:
 -------------------------------------
   Purchase of short-term and long-term bank deposits             -           (674)             -
   Proceeds from sale of property and equipment                  31             48             35
   Purchase of property and equipment                        (3,828)        (1,158)        (1,459)
   Purchase of know-how and patents                            (265)           (18)           (14)
                                                          -------------  ------------   ------------
 Net cash used in investing activities                       (4,062)        (1,802)        (1,438)
                                                          -------------  ------------   ------------

</TABLE>



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

                                      F-8


<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                          ------------------------------------------
                                                              2000           2001           2002
                                                          -------------  ------------   ------------
 <S>                                                          <C>            <C>            <C>
 Cash flows from financing activities:
 -------------------------------------
   Short-term bank credit, net                                  116          1,085          3,911
   Proceeds from long-term bank loans                         2,200          1,350              -
   Principal payment of long-term bank loans                   (584)          (180)          (158)
   Purchase of deferred shares                                    -            (61)             -
   Proceeds from exercise of employee stock options              54            144            138
   Dividend paid                                               (722)          (942)             -
                                                          -------------  ------------   ------------
 Net cash provided by financing activities                    1,064          1,396          3,891
                                                          -------------  ------------   ------------
 Effect of exchange rate changes on cash and cash
 equivalents                                                     62            (67)           (98)
                                                          -------------  ------------   ------------
 Increase (decrease) in cash and cash equivalents             1,616           (841)          (219)
 Cash and cash equivalents at the beginning of the year       1,963          3,579          2,738
                                                          -------------  ------------   ------------
 Cash and cash equivalents at the end of the year             3,579          2,738          2,519
                                                          =============  ============   ============
 Supplemental disclosures of cash flows activities:
 --------------------------------------------------
   Cash paid during the year for:
   Interest                                                     857            925            932
                                                          =============  ============   ============
   Taxes                                                        102            202          1,415
                                                          =============  ============   ============

</TABLE>



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

                                      F-9

<PAGE>





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


NOTE 1:- GENERAL

          Magal Security Systems Ltd. ("the Company") and its subsidiaries ("the
          Group"),  are engaged in the development,  manufacturing and marketing
          of  computerized  security  systems used to  automatically  detect and
          deter human intrusion for both civilian and military markets in Israel
          and throughout  the world. A majority of the Company's  sales are made
          in U.S.A.,  Canada,  Europe and Israel. During March 2001, the Company
          established  Smart  Interactive  Systems,  Inc.,  in order to meet the
          growing need for real time video monitoring security services.

          As for major customer data, see Note 16b.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

          The consolidated financial statements have been prepared in accordance
          with  generally  accepted  accounting  principles in the United States
          ("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:

               Most  of the  Company  and  certain  subsidiaries'  revenues  are
               generated in U.S. dollars  ("dollar").  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 and certain subsidiaries is
               the dollar.

               Accordingly,  monetary  accounts  maintained in currencies  other
               than the dollar are  remeasured  into U.S.  dollars in accordance
               with  Statement  of  the  Financial  Accounting  Standards  Board
               ("FASB") 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 certain foreign  subsidiaries  whose
               functional  currency is not the dollar, have been translated into
               U.S.  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 period.  The resulting  translation
               adjustments are reported as a component of  shareholders'  equity
               in accumulated other comprehensive loss.

                                      F-10


<PAGE>

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          c.   Principles of consolidation:

               The consolidated financial statements include the accounts of the
               Company  and  its   subsidiaries.   Intercompany   balances   and
               transactions have been eliminated upon consolidation.

          d.   Cash equivalents:

               Cash  equivalents are short-term  highly liquid  investments that
               are readily convertible to cash with original maturities of three
               months or less.

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

               The Company classifies bank deposits with maturities of more than
               three  months  and less  than one  year as  short-term  deposits.
               Deposits with  maturities of more than one year are classified as
               long-term   deposits.   Short-term  and  long-term  deposits  are
               presented at cost, including accrued interest.

               The  deposits  are in  U.S.  dollars  and  the  weighted  average
               interest rate in 2002 for  short-term and long-term bank deposits
               was 4%, and 4.1%, respectively.

          f.   Inventories:

               Inventories  are  stated at the  lower of cost or  market  value.
               Inventory  write-offs  are  provided to cover risks  arising from
               slow-moving items,  technological obsolesce,  excess inventories,
               discontinued products, and for market prices lower than cost.

               Cost is determined as follows:

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

               Work-in-progress - represents the cost of production in progress.

               Finished  products - on the basis of direct  manufacturing  costs
               with the addition of allocable indirect manufacturing costs.

            g. Long-term trade receivables

               Long-term   receivables  from  extended  payment  agreements  are
               recorded at estimated  present values determined based on current
               rates  of  interest  and  reported  at  the  net  amounts  in the
               accompanying   financial   statements.    Imputed   interest   is
               recognized, using the effective interest method as a component of
               interest income in the accompanying statements.

                                      F-11


<PAGE>

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          h.   Property and equipment:

               Property and  equipment  are stated at cost,  net of  accumulated
               depreciation.

               Depreciation  is  computed by the  straight-line  method over the
               estimated useful lives of the assets as follows:

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

               Buildings                                        4
               Machinery and equipment                 10-33 (mainly at 10)
               Motor vehicles                                   15
               Promotional display                            25-50
               Office furniture and equipment                  6-33
               Leasehold improvements               over the term of the lease

          i.   Impairment of long lived assets:

               The  Company's   long-lived   assets  and  certain   identifiable
               intangibles  are  reviewed  for  impairment  in  accordance  with
               Statement of Financial  Accounting  Standard No. 144  "Accounting
               for the  Impairment or Disposal of Long- Lived Assets" ("SFAS No.
               144") whenever events or changes in  circumstances  indicate that
               the  carrying   amount  of  an  asset  may  not  be  recoverable.
               Recoverability  of  assets to be held and used is  measured  by a
               comparison  of the  carrying  amount  of an asset  to the  future
               undiscounted  cash flows  expected to be generated by the assets.
               If such assets are  considered to be impaired,  the impairment to
               be  recognized  is measured  by the amount by which the  carrying
               amount of the assets exceeds the fair value of the assets.

          j.   Intangible assets:

               Intangible assets subject to amortization arose from acquisitions
               prior July 1, 2001, are being amortized on a straight-line  basis
               over their  useful  life in  accordance  with APB  Opinion No. 17
               "Intangible  Assets" ("APB No. 17").  Know-how is amortized  over
               ten years, and patents are amortized over a period of ten years.

               Intangible  assets  acquired in a business  combination for which
               date is on or after July 1, 2001,  should be amortized over their
               useful  life 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 Statement
               of Financial  Accounting  Standards  No. 142  "Goodwill and Other
               Intangible Assets", ("SFAS No. 142").

          k.   Goodwill:

               Goodwill  represents  excess of the costs  over the net assets of
               businesses acquired.  Goodwill arose from acquisitions prior July
               1,  2001,   was   amortized   until   December  31,  2001,  on  a
               straight-line  basis  over  a  period  of  fifteen  years.  Under
               Statement of Financial Accounting Standard No. 142, "Goodwill and
               Other Intangible  Assets" ("SFAS No, 142") goodwill acquired in a
               business  combination for which date is on or after July 1, 2001,
               shall not be amortized.

                                      F-12



<PAGE>

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               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,    market    multiples   and   market
               capitalization.  Significant  estimates used in the methodologies
               include  estimates of future cash flows,  future  short-term  and
               long-term  growth  rates,  weighted  average  cost of capital and
               estimates of market multiples for each of the reportable units.

               SFAS No.  142  prescribes  a  two-phase  process  for  impairment
               testing of  goodwill.  The first phase  screens  for  impairment;
               while the second phase (if  necessary)  measures the  impairment.
               The Company completed its first phase impairment analysis related
               to the  adoption of Fas 142 during the first  quarter of 2002 and
               its annual  impairment test during the fourth quarter of 2002 and
               found  no  instances  of  impairment  of its  recorded  goodwill;
               accordingly,  the  second  testing  phase was not  necessary.  No
               subsequent  indicators  of  impairment  have  been  noted  by the
               Company.

                                                      Year ended December 31,
                                                 -------------------------------
                                                   2000       2001       2002
                                                 --------   ---------  ---------

         Net income:
           Reported net income                    2,889      3,167      1,888
           Goodwill amortization                    336        404          -
                                                 --------   ---------  ---------
         Adjusted net income                      3,225      3,571      1,888
                                                 ========   =========  =========
         Reported basic net earnings per share     0.39       0.42       0.25
                                                 ========   =========  =========
         Reported diluted net earnings per
         share                                     0.38       0.41       0.24
                                                 ========   =========  =========
         Goodwill amortization                     0.05       0.05          -
                                                 ========   =========  =========
         Adjusted basic net earnings per share     0.44       0.47       0.25
                                                 ========   =========  =========
         Adjusted diluted net earnings per
         share                                     0.43       0.46       0.24
                                                 ========   =========  =========

          l.   Research and development costs:

               Research  and  development  costs,  net of grants  received,  are
               charged to the statement of income as incurred.

          m.   Warranty costs:

               The Company provides a warranty for up to 12 months,  at no extra
               charge.  A provision is recorded  for  estimated  warranty  costs
               based on the Company's experience.

                                      F-13


<PAGE>

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          n.   Income taxes:

               The Company  and its  subsidiaries  account  for income  taxes in
               accordance  with Statement of Financial  Accounting  Standard No.
               109  "Accounting  for  Income  Taxes"  ("SFAS  No.  109").   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 Company and its subsidiaries  provide a
               valuation allowance,  if necessary, to reduce deferred tax assets
               to their estimated realizable value.

          o.   Revenue recognition:

               The Company generates revenues mainly from long-term projects and
               also from sales of products and rendering maintenance services.

               Revenues  from  long-term  projects are  recognized in accordance
               with Statement of Position 81-1  "Accounting  for  Performance of
               Construction  - Type and  Certain  Production  - Type  Contracts"
               ("SOP  81-1"),  using  contract  accounting  on a  percentage  of
               completion  method,  based on the  relationship  of actual  costs
               incurred  to  total  costs  estimated  to be  incurred  over  the
               duration  of the  contract  and in  accordance  with  the  "Input
               Method". 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. As of
               December 31, 2002, no such estimated losses were identified.

               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 income when
               they are reasonably  determinable by management,  on a cumulative
               catch-up basis.

               According to ("SOP 81-1"), costs that are incurred for a specific
               anticipated contract are being deferred, subject to evaluation of
               their  probable  recoverability,  and  only if the  costs  can be
               directly associated with a specific anticipated contract.

               Revenues  from product sales are  recognized  in accordance  with
               Staff  Accounting  Bulletin  No.  101  "Revenue   Recognition  in
               Financial  Statements",   ("SAB  No.  101"),  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.

               Deferred  revenue   includes   unearned  amounts  received  under
               maintenance contracts but not yet recognized as revenues.

                                      F-14

<PAGE>

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          p.   Advertising expenses:

               Advertising  expenses  are charged to the  statement of income as
               incurred. Advertising expenses for the years ended 2000, 2001 and
               2002, were $ 354, $ 349 and $ 372, respectively.

          q.   Concentrations of credit risk:

               Financial  instruments that  potentially  subject the Company and
               its  subsidiaries  to   concentrations  of  credit  risk  consist
               principally  of cash and cash  equivalents,  short and  long-term
               bank deposits, trade receivables and long-term trade receivables.

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

               The trade  receivables  of the Company and its  subsidiaries  are
               derived  from  sales to large  and  solid  organizations  located
               mainly in Israel,  the United  States,  Canada  and  Europe.  The
               Company performs ongoing credit  evaluations of its customers and
               to date has not experienced any material losses. An allowance for
               doubtful  accounts is  determined  with respect to those  amounts
               that the Company has determined to be doubtful of collection.

               The Company has no off balance sheet concentration of credit risk
               such as foreign  exchange  contracts  option  contracts  or other
               foreign hedging arrangements.

          r.   Stock-based compensation:

               The  Company has elected to follow  Accounting  Principles  Board
               Opinion No. 25 "Accounting  for Stock Issued to Employees"  ("APB
               25")  and   Interpretation   No.  44   "Accounting   for  Certain
               Transactions   Involving  Stock   Compensation"   ("FIN  44")  in
               accounting  for its employee  stock option  plans.  Under APB 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.

               Pro-forma  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 of that Statement. The fair value for these
               options was estimated at the grant date using a Black and Scholes
               option   pricing  model  with  the   following   weighted-average
               assumptions for 2000 and 2001: risk-free interest rates of 5% and
               3%,  respectively,  dividend  yields  of  3%  for  each  year,  a
               volatility  factor of the expected  market price of the Company's
               Ordinary shares of 0.556 and 0.628, respectively,  and a weighted
               average life of the option of two years.

                                      F-15


<PAGE>

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               For purposes of pro forma  disclosures,  the estimated fair value
               of the options is amortized to expense over the options'  vesting
               period.

                  Pro-forma net information under FASB-123:
<TABLE>
<CAPTION>

                                                                    Year ended December 31,
                                                           ------------------------------------------
                                                               2000           2001           2002
                                                           -------------  ------------   ------------
<S>                                                             <C>            <C>            <C>
                 Net income as reported                         2,889          3,167          1,888
                                                            ============   ===========    ===========
                 Add: stock based compensation as
                   reported                                        85             72             17
                                                            ============   ===========    ===========
                  Deduction: total stock-based
                   compensation determined under fair
                   value based method for all awards              218            238            246
                                                            ============   ===========    ===========
                 Pro-forma net income                           2,756          3,001          1,659
                                                            ============   ===========    ===========
                 Pro-forma basic net earnings per share          0.37           0.40           0.22
                                                            ============   ===========    ===========
                 Pro-forma diluted net earnings per
                 share                                           0.36           0.39           0.22
                                                            ============   ===========    ===========
</TABLE>

          s.   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 deduction  of  research  and
               development  costs.  Research and development  grants  recognized
               amounted  to $ 25,  $ 0  and  $  318  in  2000,  2001  and  2002,
               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
               sales and marketing expenses.

                                      F-16

<PAGE>

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          t.   Severance pay:

               The Company's  liability for severance pay is calculated pursuant
               to Israeli  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 may be withdrawn only upon the fulfillment of
               the  obligation  pursuant to Israeli  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, 2000,  2001
               and  2002,  amounted  to  approximately  $ 225,  $ 241  and $ 60,
               respectively.

          u.   Fair value of financial instruments:

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

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

               The carrying amount of the Company's  long-term trade receivables
               and long-term  deposits  approximate  their fair value.  The fair
               value was estimated using discounted cash flow analyses, based on
               the  Company's  investment  rates for similar type of  investment
               arrangements.

               The fair value of the Company's long-term borrowing  arrangements
               was estimated using  discounted cash flow analyses.  Based on the
               Company's   incremental  borrowing  rate  for  similar  types  of
               borrowing arrangements.

          v.   Basic and diluted earnings per share:

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

                                      F-17


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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

          w.   Reclassification:

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

          x.   The unqualification of the auditors' report:

               The report of BDO  Seidman, LLP on the  financial  statements  of
               Perimeter  Products,  Inc,  a  subsidiary  of  the  Company,  was
               qualified  with  respect  to  certain   overstatements   and  the
               resulting  overstatement of net income in 2000 and understatement
               of net  income  in 2001,  as  discussed  in their  report.  These
               effects on net income are in management's  opinion,  not material
               in  relation  to the  consolidated  financial  statements  of the
               Company.

          y.   Impact of recently issued accounting standards:

               In June 2002, the FASB issues SFAS No. 146, "Accounting for Costs
               Associated  with Exit or Disposal  Activities,"  which  addresses
               significant  issue regarding the  recognition,  measurement,  and
               reporting of costs associated with exit and disposal  activities,
               including  restructuring  activities.  SFAS No. 146 requires that
               costs  associated with exit or disposal  activities be recognized
               when they are incurred rather than at the date of a commitment to
               an exit or disposal plan.  SFAS No. 146 is effective for all exit
               or disposal  activities  initiated  after  December 31, 2002. The
               Company  does not expect the  adoption  of SFAS No. 146 to have a
               material  impact  on  our  results  of  operations  or  financial
               position.

               In November  2002,  the FASB issued FASB  Interpretation  No. 45,
               "Guarantor's   Accounting   and   Disclosure   Requirements   for
               Guarantees,  Including  Indirect  Guarantees of  Indebtedness  of
               Others,  an  interpretation of FASB Statements No. 5, 57, and 107
               and Rescission of FASB Interpretation No. 34" ("FIN No. 45"). FIN
               No. 45 elaborates on the disclosures to be made by a guarantor in
               its interim and annual financial statements about its obligations
               under certain  guarantees  that it has issued.  It also clarifies
               that a guarantor is required to recognize,  at the inception of a
               guarantee,  a  liability  for the fair  value  of the  obligation
               undertaken  in  issuing  the  guarantee.  FIN  No.  45  does  not
               prescribe a specific  approach  for  subsequently  measuring  the
               guarantor's  recognized  liability  over the term of the  related
               guarantee. It also incorporates,  without change, the guidance in
               FASB Interpretation No. 34, "Disclosure of Indirect Guarantees of
               Indebtedness   of  Others,"  which  is  being   superseded.   The
               disclosure  provisions  of FIN No. 45 are effective for financial
               statements of interim or annual  periods that end after  December
               15,  2002  and  the  provisions  for  initial   recognition   and
               measurement  are effective on a prospective  basis for guarantees
               that are issued or modified after December 31, 2002, irrespective
               of a  guarantor's  year-end.  The  Company  does not  expect  the
               adoption  of FIN No. 45 to have a material  impact on its results
               of operations or financial position.

               In November  2002,  the Emerging  Issues Task Force (EITF) of the
               FASB  reached a  consensus  on EITF No.  00-21,  "Accounting  for
               Revenue  Arrangements  with Multiple Element  Deliverables."  The
               issue addresses how to account for arrangements  that may involve
               multiple  revenue-generating  activities,  i.e.,  the delivery or
               performance of multiple products,  services, and/or rights to use
               assets.  In applying this guidance,  separate  contracts with the
               same  party,  entered  into at or near  the  same  time,  will be
               presumed to be a package,  and the consideration will be measured
               and allocated to the separate  units based on their relative fair
               values.

                                      F-18
<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

               This consensus  guidance will be applicable to agreements entered
               into in quarters  beginning after June 15, 2003. The Company will
               adopt this new accounting  effective July 1, 2003. The Company is
               currently evaluating the impact of this change.

               In January 2003, the FASB issued FASB Interpretation 46 (FIN 46),
               Consolidation of Variable Interest Entities. FIN 46 clarifies the
               application  of  Accounting  Research  Bulletin 51,  Consolidated
               Financial  Statements,  for  certain  entities  that do not  have
               sufficient   equity  at  risk  for  the  entity  to  finance  its
               activities without additional subordinated financial support from
               other  parties  or in  which  equity  investors  do not  have the
               characteristics of a controlling  financial  interest  ("variable
               interest entities").  Variable interest entities within the scope
               of FIN 46 will be required to be  consolidated  by their  primary
               beneficiary.  The  primary  beneficiary  of a  variable  interest
               entity is  determined  to be the party that absorbs a majority of
               the entity's expected losses, receives a majority of its expected
               returns, or both. FIN 46 applies immediately to variable interest
               entities created after January 31, 2003, and to variable interest
               entities in which an  enterprise  obtains an interest  after that
               date.  It applies  in the first  fiscal  year or  interim  period
               beginning after June 15, 2003, to variable  interest  entities in
               which an  enterprise  holds a variable  interest that it acquired
               before  February  1,  2003.  The  Company  is in the  process  of
               determining  what impact,  if any, the adoption of the provisions
               of FIN 46 will have upon its  financial  condition  or results of
               operations.  Certain transitional  disclosures required by FIN 46
               in all financial  statements  initially  issued after January 31,
               2003,   have  been   included  in  the   accompanying   financial
               statements.

               In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for
               Certain  Financial   Instruments  with  Characteristics  of  both
               Liabilities and Equity. "This Statement establishes standards for
               how  an  issuer  classifies  and  measures  in its  statement  of
               financial    position   certain   financial    instruments   with
               characteristics  of both liabilities and equity. It requires that
               an issuer  classify  a  financial  instrument  that is within its
               scope as a liability (or an asset in some circumstances)  because
               that financial  instrument  embodies an obligation of the issuer.
               This  Statement is effective  for financial  instruments  entered
               into or modified  after May 31, 2003,  and otherwise is effective
               at the beginning of the first interim period beginning after June
               15, 2003, except for mandatory redeemable  financial  instruments
               of  nonpublic  entities.  The  Company  does not expect  that the
               adoption  of this  standard  will have a  material  effect on its
               financial position or results of operations.

NOTE 3:- INVENTORIES

                                                            December 31,
                                                    ---------------------------
                                                        2001           2002
                                                    -----------   -------------

            Raw materials                              5,269          4,702
            Work in progress                           1,255          1,242
            Finished products                          2,025          2,307
                                                    -----------    ------------

                                                       8,549          8,251
                                                    ===========    ============

                                      F-19

<PAGE>


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

NOTE 4:- LONG-TERM TRADE RECEIVABLES

          The Company  signed an agreement  with a customer,  according to which
          the payments schedule is for a period ending February, 2005.

          As of December 2002, the aggregate annual  maturities of the long-term
          trade receivables are as follows:

            2003                           1,284
            2004                           1,284
            2005                             226
                                          ------

                                           2,794
            Less - current maturities      1,284
                                          ------

                                           1,510
                                          ======


NOTE 5:- PROPERTY AND EQUIPMENT

            a. Comprised as follows:

                                                             December 31,
                                                          --------------------
                                                            2001      2002
                                                          --------  ----------
                  Cost:
                    Land and buildings                      7,717     7,846
                    Machinery and equipment                 2,782     3,406
                    Motor vehicles                          1,288     1,333
                    Promotional display                     2,624     2,895
                    Office furniture and equipment          1,952     2,186
                    Leasehold improvements                     24        23
                                                          --------  ---------
                                                           16,387    17,689
                                                          --------  ---------
                  Accumulated depreciation:
                    Buildings                               1,500     1,744
                    Machinery and equipment                 2,149     2,416
                    Motor vehicles                            618       608
                    Promotional display                     2,011     2,229
                    Office furniture and equipment          1,537     1,682
                    Leasehold improvements                     22        21
                                                          --------  ---------
                                                            7,837     8,700
                                                          --------  ---------
                  Depreciated cost                          8,550     8,989
                                                          ========  =========

          b.   Depreciation  expenses  amounted  to $ 743, $ 858 and $ 1,014 for
               the years ended December 31, 2000, 2001 and 2002, respectively.

          c.   As for charges, see Note 11.

                                      F-20

<PAGE>

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


NOTE 6:- GOODWILL, INTANGIBLE ASSETS AND OTHER

          a.   Intangible assets:

                                                          December 31,
                                                 ---------------------------
                                                      2001         2002
                                                 ------------   ----------
                 Original amounts:
                   Know-how                        1,502         1,502
                   Patents                         1,884         1,913
                                                  -----------   -----------
                                                   3,386         3,415
                                                  -----------   -----------
                 Accumulated amortization:
                   Know-how                        1,212         1,267
                   Patents                         1,765         1,806
                                                  -----------   -----------
                                                   2,977         3,073
                                                 ------------   -----------
                 Amortized cost                      409           342
                                                  -----------   -----------

          b.   Other:

                Deferred income taxes                909           511
                                                 ------------   -----------
                                                   1,318           853
                                                 ============   ===========

               Amortization  expenses  amounted to $ 305, $ 100 and $ 82 for the
               years 2000, 2001 and 2002, respectively.

          c.   Goodwill:

                                                        December 31,
                                               ------------------------------
                                                    2001             2002
                                               -------------    -------------

                Original amounts                   5,257            5,443
                Accumulated amortization           1,524            1,587
                                               -------------    -------------
                                                   3,733            3,856
                                               =============    =============

               Amortization  expenses  amounted  to $ 336, $ 404 and $ 0 for the
               years 2000, 2001 and 2002, respectively.

                                      F-21


<PAGE>

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


NOTE 7:- SHORT-TERM BANK CREDIT

          a.   As of December 31, 2002,  the Company and its  subsidiaries  have
               authorized  credit  lines  totaling $ 24,000,  and unused  credit
               lines in the amount of $ 3,975.

               The Company has  undertaken to maintain the  following  financial
               ratios and terms in respect of its  short-term and long-term bank
               credit and loans:

               1.   A ratio of at least 40% of  shareholders'  equity out of the
                    total balance sheet.

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

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

               As of December 31, 2002, the Company was in compliance with these
               ratios.


                               Interest rate                December 31,
               Linkage     -------------------------  --------------------------
                terms         2001         2002           2001           2002
              -----------  ---------    ------------  ------------  ------------
                                       %
                           -------------------------

     Bank       U.S. $         3.10         2.28        1,000            500
     Bank       U.S. $      2.62-2.87     2.87-3.25     1,950          4,600
               Canadian     Prime+0.5
     Bank          $                      Prime+0.5        31            843
     Bank         NIS       Prime+0.5     9.9-10.4      2,374          3,323
                                                        -----          -----

                                                        5,355          9,266
                                                        =====          =====

          b.   As for charges, see note 11.


NOTE 8:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                         December 31,
                                                -------------------------------
                                                     2001             2002
                                                --------------   --------------

            Employees and payroll accruals        1,488            1,414
            Accrued expenses                      1,901            1,922
            Income tax payable                      555              124
            Government authorities                   91                -
            Other                                   297              324
                                                    ---              ---
                                                  4,332            3,784
                                                  =====            =====

                                      F-22

<PAGE>

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

NOTE 9:- LONG-TERM LOANS

<TABLE>
<CAPTION>
                                                       Interest rate              December 31,
                                      Linkage    --------------------------- -------------------------
                                       terms         2001           2002          2001         2002
                                    -----------  -----------   ------------- -----------   -----------
                                                              %
                                                 ---------------------------
            <S>                       <C>         <C>           <C>              <C>          <C>
            Bank (1)                  U.S. $        7.87           4.60          2,500        2,500
            Bank (2)                  U.S. $      LIBOR+0.5     LIBOR+0.5          250          250
            Bank (3)                  U.S. $        3.68           2.87            500          500
            Bank (4)                  U.S. $        5.66           5.66            500          500
                                                                             ------------ ------------
                                                                                 3,750        3,750

                                      Canadian
            Mortgage payable (5)         $        LIBOR+0.75    LIBOR+0.75          75            -
            Mortgage payable (6)      U.S. $        8.25           8.25          2,122        2,039
                                                                             ------------ ------------
                                                                                 5,947        5,789
            Less - current
            maturities                                                             909        1,091
                                                                             ------------ ------------
                                                                                 5,038        4,698
                                                                             ============ ============
</TABLE>

          As for financial  ratios and terms in respect of long-term  loans, see
          also Note 7a.

          As for charges, see Note 11.

          As of December 2002, the aggregate annual  maturities of the long-term
          loans are as follows:

            2003                          1,091
            2004                          2,849
            2005                          1,849
                                          ------

                                          5,789
                                          ======

            (1)   Interest on the outstanding balance is due monthly. The note
                  is due in one installment on April 1, 2004, extended from
                  April 1, 2002.

            (2)   Interest on the outstanding balance is due each quarter. The
                  note is due in one installment on April 2, 2004, extended from
                  April 2, 2002.

            (3)   The note is due on April 2, 2003.

            (4)   The note is due on April 2, 2003.

            (5)   The mortgage is payable in equal quarterly installments of $
                  25.2 thousand each, plus interest.

            (6)   The note is due in 18 quarterly installments of $ 64.7
                  thousand each, commencing from February 28, 2001 and
                  thereafter, until a final payment of $ 1,806.6 on November 30,
                  2005.

                                      F-23


<PAGE>

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

NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES

          a.   Royalty commitments to the Chief Scientist:

               The Company  participated  in programs  sponsored  by the Israeli
               Government   for  the   support  of  research   and   development
               activities.  Through  the year 2002,  the  Company  had  obtained
               grants from Office of the Chief Scientist of the Israeli Ministry
               of Industry  and Trade ("the OCS") of $ 318 for certain  research
               and development projects of the Company. The Company is obligated
               to pay  royalties to the OCS,  amounting to 3%-4% of the sales of
               the  products  and other  related  revenues  generated  from such
               projects,  up to 100%-150% of the grants received,  linked to the
               U.S.  dollar and grants  received after January 1, 1999 will also
               bear interest at the rate of LIBOR.  The  obligation to pay these
               royalties  is  contingent  on actual sales of the products and in
               the absence of such sales no payment is required.

               Royalties  paid  amounted  to $ 86,  $ 0 and $ 131 for the  years
               ended December 31, 2000, 2001 and 2002, respectively.

               As of December 31,  2002,  the Company had  remaining  contingent
               obligations  to pay  royalties in the amount of  approximately  $
               1,538 upon the successful  sale of products  developed using such
               research  and  development   programs   sponsored  by  the  Chief
               Scientist.

          b.   The Israeli Government, through the Fund for the Encouragement of
               Marketing   Activities,    awarded   the   Company   grants   for
               participation in expenses for overseas 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.

               Grants received for the years up to and including 2002,  amounted
               to $ 310 and royalties  paid during 2001 and 2002,  amounted to $
               104  and $  53,  respectively.  As  of  December  31,  2002,  the
               aggregate contingent obligation amounted to $ 153.

          c.   Lease commitments:

               The subsidiaries  rent their  facilities under various  operating
               lease  agreements,  which expire on various dates,  the latest of
               which is in 2006.

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

               2003               $  117
               2004               $  105
               2005               $   69
               2006               $   30
                                 --------
                                  $  321
                                  ========

               Rental expenses  amounted to $ 196, $ 122 and $ 183 in 2000, 2001
               and 2002, respectively.

                                      F-24

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

NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

          d.   Guarantees:

               1.   As of December  31, 2002,  the Company and its  subsidiaries
                    obtained bank  performance  guarantees  and advance  payment
                    guarantees from several banks mainly in Israel in the amount
                    of $ 4,616.

               2.   As  of  December  31,  2002,   the  Company   obtained  bank
                    guarantees  in the  amount  of $262,  in  order to  secure a
                    credit facility of a subsidiary.

               3.   As  of  December  31,  2002,   the  Company   obtained  bank
                    guarantees  in an  amount  of  $2,039  in  order  to  secure
                    mortgage payable by a subsidiary.

               4.   As of December  31, 2002,  the Company and its  subsidiaries
                    issued a letter of credit in the  amount of $ 88, as per the
                    suppliers' demand.

          e.   Legal proceedings:

               In June 2000, Rapiscan Security Products Inc.  ("Rapiscan") filed
               a lawsuit  against the Company  claiming  sums  allegedly  due to
               Rapiscan in the context of an agreement  between Rapiscan and the
               Company  amounting  to  $  1.6  thousand.  The  Company  filed  a
               counter-claim  for the balance of  approximately $ 1.35 thousand.
               The  Company  recorded  an  accrual  regarding  this  lawsuit  of
               approximately $ 1.2 thousand,  which is an appropriate  liability
               as estimated by the Company's management and its legal counsel.

               In addition,  during 2002,  several claims were filed against the
               Company by  competitors  in the sector  concerning  the Company's
               winning a specific tender. The main claim was that the conditions
               for the tender  gave an  advantage  to the  Company.  The Company
               filed a counter claim  alleging that the  competitors  delayed in
               filing  their  claim.  The  request to cancel the tender is still
               being deliberated by the court.  According to the Company's legal
               counsel, the Company has good defenses against the aforementioned
               claims,  therefore,  no allowance  was recorded in the  financial
               statements.

NOTE 11:- CHARGES

          As collateral for all of the Company and its subsidiaries' liabilities
          to banks:

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

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

          c.   A fixed  charge in the  amount of $ 3,250 has been  placed on the
               Company's bank deposits.

          d.   The Company's  subsidiary  has two notes payable in the aggregate
               amount  of $  1,000  due on  April  2,  2003,  collateralized  by
               substantially  all  of the  subsidiary's  assets,  and a $  2,039
               mortgage note payable,  collateralized by a first mortgage on the
               land and building.

                                      F-25

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

NOTE 12:- SHAREHOLDERS' EQUITY

          a.   Pertinent rights and privileges conferred by Ordinary shares:

               The Ordinary  shares of the Company are traded on Nasdaq National
               Market and in Israel,  on the Tel-Aviv Stock  Exchange  ("TASE").
               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.   Deferred shares:

               Prior to the  Company's  Initial  Public  Offering  in 1993,  the
               Company's existing shareholders agreed to put into escrow 252,000
               (after  taking into account the effect of the stock  dividend) of
               the  Ordinary  shares  held  by them  and to  convert  all,  or a
               portion,  of such escrowed shares into "Deferred shares",  in the
               event that specified audited after tax net income levels were not
               achieved by the Company in each of the three  fiscal years in the
               period ended December 31, 1995.

               Since the  Company  did not  achieve  such  levels of net income,
               252,000  Ordinary shares have been converted into Deferred shares
               of NIS 1 par  value  each.  The  deferred  shares  entitle  their
               holders, upon the liquidation of the Company, to the par value of
               these shares, but confer no other rights.

               During 2001,  the Company  registered  its shares in the Tel-Aviv
               Stock  Exchange.  Pursuant to the  Israeli  Securities  Law,  the
               Company  was  required  to cancel all its  Deferred  shares.  The
               annual general meeting that was held on May 16, 2001 approved the
               purchase  of  252,000  Deferred  shares by the  Company  at their
               nominal value and to remove them from the  Company's  registered,
               issued and outstanding share capital.

          c.   Stock Option Plan:

               On February 25, 1993, the Company's Board of Directors authorized
               a stock  option plan (the  "plan"),  under  which  options may be
               granted to employees,  directors, officers and consultants of the
               Company or its subsidiaries.

               According to the plan,  the exercise  price shall be at least 75%
               of the average of the closing prices of the shares of the Company
               on the Nasdaq National Market during the 90 days period preceding
               such grant.  The plan was supposed to be  terminated  on February
               25, 2001.

               On May 31, 2000,  the  Company's  Board of Directors  approved an
               extension  period to the plan in which  options may be granted to
               employees  until February 2005.  Stock options that have not been
               exercised  will  expire,  in any case,  after five years from the
               date of  grant.  All the  options  have a  vesting  period of two
               years.  Any  options  that  are  cancelled  or  forfeited  before
               expiration become available for future grant.

               During 2000,  the  Company's  board of directors  and the general
               meeting of shareholders,  also approved an increase in the number
               of options that may be granted to  employees by 250,000  options,
               and during 2002, was increased by another 500,000 options.

                                      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 12:- SHAREHOLDERS' EQUITY (Cont.)

               Under the plan,  stock  options will be  periodically  granted in
               accordance  with the  decision of the Board of  Directors  of the
               Company  (or  a  committee  appointed  by  them).  The  Board  of
               Directors  has the  authority to determine the amount 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.

               A summary of the Company's stock options activities in 2000, 2001
               and 2002, is as follows:

<TABLE>
<CAPTION>
                                                                     Options outstanding
                                                          --------------------------------------------
                                                                                   Weighted
                                                           Number      Range of    averagee   Market price
                                              Available   of options   exercise    exercise   at the date of
                                              for grant   outstanding    price      price         grant
                                              ---------   -----------  --------    --------   --------------
                  <S>                         <C>          <C>        <C>           <C>         <C>
                  Balance at January 1, 2000   160,200     191,325      2-2.36      2             -

                  Options granted              (94,000)     94,000       2.36       2.36        3.563
                  Options forfeited                  -        (500)        -        -             -
                  Options available for
                  grant                        250,000           -         -        -             -

                  Options exercised                  -     (27,525)        2        2             -
                                              ---------   ---------  ---------   --------   ----------
                  Balance at December 31,
                  2000                         316,200     257,300     2-2.36      2.09           -

                  Options granted             (234,400)    234,400    2.43-5.62    5.27         5.42

                  Options exercised                  -     (79,300)     1.61-2     1.80           -
                                              ---------   ---------  ---------   --------   ----------
                  Balance at December 31,
                  2001                          81,800     412,400    1.61-5.62    3.93           -
                  Options available for
                  grant                        500,000           -        -        -              -
                  Options forfeited              1,648      (1,648)       -        -              -
                  Options granted upon
                  stock  dividend                2,454      11,232        -        -              -

                  Options exercised                  -     (63,750)    2-2.36      2.17           -
                                              ---------   ---------  ---------   --------   ----------
                  Balance at December 31,
                  2002                         585,902     358,234    1.61-5.62    4.23           -
                                              =========   =========   =========   ========   ==========
</TABLE>

                  The weighted average fair values of options granted during the
                  years ended December 31, 2000, 2001 and 2002, were:

<TABLE>
<CAPTION>
                                                   For exercise price on the grant date that:
                                           ----------------------------------------------------------
                                               Equals market price         Less than market price
                                           ---------------------------  -----------------------------
                                             Year ended December 31,       Year ended December 31,
                                           ---------------------------  -----------------------------
                                            2000      2001      2002     2000      2001       2002
                                           -------   -------  --------  -------   -------  ----------
                  <S>                          <C>     <C>        <C>    <C>       <C>         <C>
                  Weighted average
                    exercise prices            -       5.62       -      2.36      2.69        -
                                           =======   =======  ========  =======   =======  ==========
                  Weighted average fair
                    value on grant date        -       2.04       -      2.36      1.91        -
                                           =======   =======  ========  =======   =======  ==========
</TABLE>

                                      F-27
<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands (except per share data)

NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)

          The options  outstanding  as of December 31, 2002 have been  separated
          into ranges of exercise price as follows:


           Options                                               Options
         outstanding                                            exercisable
            as of                                                  as of
        December 31,                            Remaining       December 31,
            2002          Exercise price      contractual life      2002
       ----------------   ---------------   ----------------   --------------
                                              (in months)
          29,870                 2                 4             29,870
          20,600                 1.61             12             20,600
           6,180                 2.29             18              6,180
          61,800                 2.36             25             61,800
          12,360                 2.43             37                  -
          16,480                 2.89             40                  -
         210,944                 5.62             43                  -
       ---------------   ---------------                      --------------
         358,234                 4.23                           118,450
       ===============   ===============                      ==============

               157,300,  84,000 and 118,450 options were exercisable on December
               31, 2000, 2001 and 2002,  respectively,  with a weighted  average
               exercise price of $ 1.85, $ 1.93 and $ 2.14.

               The total employee stock compensation  expenses recorded in 2000,
               2001 and 2002, were $ 85, $ 72 and $ 17,  respectively,  and were
               amortized based on the vesting period.

          d.   Dividends:

               Dividends,  if any,  will be declared and paid in NIS.  Dividends
               paid to  shareholders  outside Israel will be converted into U.S.
               dollars 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.

          e.   Warrants to underwriters:

               In connection  with the 1997 Offering,  the Company issued to the
               underwriters,  200,000  warrants  to  purchase  from the  Company
               200,000 Ordinary shares. 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.

                                      F-28


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

NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)

          f.   In May  2002,  the  Company's  Board of  Directors  decided  on a
               distribution of a 3% stock  dividend.  All basic net earnings per
               share  data and  diluted  net  earnings  per share data have been
               retroactively adjusted to reflect the stock dividend.

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


NOTE 13:- NET EARNINGS PER SHARE

          The following  table sets forth the  computation  of basic and diluted
          net earnings per share:

<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                           ------------------------------------------
                                                               2000           2001          2002
                                                           ------------   ------------  -------------
            <S>                                              <C>           <C>           <C>
            Numerator:
            Net income                                           2,889          3,167         1,888
                                                           ============   ============  =============
            Denominator:
            Denominator for basic earnings per share -
            weighted-average number of shares outstanding    7,439,622      7,512,148    7,637,356
            Effect of diluted securities:
            Employee stock options and warrants to
            underwriters                                        84,905        181,880      196,759
                                                           ------------   ------------  -------------
            Denominator for diluted net earnings per share-
             adjusted weighted average
             shares and
             Assumed conversions                             7,524,527      7,694,028    7,834,115
                                                           ============   ============  =============
            Basic net earnings per share                          0.39           0.42         0.25
                                                           ============   ============  =============
            Diluted net earnings per share                        0.38           0.41         0.24
                                                           ============   ============  =============
</TABLE>

                                      F-29


<PAGE>





                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands



NOTE 14:- 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
                    "alternative  benefits" - waiver of grants in return for tax
                    exemption - and, accordingly,  the Company's income from the
                    second program is 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
                    will terminate in 2003.

                    The Company  received final status of "Approved  Enterprise"
                    for this expansion.

               2.   On March 18,  1997, a program of the Company was granted the
                    status of an "Approved  Enterprise".  The Company elected to
                    enjoy  "alternative  benefits"  - waiver of grants in return
                    for tax exemption and accordingly, the Company's income from
                    this program is 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  Company  had  completed  its  investment  program  and,
                    accordingly, the period of benefits under this program began
                    in 1998 and will terminate in 2007.

               3.   On August 13, 2001, a program of the Company was granted the
                    status of an "Approved  Enterprise".  The Company elected to
                    enjoy  "alternative  benefits"  - 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,
                    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 has not yet begun.

                                      F-30

<PAGE>





                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands


NOTE 14:- TAXES ON INCOME (Cont.)

               The  entitlement to the above  benefits is  conditional  upon the
               Company  fulfilling the  conditions  stipulated by the above law,
               regulations  published thereunder and the instruments 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.

               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 36%.

               By  virtue  of  this  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  36%),  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%), and an income tax liability  would be incurred
               of approximately $ 0.7 thousand.

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

               Results for tax purposes in Israel, are measured and reflected in
               real terms in accordance with the change in the Israeli  Consumer
               Price index  ("CPI").  As explained  in Note 2b the  consolidated
               financial   statements  are  presented  in  U.S.   dollars.   The
               differences  between  the  change in the  Israeli  CPI and in the
               NIS/U.S. dollar exchange rate causes a difference between taxable
               income or loss and the income or loss before  taxes  reflected in
               the  consolidated   financial  statements.   In  accordance  with
               paragraph  9(f) of SFAS No. 109,  the  Company  has not  provided
               deferred  income taxes on this  difference  between the reporting
               currency and the tax bases of assets and liabilities.

          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.

                                      F-31

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 14:- TAXES ON INCOME (Cont.)

          d.   Israeli tax reform:

               On  January  1,  2003,  the Law for  Amendment  of the Income Tax
               Ordinance (Amendment No. 132) 5762-2002, known as the tax reform,
               became  effective.  The tax reform changed the Israeli tax system
               from a  territorial  tax method  into a personal  tax method on a
               global basis.

          e.   A  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,
                                                             ------------------------------------------
                                                                 2000           2001           2002
                                                             -------------  -------------  ------------
                  <S>                                            <C>            <C>            <C>
                  Income before taxes as reported in the         3,069          3,619          2,533
                    statements of income
                                                             =============  =============  ============
                  Tax rates                                         36%            36%            36%
                                                             =============  =============  ============
                  Theoretical tax expense                        1,105          1,303            912
                  Increase (decrease) in taxes:
                  Tax adjustments in respect of inflation
                    in Israel                                        -            214             11
                  Non-deductible items, net                       (126)            75            (24)
                  Unrecognized tax losses                            -              -            442
                  Realized benefit of prior year's losses         (371)             -              -
                  Tax exemption applicable to "Approved
                    Enterprises" and exempted income              (126)          (928)          (293)
                  Tax credits                                     (256)             -              -
                  Taxes in respect of prior years                    -           (200)          (279)
                  Other                                            (46)           (12)          (124)
                                                             -------------  -------------  ------------
                  Taxes on income in the statements of
                    income                                         180            452            645
                                                             =============  =============  ============
                  Net earnings per share amounts of
                    the tax benefit from the exempt income:
                  Basic and diluted                               0.02           0.12           0.04
                                                             =============  =============  ============
</TABLE>

               The  tax  rates  of  the  Company's  subsidiaries  range  between
               35%-42%.

          f.   Taxes on income included in the statement of income:


                                                      Year ended December 31,
                                          --------------------------------------
                                             2000          2001        2002
                                          -----------   -----------  -----------
      Current taxes:
        Domestic                              365           500         269
        Foreign                                74           138         211

      Deferred income taxes:
        Domestic                                -           (39)        (30)
        Foreign                              (259)           53         474

      Taxes in respect of prior years:
        Domestic                                -          (200)        (279)
                                          -----------   -----------  -----------
      Taxes on income                         180           452          645
                                          ===========   ===========  ===========

                                      F-32

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 14:- TAXES ON INCOME (Cont.)

          g.   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 Company
               and its subsidiaries deferred tax assets are as follows:

                                                            December 31,
                                                    --------------------------
                                                        2001         2002
                                                    ------------  ------------

                 Operating loss carryforwards            424          1,409
                 Reserves and allowances               1,988          1,308
                                                    ------------   -----------
                 Total deferred assets before
                   valuation allowance                 2,412          2,717
                 Valuation allowance                  (1,030)        (1,604)
                                                    ------------   -----------
                 Net deferred tax assets               1,382          1,113
                                                    ============   ===========
                 Domestic                                 39             69
                 Foreign                               1,343          1,044
                                                    ------------   -----------
                                                       1,382          1,113
                                                    ============   ===========

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


                                                Year ended December 31,
                                       -----------------------------------------
                                           2000           2001           2002
                                       -------------  ------------   -----------
                   Domestic                2,424          3,320          2,217
                   Foreign                   645            299            316
                                       -------------  ------------   -----------
                                           3,069          3,619          2,533
                                       =============  ============   ===========

          i.   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 of 2002, the
               subsidiary  recognized  $ 304  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 $ 618,
               which will expire at various dates from 2006 through 2011.

                                      F-33


<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 14:- TAXES ON INCOME (Cont.)

          j.   Net operating losses carryforwards:

               As of December 31, 2002, the Company's  subsidiaries  in the U.S,
               Latin  America  and the United  Kingdom  had total net  available
               carryforward tax losses of approximately $ 3,625.

               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.

               As of December 31, 2002, net operating  losses from  subsidiaries
               in U.S. are approximately $ 2,733.


NOTE 15:- RELATED PARTIES TRANSACTIONS

                                             Year ended December 31,
                                          ------------------------------
                                            2000       2001      2002
                                          --------   --------  ---------

           Sales to related party            211        261       111
                                          ========   ========  =========

          In addition, see Note 12b.


NOTE 16:- SEGMENT INFORMATION AND SALES TO SIGNIFICANT CUSTOMERS

          a.   The Company  develops,  manufactures,  markets and sells  complex
               computerized   security  systems  on  a  worldwide  basis.  These
               products are grouped into three major  categories which represent
               the Company's operating and reportable segments as follows:

               1.   Perimeter Security Systems - The Company'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 and field disturbance sensors.

               2.   Security Turnkey Projects - The Company is executing turnkey
                    projects under the Company's security management system, and
                    acting as integrator.

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

               The data is presented in  accordance  with SFAS 131,  "Disclosure
               About Segments of an Enterprise and Related Information".

                                      F-34

<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 16:- OPERATING SEGMENTS DATA (Cont.)

               a.   The following  data present the  revenues,  assets and other
                    data of the Company's operating segments:
<TABLE>
<CAPTION>
                                                            Year ended December 31,
               ---------------------------------------------------------------------------------------------------------------------
                          2000                                      2001                                       2002
               ------------------------------- ----------------------------------------- -------------------------------------------
                                                                    Video                                     Video
               Perimeter Projects Other  Total Perimeter Projects monitoring Other Total Perimeter Projects monitoring Other Total
               --------- -------- -----  ----- --------- -------- ---------- ----- ----- --------- -------- ---------- ----- -------
<S>             <C>       <C>      <C>  <C>      <C>      <C>        <C>      <C>  <C>     <C>      <C>        <C>     <C>  <C>
Revenues        33,910    3,802    859  38,571   34,893   5,004      142      981  41,020  36,435   5,340      238     953  42,966
                ======    =====    ===  ======   ======   =====      ===      ===  ======  ======   =====      ===     ===  ======
 Depreciation
 and
 amortization    1,330        6     48   1,384    1,304       9       28       21   1,362     927       9      149      11   1,096
                 =====        =     ==   =====    =====       =       ==       ==   =====     ===       =      ===      ==   =====
Operating
 income,
 before
 financial
 expenses and
 taxes on
 income          2,473    1,234   (424)  3,283    2,583   2,478     (626)    (856)  3,579   2,316     2,656 (1,556) (1,082)  2,334
                 =====    =====   ====            =====   =====     ====     ====           =====     ===== ======  ======
Financial
expenses
 (income), net                             214                                        (40)                                    (199)
Taxes on income                            180                                        452                                      645
                                           ---                                        ---                                      ---
Net income                               2,889                                      3,167                                    1,888
                                         =====                                      =====                                    =====

</TABLE>

<TABLE>
<CAPTION>
                                                                 December 31,
               ---------------------------------------------------------------------------------------------------------------------
                          2000                                      2001                                       2002
               ------------------------------- ----------------------------------------- -------------------------------------------
                                                                    Video                                     Video
               Perimeter Projects Other  Total Perimeter Projects monitoring Other Total Perimeter Projects monitoring Other Total
               --------- -------- -----  ----- --------- -------- ---------- ----- ----- --------- -------- ---------- ----- -------

<S>             <C>          <C>    <C> <C>      <C>         <C>     <C>       <C> <C>     <C>           <C>   <C>      <C> <C>
Segment assets  12,500       27     58  12,585   11,911      18      324       30  12,283  12,066        30    728      21  12,845
                ======       ==     ==  ======   ======      ==      ===       ==  ======  ======        ==    ===      ==  ======

</TABLE>
                                   F-35


<PAGE>

                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 16:- OPERATING SEGMENTS DATA (Cont.)

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

                                                  Year ended December 31,
                                         ---------------------------------------
                                             2000          2001         2002
                                         ------------  -----------  ------------
       Israeli Ministry of Defense and
        the Israeli Defense Forces          24.4%         22.5%        15.9%
                                         ============  ===========  ============

       The state concern civil
        aviation airlines "AZAL"             2.0%          10.5%        1.8%
                                         ============  ===========  ============

               c.   Geographical information:

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

                                              Year ended December 31,
                                     ------------------------------------------
                                         2000           2001           2002
                                     -------------  ------------   ------------
            1. Revenues:

                   Israel               13,150         13,135         11,350
                   Europe                6,126          5,420          6,399
                   USA                  10,721         11,358         12,641
                   Azerbaijan              789          4,577            756
                   Canada                1,860          2,035          4,324
                   Others                5,925          4,495          7,496
                                     -------------  ------------   ------------

                                        38,571         41,020         42,966
                                     =============  ============   ============
            2. Long-lived assets:

                   Israel                3,664          3,623          3,566
                   Europe                  776            666            786
                   USA                   5,886          5,812          6,160
                   Canada                2,238          2,133          2,286
                   Others                   21             49             47
                                     -------------  ------------   ------------

                                        12,585         12,283         12,845
                                     =============  ============   ============

                                      F-36

<PAGE>
                                                     MAGAL SECURITY SYSTEMS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands

NOTE 17:- SELECTED STATEMENTS OF INCOME DATA

               a.   Research and development expenses, net:

                                                 Year ended December 31,
                                         ---------------------------------------
                                            2000           2001          2002
                                         ------------  ------------  -----------

     Expense                               3,173          3,331         3,750
     Less - royalty-bearing grants and
     investment tax credit                   198            277           622
                                         ------------  ------------  -----------

                                           2,975          3,054         3,128
                                         ============  ============  ===========

               b.   Financial income (expenses), net:

     Financial expenses:
       Interest on long-term debt               (294)       (398)       (371)
       Interest on short-term bank credit       (650)       (502)       (640)
       Foreign exchange losses                   (53)        (42)         (6)
                                            ----------- -----------   ----------

                                                (997)       (942)     (1,017)
                                            ----------- -----------   ----------
     Financial income:
       From interest                             783         705         732
       Foreign exchange gains                      -         277         484
                                            ----------- -----------   ----------

                                                 783         982       1,216
                                            ----------- -----------   ----------

                                                (214)         40         199
                                            =========== ===========   ==========


NOTE 18:- SUBSEQUENT EVENTS

          a.   In  May  2003,  the  Company's  Board  of  Directors  decided  to
               distribute a 3% stock  dividend.  The annual  general  meeting of
               shareholders has not yet approved this decision.

          b.   In April 2003, Rav-Tec Ltd filed a claim against the Company, the
               Ministry of Defense ("MOD") and a former employee of the Company.
               In the claim,  Rav-Tec  Ltd.  alleges that the failure of a field
               trial by the MOD was due to  intentional  damages  caused  by the
               former employee and is seeking cash relief in the amount of about
               $ 730 for the aforesaid damages and that the court will annul the
               field trial.  The Company  denies the above  allegations.  In the
               opinion of the Company's attorneys, the Company has good defenses
               against the claim and, therefore, no provision in respect thereto
               was recorded in the financial statements.

                                - - - - - - - - -

                                      F-37



<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:    March 25, 2004

                                       3


<PAGE>




                                  EXHIBIT INDEX

    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 Shares
     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
    10.1*****    Form of Underwriting Agreement
    21******     List of Subsidiaries of the Registrant
    23.1         Consent of Kost Forer Gabbay & Kasierer
    23.2         Consent of BDO Seidman, LLP
    31.1         Certification of Chief Executive Officer pursuant to Rule
                 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
                 amended
    31.2         Certification of Chief Financial Officer pursuant to Rule
                 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
                 amended
    32.1         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
    32.2         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
_________

*       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.

****    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.
<PAGE>

*****   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 Form 20-F for the Fiscal Year
        ended December 31, 2002 and incorporated herein by reference.