YAHUD, Israel, July 17 /PRNewswire-FirstCall/ -- Magal Security
Systems Ltd. (Nasdaq NM:MAGS; TASE:MAGS) today announced that it
has filed today its audited financial statements and its Annual
Report on Form 20-F for the year ended December 31, 2005 with the
SEC. As a result of a subsequent to year end cancellation of a
turnkey project by an Eastern European customer, the Company
decided to reconsider its previous revenue recognition of this
project in its financial statements for the year ended December 31,
2005. The reversal of those revenues initially recognized by the
Company in its February 2006 press release has resulted in a
reduction in revenues to $61.3 million and a net loss of $3.2
million for the year ended December 31, 2005. In February 2006, the
Company had, based on its unaudited results, reported in a press
release revenues of $68.6 million and net income of $1.1 million
for 2005. In May 2005 the Company entered into an agreement to
supply comprehensive security solutions for a sensitive site in
Eastern Europe. As part of the agreement, the Company received an
advance payment, secured by a bank advanced payment guarantee that
was to be reduced proportionally as execution of the project
progressed. In addition, the Company issued the customer a
performance bank guarantee. The Company commenced the project and
delivered some of the equipment and other deliverables to the
customer in 2005. In April 2006, the customer informed the Company
that it was canceling the agreement due to alleged errors in the
design documents submitted by the Company. In addition, the
customer did not make payments required under the agreement. Based
on its cancellation of the agreement, the customer collected $3.2
million under the bank advanced payment guarantee on June 20, 2006.
The Company believes that there is no factual or legal ground for
the cancellation of the agreement or the demand for payment under
the bank performance guarantee, and accordingly believes that the
agreement is still valid. On April 28, 2006, the Company commenced
arbitration proceedings against the customer. In these proceedings
the Company asked the arbitrators to find that the agreement is
valid and to enforce the payments due to the Company pursuant to
the agreement. Based on the opinion of the Company's legal counsel,
the Company believes that there is a good likelihood that the
arbitration will result in a favorable determination. The Company
intends to vigorously pursue its claim. The customer has not yet
filed its response. On July 11, 2006, the customer made a demand
for additional payment under a bank performance guarantee for $1.4
million. Upon the Company's motion, the District Court in Haifa,
Israel issued a temporary injunction against the payment of such
guarantee pending a hearing in August 2006. Although the Company
obtained the temporary injunction, the Company's chances to
ultimately prevent the forfeiture of the guarantee remain unclear.
In view of the above and due to the uncertainty in preventing the
forfeiture of the performance bank guarantee , the Company included
a provision in the amount of $1.4 million in respect of this
guarantee in its financial statements for 2005. Mr. Jacob
Even-Ezra, Chairman of Magal, said: "Even though we believe that we
have a good likelihood to win the arbitration proceeding , we
believe that it is appropriate not to record the revenues from this
project in 2005 and to reduce income accordingly." About Magal
Security Systems, Ltd.: Magal Security Systems Ltd. (Magal) is
engaged in the development, manufacturing and marketing of
computerized security systems, which automatically detect, locate
and identify the nature of unauthorized intrusions. Magal also
supplies video monitoring services through Smart Interactive
Systems, Inc., a subsidiary in the US The Company's products are
currently used in more than 70 countries worldwide to protect
national borders, airports, correctional facilities, nuclear power
stations and other sensitive facilities from terrorism, theft and
other threats. Israeli-based Magal has subsidiaries in the US,
Canada, the UK, Germany, Romania, Mexico and an office in China.
Magal trades under the symbol MAGS in the US on the Nasdaq National
Market since 1993 and in Israel on the Tel-Aviv Stock Exchange
(TASE) since July 2001. This press release contains forward-looking
statements, which are subject to risks and uncertainties. Such
statements are based on assumptions and expectations which may not
be realized and are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results,
financial and otherwise, may differ from the results discussed in
the forward-looking statements. A number of these risks and other
factors that might cause differences, some of which could be
material, along with additional discussion of forward-looking
statements, are set forth in the Company's Annual Report on Form
20-F filed with the Securities and Exchange Commission. Contacts:
Company Investor Relations Magal Security Systems, Ltd Gelbart
Kahana Investor Relations Raya Asher, CFO Ehud Helft/Kenny Green
Tel: +972-3-5391444 Tel: +1-866-704-6710 Fax: +972-3-5366245
E-mail: E-mail: CONSOLIDATED BALANCE SHEETS U.S. dollars in
thousands December 31, 2004 2005 ASSETS CURRENT ASSETS: Cash and
cash equivalents $ 11,964 $ 10,099 Short-term bank deposits -
17,053 Trade receivables (net of allowance for doubtful accounts of
$ 320 and $ 306 at December 31, 2004 and 2005, respectively) *)
15,102 24,012 Unbilled accounts receivable *) 5,595 8,596 Other
accounts receivable and prepaid expenses 3,858 4,455 Deferred
income taxes 488 1,187 Inventories 12,702 11,110 Total current
assets 49,709 76,512 LONG-TERM INVESTMENTS AND RECEIVABLES:
Long-term trade receivables 344 290 Long-term bank deposits 2,994
1,800 Structured notes 3,000 - Severance pay fund 2,142 2,070 Total
long-term investments and receivables 8,480 4,160 PROPERTY AND
EQUIPMENT, NET 14,659 15,587 DEFERRED INCOME TAXES 186 828 OTHER
INTANGIBLE ASSETS, NET 656 569 GOODWILL 4,286 4,186 Total assets $
77,976 $ 101,842 *) Reclassified. CONSOLIDATED BALANCE SHEETS U.S.
dollars in thousands (except share and per share data) December 31,
2004 2005 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Short-term bank credit $ 15,618 $ 18,068 Current maturities of
long-term debt 1,849 3,647 Trade payables 3,189 6,360 Customer
advances - 3,990 Other accounts payable and accrued expenses 6,669
8,914 Unrealized losses on hedging forward contracts 781 79 Total
current liabilities 28,106 41,058 LONG-TERM LIABILITIES: Unrealized
losses on hedging forward contracts 650 50 Long-term bank debt
3,500 1,653 Accrued severance pay 2,172 2,131 Total long-term
liabilities 6,322 3,834 SHAREHOLDERS' EQUITY: Share capital -
Ordinary shares of NIS 1 par value - Authorized: 19,748,000 shares
at December 31, 2004 and 2005; Issued and outstanding: 8,672,448
and 10,372,448 shares at December 31, 2004 and 2005, respectively
2,825 3,220 Additional paid-in capital 32,526 47,509 Deferred stock
compensation (477) (38) Accumulated other comprehensive income
1,639 2,435 Retained earnings 7,035 3,824 Total shareholders'
equity 43,548 56,950 Total liabilities and shareholders' equity $
77,976 $ 101,842 CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars
in thousands (except per share data) Year ended December 31, *)
2003 *) 2004 2005 Revenues $ 58,655 $ 60,468 $ 61,282 Cost of
revenues 32,847 33,226 39,154 Gross profit 25,808 27,242 22,128
Operating expenses: Research and development, net 4,773 4,683 5,265
Selling and marketing, net 11,427 12,519 13,180 General and
administrative 5,305 5,771 5,961 Award granted by principal
shareholders - 1,200 - Total operating expenses 21,505 24,173
24,406 Operating income (loss) 4,303 3,069 (2,278) Financial
expenses, net 1,003 762 800 Income (loss) before income taxes 3,300
2,307 (3,078) Income taxes (tax benefit) 910 1,133 (23) Income
(loss) from continuing operations 2,390 1,174 (3,055) Gain (loss)
from discontinued operations, net 14 (121) (156) Net income (loss)
$ 2,404 $ 1,053 $ (3,211) Basic net earnings (loss) per share from
continuing operations $ 0.30 $ 0.13 $ (0.31) Basic net loss per
share from discontinued operations - (0.01) (0.01) Basic net
earnings (loss) per share $ 0.30 $ 0.12 $ (0.32) Diluted net
earnings (loss) per share from continuing operations $ 0.30 $ 0.13
$ (0.31) Diluted net loss per share from discontinued operations -
(0.01) (0.01) Diluted net earnings (loss) per share $ 0.30 $ 0.12 $
(0.32) *) Reclassified. DATASOURCE: Magal Security Systems Ltd
CONTACT: Contacts: Company, Magal Security Systems, Ltd, Raya
Asher, CFO, Tel: +972-3-5391444, Fax: +972-3-5366245, E-mail: ,
Investor Relations, Gelbart Kahana Investor Relations, Ehud
Helft/Kenny Green, Tel: +1-866-704-6710, E-mail: ,
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