Eitan Livneh – President, Chief Executive Officer Ilan Ovadia – Chief Financial Officer

Mike Dissler (ph) – Amanox (ph) Holdings

Ladies and gentlemen, thank you for standing by. Welcome to the Magal Security Systems First Quarter 2013 Results conference call. All participants are presently in a listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star, zero. As a reminder, this conference is being recorded May 29, 2013. I would now like to hand over the call to Mr. Kenny Green of CCG Investor Relations. Mr. Green, would you like to begin?

Thank you Operator. Welcome to Magal’s first quarter 2013 conference call. I would like to welcome all of you to the conference call and I’d like to thank Magal’s management for hosting this call. With us on the line today are Mr. Eitan Livneh, President and CEO, and Mr. Ilan Ovadia, CFO. Eitan will summarize the key highlights, followed by Ilan who will review Magal’s financial performance in the quarter. We will then open the call for the question and answer session. Before we start, I’d like to point out that this conference call may contain projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and Magal cannot guarantee that they will in fact occur. Magal does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demand, and the competitive nature of the security systems industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission. And with that, I’d like to hand the call over to Eitan Livneh. Eitan, go ahead, please.

I would like to welcome you all and thank you for joining us today. Before I drill down into our quarterly performance, a quarter which was more challenging than we normally see this time of the year, I would like to discuss the bigger picture. Magal comes into 2013 a different company to what it was only two years ago. One of the clearest developments in Magal in the last two years is our financial stability. Our balance sheet is exceptionally stronger for a company of our size with over $36 million in net cash. It provides us with significant financial flexibility, more so than we have ever had in the past, and we are using this strong cash position to invest in Magal’s future. We recently purchased a company in the cyber security realm called WebSilicon, offering unique monitoring solutions for networks. This acquisition significantly expands our capabilities beyond physical security into network security, and we are now offering an integrated suite of solutions combining protection in both the physical and logical world. Our new solution optimized for critical sites monitors, detects and protects against abnormal network activity within close to protected sites. Our logical security solution protects the assets and networks such as core production onsite activities, information systems, and also the security network which by itself may be vulnerable to cyber intrusions. It is important to note that WebSilicon is an early stage technology company with very strong technical capabilities. The combination with Magal adds strong market and sales capabilities. We already see first signs of customers’ interest in our integrated solution; however, as an early stage company at present, WebSilicon requires continued investment and will lead to increased R&D expenses for Magal in the coming quarters in order that we can capitalize on the immense opportunities that this acquisition will provide in the coming years. We believe that our early move into this new market enables us to become a leader in the convergence of physical and cyber security. We are also using our strong cash position to expand our presence in some key emerging economies – Brazil, Russia and India. We see each of these regions separate as a growth engine for Magal and establishment of a strong presence in these three countries will enable us to expand our business in those regions by gaining a better understanding of the local markets, culture and people. It will also allow us to provide better support for both our current and future customers, and this in turn will create a virtual cycle of strong referrals for additional business. Already in less than a year, we are seeing strong traction and hope to see initial revenue from India in the near future. Expanding our global footprint, however, will add to our current operating expenses in the coming quarters, particularly to marketing and sales and G&A, while we will only see the return on investment in the future. However, we believe that this return on investment will be significant, and a strong presence in these emerging regions with increasingly critical security requirements is very important for Magal if we wish to evolve our company to the next stage. Now I would like to get into our financial results for the first quarter. As I explained, there were a number of effects which all in all created a challenging quarter for us. We reported revenue of $13.5 million, which was a 13% decrease versus last year, though it is important to bear in mind a few points. In the first quarter of 2012, we saw the tail end of the revenue from our large project in Gabon. Excluding this revenue, our core business grew versus last year. It is important to note as well that given the cold weather in northern hemisphere countries, our first quarter is seasonally the weakness as new security fences are rarely installed in the winter months. On top of all of this, following recent elections, a new government in Mexico has been established which has caused a temporary delay in the defense budget, which means revenues we were hoping to recognize in the first quarter were pushed out to later this year. Therefore, our lower level of revenue led us to an operating loss in the quarter. Moving on to our project and market summary, Europe continues to show signs of weakness which we see as being related more to the general economic climate. North America on the other hand, which has been weak for the past few quarters, is finally showing signs of improvement which is encouraging for us due our strong presence. Africa continues to remain strong and is one of our major targets. As African markets emerge, the countries in the region are increasingly placing importance on security of the assets they are building. Latin America remains an important target for us, and while 2012 was strong, in 2013 we do see a slowdown especially in Mexico. As I mentioned, we are investing in our presence in Brazil and we believe that the region will be a long-term growth engine for Magal. In Asia, business continues to be robust and we see a strong pipeline of potential projects. We continue to expand our presence in the region and we have a number of other important projects in the pipeline. We are particularly focused on airport perimeter protection in which we can already point to a large and broad install base in the region. While our 2013 has started as a more challenging year, we see this as a time of investment into our ability to capitalize on the emerging industry of cyber security as well as to expand our presence in some key regions. While the economics in some of our markets continue to remain challenging, our increasingly global footprint is providing diversification. We continue to pursue the opportunities in our pipeline of potential business and we will update you as we begin to realize the fruits of our efforts in the coming years. I will now hand over the call to Ilan for a financial review. Ilan?

Thanks Eitan. Revenues for the first quarter of 2013 decreased 13% to $13.5 million. This is compared with $15.6 million in revenues for the first quarter of 2012, which was an exceptional quarter, as Eitan explained earlier. Sales by geography in the quarter were as follows: North America 23%, Israel 23%, Africa 17%, Europe 15%, South and Latin America 7%, and rest of the world amounting to 15%. Gross profit in the quarter was $5 million or 36.8% of revenues, a decrease of 23.3% compared to the gross profit of $6.5 million or 41.5% of revenues in the first quarter of 2012. The higher gross profit in the first quarter of last year was in part due to the large and short term delivery project in Africa. Operating expenses in the quarter amounted to $5.8 million. This is lower than compared with the $6.3 million that we reported in the first quarter of last year as we kept tight control of our expenses in the quarter in light of the lower level of revenues; however as Eitan mentioned, we do expect OPEX to increase in the coming quarters. The operating loss for the quarter was $890,000 compared with an operating income of $135,000 in the first quarter of last year. Net loss for the quarter was $1.1 million compared with a net income of $46,000 in the first quarter of 2012. Cash and short-term deposits net of current bank debt as of March 31, 2013 were $36.1 million or $2.23 per share compared with cash and short-term deposits net of current back debt of $41 million or $2.65 per share on December 31, 2012. That concludes my remarks. We would be happy to take your questions now.

Thank you. [Operator instructions] Our first question is from Thurman Willis. Please go ahead.

Yes, my name is Thurman Willis, I’m a private investor. How are you doing? Thank you for taking my call. Really I have two questions. Number one would be with the investments that we’ve made and the press releases that you guys have said that you’re going to be using some of the money to continue growing the business. Of the cash reserves that we have right now, what do you think we’ll be spending and how do you think it will affect the company?

This is the first question, I understand, so I will refer to that first. Yes, you understand right – the current activities for the long-term investments take resources from the company, and we see that as part of our plan. So what you see in the results is already referring to these investments as they are part of our results. We are speaking about the level between 1 to $2 million that we will spend on those in the near future. As for WebSilicon, as you know, we acquired the company so we bought it, and there is investment related to the acquisition. And we believe that the cyber world will need along the line – and here I’m speaking even beyond this year – more investment.

So in your opinion, we will maintain a strong balance sheet with a strong cash reserve of—I know it’s roughly $2.23 now, but do you think that will stay over $2?

Yes, unless we will have an opportunity to do additional investment either in those regions that we are interested in and which we are looking to become a local player, and part of the idea or part of the direction we are considering is investing in those regions and even acquire local integrators, and at the same time we invest in technology. A major part of our R&D is dedicated to technology, and if we find technology that will be suited for our markets, we will not hesitate to buy technologies or to buy—or to invest into companies that have those technologies.

Thank you. The last question I have is could we drill a little deeper into the backlog? The present backlog, I think you in your remarks said that you expected it to soon grow. The backlog is—I missed what it is presently, and what you would expect it to grow toward.

In my review, I didn’t review to the backlog, but as we have the backlog in our last conference call at the level of 25, we are on the same level of backlog at this time.

All right. Do you expect that to grow in the coming quarters, because I know your stock price really watches that backlog number and large orders that are announced. Are there things in the pipeline that could work out that could increase that backlog?

First, there are things in the pipeline. Second, we hope that they will happen, and the question on the backlog is very much related to the time and the size of those opportunities. We have in the pipeline different opportunities which can grow the backlog and some of them can compensate on the ongoing business, so I cannot refer specifically to the pipeline simple.

Okay. One last question and I’ll get back in the queue, and I do thank you for taking my questions. I also appreciate the good job that you’ve had. With your company having no debt and having 2.23 and last quarter having 2.80 in cash, and being a profitable company even though we had a small loss this quarter, being a profitable company, what do you think the company can do to enhance shareholder value? For example, your owner recently bought additional X-percentage of the company and paid $5 a share for it, and here we are trading at 3.75. I think all of us that own the stock realize that the market value and the stock price is not where it should be, and I wonder if we need to participate in some road shows, some conferences, et cetera that would better expose our company to investors. I think we have a great company with great management, and I would compare it to a sporting team that has a great owner, a great coach and a great team, but we don’t have a lot of fans out there right now. So what can we do to enhance shareholder value in the near term?

I believe that the way we plan to grow the business, by investing in both technology—or in three directions, I would say – technology, different regions that we find are strategically promising regions, and new activities like the cyber. So with that, we hope that the company will grow and the shareholders will benefit. That’s what we do and that’s what we believe will bring the company to a better position in the future.

So we don’t want to communicate that through any conferences or anything like that to investors? Because sometimes if we don’t market our company, there are 7,000 stocks out there. I think people just aren’t aware of you. You’re just not on many funds’ radar screens or your stock price would trade where it ought to, probably 6 or $7 a share.

Usually I participate in conferences in New York in this case related to security. We are putting in the website of Magal all the relevant events that we participate. We are taking part in the professional shows. It’s just lately we have been in the U.K. and the U.S., so—and when we have a significant event as an (inaudible) or any other event, we come out with a PR. So that’s the way we do, and I hope that the conference calls, this one and in the future, will help our investors to have a better picture and this will also change the market value of the shares.

Okay. Thank you for taking my questions.

The next question is from Mike Dissler of Amanox Holdings. Please go ahead. Mike Dissler – Amanox Holdings: Yes, good morning gentlemen, or good afternoon in Israel. Mr. Livneh, I’m a long-term holder of your shares for multiple entities, and I just wanted to point out a few things. One, I think the previous gentlemen was referring to just that the price of the stock, if it were to move up, using the stock as currency would allow you to have some greater leverage in utilizing both cash and currency of stock for any possible acquisitions of either technology or companies you were looking for. That’s an aside, just because he made that comment. The reason I’m commenting at all is that I just want to reiterate my caution with Brazil. I’m a former and divisional president of a Fortune 300 company and have great experience in some of these nations, and I just want to point out that I believe you all are doing a great job and I just want to emphasize that in Brazil in particular, that Magal not relinquish control and that you use letters of credit and any other contractual obligation that remains outside the Brazilian legal system, because contract law is somewhat meaningless in their legal system and I can report on numerous companies—one that comes to mind recently is a company called Lakeland Industries, and if you review just their recent problems in Brazil in the last year, you’ll understand precisely what I am talking about. That’s my only caution, that’s my only comment. I continue to remain a patient, long-term holder of your shares, as do the people I represent, and I want to thank you. But just be cautious in those regions. As treacherous as Russia may be, apparently your technology is at the forefront; and Brazil, their legal system is what I’m concerned with in terms of contractual obligations that you might enter in terms of purchasing an integrator or purchasing some sort of sales representation organization. I would urge you to not relinquish control and just hire people directly rather than putting anything on the table that can be at risk. And that’s it. I want to thank you for taking my call, and continued success for the company. I thank you for your time today.

First, I would like to thank you for being a patient investor and being with us for a long time. Second, thank you for the information and advice. I hope we are doing what we are doing in those countries, specifically Brazil, with the right local advisors, legal and accounting, and we are aware of some of those legal issues. Hopefully we will do less mistakes than others. Mike Dissler – Amanox Holdings: Okay, thank you.

Thank you.

If there are any additional questions, please press star, one. If you wish to cancel your request, please press star, two. Please stand by while we poll for more questions. The next question is from Bruce Tuchman of Wells Fargo. Please go ahead.

Hello, this is Bruce Tuchman. I’m speaking as an individual investor. I work with Wells Fargo but I’m not speaking on their behalf – I just want to make that clear. I’ve been a long time shareholder, and what I see as the bottom line is sales and closing deals. All the publicity that people would like to see is not going to mean anything if there aren’t deals closing or deals on the table about to close, and I would like to know what’s the status of the sales force – are you increasing it, are you changing it? Are you satisfied with it? Can you please address the sales force. Thank you.

Well in the last 12 months, we have been changing part of our sales force. Part of it was announced because it relates to executives. Actually, the VP for global sales was replaced exactly 10 months ago, and we have a relatively new VP for global sales. As in our different sales organizations, we have different people who are moving by the nature of the business and we sometimes initiate changes to refresh the sales force. I don’t think that in the last month or in the coming few months we have in mind to increase our sales force other than for the cyber, which is a new activity for us. But on the traditional business of the company, we are happy with the way we’re organized. I’m not referring to personnel issues. Of course, when we start business in India, we hire people to work in the Indian joint venture. Once we will start the business, to grow the business in Brazil, we will hire people in Brazil. But that comes with the plan. I hope I answered your question.

You answered it to a degree, but my question is more on whether you’re satisfied with the sales force, whether there is any way—when I say enhance it, I don’t just mean hire more salespeople but have people work more on strategic alliances, methods of selling, methods of getting in the door, methods of contacting potential customers and basically selling and getting the product out there so that you can close a deal, because if you don’t close deals, we have no value. So as I said, I’m a long-time shareholder. I’ve been owning and standing with Magal for a very long time, and I would like to see some greater results, to be quite frank with you.

Again, I appreciate the fact that you are a long time with Magal. In general terms, yes, I am satisfied with my sales force, and in those specific areas where I am not, I am trying to improve. That’s always the case. I can tell you that there are some regions in the world that we did some changes 18 months ago, and we’ve started to see results this year. In other regions with all of our efforts, we are facing—and with all the ideas of improving and even replacing people, the economy like in western Europe is working against us, as other industries. We are not different. But in general, yes.

Thank you.

There are no further questions at this time. Before I ask Mr. Livneh to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available in three hours on Magal’s website, www.magal-s3.com. Mr. Livneh, would you like to make your concluding statement?

Thank you very much. On behalf of the management of Magal, I would like to thank you for your continued interest and long-term support of our business. If you have any questions, please feel free to call me or my investor relations team, whose contact details are on the press release. I do look forward to speaking to you and updating you again in our next quarter. Have a great day. Thank you very much.

Thank you. This concludes the Magal Security Systems First Quarter 2013 Results conference call. Thank you for your participation. You may go ahead and disconnect.