Icts International NV · 20-F/A · For 12/31/03

Filed On 7/22/04 10:10am ET   ·   SEC File 0-28542   ·   Accession Number 1012118-4-20

Amendment to Annual Report of a Foreign Private Issuer   ·   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F/A      Amendment to Annual Report of a Foreign Private       99    550K 
                          Issuer                                                 
 2: EX-99.906   Miscellaneous Exhibit                                  2      7K 

20-F/A   ·   Amendment to Annual Report of a Foreign Private Issuer
Document Table of Contents

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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

   FORM 20-F/A

[ ]  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, 2003     

OR                                                                

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934  [NO FEE  REQUIRED]  FOR THE  TRANSITION  PERIOD  FROM TO  ---------

COMMISSION FILE NUMBER 0-28542
----------------

 ICTS INTERNATIONAL N.V.
------------------------------------------------- ------------------------
(Exact Name of Registrant as specified in its charter)

 Not
Applicable
 (Translation of Registrant's name into English)

 The Netherlands
 (Jurisdiction of incorporation or organization)

Biesbosch 225, 1181 JC Amstelveen, The Netherlands
(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: 

Common Shares, par value .45 Euro 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

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Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital or common stock as of December 31, 2003: 6,672,980                      

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 [ ]       Item 18 [X]                                                   

When used in this Form 20-F, the words "may", "will", "expect", "anticipate",   
"continue", "estimates", "project", "intend" and similar expressions are        
intended to identify Forward-Looking Statements within the meaning of Section   
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 regarding events, conditions and financial trends that may affect the   
Company's future plans of operations, business strategy, operating results and  
financial position. Prospective investors are cautioned that any Forward-Looking
Statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included 
within the Forward-Looking Statements as a result of various factors.           

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Table of Contents                     

Part I                                                                
Item 1          Identity of Directors, Senior Management and Advisers 
Item 2          Offer Statistics and Expected Timetable               
Item 3          Key Information                                       
Item 4          Information on the Company                            
Item 5          Operating and Financial Review and Prospects          
Item 6          Directors, Officers and Employees                     
Item 7          Major   Shareholders and Related Party Transactions   
Item 8          Financial Information                                 
Item 9          The Offering and Listing                              
Item 10         Additional Information                                
    Item 11         Quantitative and Qualitative Disclosures about Market Risk
Item 12         Description of Securities other than Equity Securities

Part II                                                               
Item 13         Defaults, Dividend Arrearages and Delinquencies       
  Item 14         Material Modifications to the Rights of Security Holders
and the Use of Proceed              
Item 15         Controls and Procedures                               

Part III                                                              
Item 17         Financial Statements                                  
Item 18         Financial Statements                                  
Item 19         Exhibits                                              

Exhibits                                                              
Exhibit 8       Subsidiaries (included herein)                        
Exhibit 10.1    Consolidated Financial Statements (included herein)   
   Exhibit 10.2    Certification by the Registrant's Chief Executive Officer
pursuant to 18 U.S.C.             
                 Section 1350, as adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002 (included herein)
   Exhibit 10.3    Certification by the Registrant's Chief Financial Officer
pursuant to 18 U.S.C.               
                 Section 1350, as adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002 (included herein)

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                                    PART I

Item 1.  Identity of Directors, Senior Management and Advisers                  
Not Applicable

Item 2.  Offer Statistics and Expected Timetable                                
Not Applicable

Item 3.  Key information.                                                       

                                                        [Enlarge/Download Table]

                                                                                                            
                                                 ICTS INTERNATIONAL N.V.                                    
                                               CONSOLIDATED BALANCE SHEETS                                  
                                         (US $ in thousands, except share data)                             
                                                                                   December 31,             
                                                                                2003          2002          
                                A s s e t s                                                                 
  CURRENT ASSETS:                                                                                           
      Cash and cash equivalents (note 2c)                                         $7,660       $32,465      
      Restricted cash and short term investments (note 3)                          3,114        13,083      
      Accounts receivable - trade                                                 13,798        15,628      
      Short-term loan to a related party (note 19c)                                              3,738      
      Prepaid expenses                                                             1,323         1,108      
      Deferred income taxes (note 16b)                                               385         5,409      
      Other current assets                                                         4,583         1,804      
                                                                                 _______       _______      
             T o t a l  current assets                                            30,863        73,235      
                                                                                 _______       _______      
  INVESTMENTS:                                                                                              
      Investments in associated companies (note 5)                                 5,308         9,919      
      Other investments (note 6)                                                  16,287         9,558      
      Deferred income taxes (note 16)                                                 33            28      
                                                                                 ________        ______     
                                                                                  21,628        19,505      
  PROPERTY AND EQUIPMENT (note 7):                                                                          
      Cost                                                                        30,629        32,408      
      Less - accumulated depreciation and amortization                             6,666         2,991      
                                                                                 _______       _______      
                                                                                  23,963        29,417      
                                                                                 _______       _______      
  GOODWILL (note 8)                                                                  314         1,167      
                                                                                 _______       _______      
   OTHER ASSETS , net of                                                                                    
      accumulated amortization (note 9)                                            7,732        2,120       
                                                                                 _______       _______      
             T o t a l  assets                                                   $84,500      $125,444      
                                                                                 _______       _______      

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                                                                                         December 31,       
                                                                                      2003          2002    
                      Liabilities and shareholders' equity                                                  
CURRENT LIABILITIES:                                                                                        
    Short-term bank credit (note 10)                                                   $4,387        $8,651 
    Current maturities of long-term liabilities (note 12)                               2,752         2,097 
    Accounts payable - trade                                                              964           975 
    Liabilities for losses of associated companies (note 5)                             2,130               
    Accrued expenses and other liabilities (note 11)                                   17,865        46,585 
                                                                                      _______       _______ 
           Total  current liabilities                                                  28,098        58,308 
                                                                                      _______       _______ 
LONG-TERM LIABILITIES:                                                                                      
    Accrued severance pay (note 13)                                                        90            78 
    Deferred income taxes (note 16b)                                                       19               
    Long-term liabilities, net of current maturities (note 12)                          9,332         5,680 
                                                                                      _______       _______ 
           T o t a l  long-term liabilities                                             9,441         5,758 
                                                                                      _______       _______ 
COMMITMENTS AND CONTINGENT                                                                                  
    LIABILITIES (note 14)                                                                                   
                                                                                      _______       _______ 
           T o t a l  liabilities                                                      37,539        64,066 
                                                                                      _______       _______ 
SHAREHOLDERS' EQUITY:                                                                                       
   Share capital - shares of common stock, par value 0.45 Euro,                                             
       December 31, 2003 and 2002:                                                                          
       Authorized - 17,000,000 shares; issued and outstanding -                                             
       6,672,980 shares.                                                                3,605         3,605 
    Additional paid-in capital                                                         19,670        19,670 
    Retained earnings                                                                  30,612        49,516 
    Accumulated other comprehensive loss                                               (5,947)      (10,434)
                                                                                      _______       _______ 
                                                                                       47,940        62,357 

Treasury stock at cost - December 31, 2003 and 2002-159,880 shares                       (979)         (979)
                                                                                      _______       _______ 
           Total  shareholders' equity                                                 46,961        61,378 
                                                                                      _______       _______ 
           Total  liabilities and shareholders' equity                                $84,500      $125,444 
                                                                                      _______       _______ 

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Selected Financial Data                                                         

The following table summarizes certain statement of operations data for ICTS for
the years ended December 31, 2001, 2002 and 2003:                               

                                                        [Enlarge/Download Table]

                                                                                                        
                                                                        Year ended December 31,         
                                                                   2003           2002          2001    

REVENUES                                                             $71,571      $279,931      $212,137
COST OF REVENUES                                                      57,562       214,054       189,925
                                                                     -------       -------       -------
GROSS PROFIT                                                          14,009        65,877        22,212
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                           9,216        25,636        19,461
IMPAIRMENT OF ASSETS AND GOODWILL                                     14,352         9,156              
CONTRACT SETTLEMENT EXPENSES                                           5,266                            
                                                                     -------       -------       -------
OPERATING INCOME (LOSS)                                              (9,559)        31,085         2,751
INTEREST INCOME                                                        2,248         2,072         1,649
INTEREST EXPENSE                                                     (1,222)       (1,678)       (1,637)
EXCHANGE DIFFERENCES                                                   (242)         2,356         1,965
OTHER INCOME (EXPENSES), net                                           (353)        41,229        29,520
                                                                     -------       -------       -------
INCOME (LOSS) BEFORE TAXES ON INCOME                                 (9,128)        75,064        34,248
TAXES ON INCOME                                                        3,115        16,442         4,919
                                                                     -------       -------       -------
INCOME (LOSS) FROM OPERATIONS OF THE COMPANY                                                            
AND ITS SUBSIDIARIES                                                (12,243)        58,622        29,329
SHARE IN LOSSES OF ASSOCIATED                                                                           
    COMPANIES - net                                                  (6,661)       (1,807)         (395)
MINORITY INTERESTS IN PROFITS OF                                                                        
    SUBSIDIARIES - net                                                                           (2,736)
                                                                     -------       -------       -------
NET INCOME (LOSS) FOR THE YEAR                                     $(18,904)       $56,815       $26,198
                                                                     -------       -------       -------
OTHER COMPREHENSIVE INCOME (LOSS):                                                                      
    Translation adjustments                                            3,456           710       (1,811)
    Unrealized gains (losses) on marketable securities                   794           731         (345)
    Reclassification adjustment for losses for available for sale                                       
        securities included in net income                                237         (771)           368
                                                                     -------       -------       -------
                                                                       4,487           670       (1,788)
                                                                     -------       -------       -------
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE                                                               
YEAR                                                               $(14,417)       $57,485       $24,410
                                                                     =======       =======       =======
EARNINGS (LOSSES) PER SHARE:                                                                            
    Basic                                                            $(2.90)         $8.85         $4.18
                                                                     =======       =======       =======
    Diluted                                                          $(2.90)         $8.80         $4.09
                                                                     =======       =======       =======

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Risk Factors.                                                 

       You should carefully consider the risks described below regarding the
business and the ownership of our shares. If any of the risks actually occur,   
our business, financial condition or results of operations could be adversely   
affected, and the price of our common stock could decline significantly.        

    Developments that have had a significant impact on our operations.

   Two major events in 2001 and early 2002 significantly changed our
business operations: (i) the sale of substantially all of our European          
operations and (ii) the passage of the Aviation and Transportation Security Act 
(the "Security Act") by the United States Congress in response to the terrorist 
attacks on September 11, 2001 pursuant to which the Federal government through  
the Transportation Security Administration (the "TSA) took over aviation        
security services in the U.S. in November 2002. As a result of these events, we 
have limited aviation security operations in Europe and in the U.S. We          
previously derived most of our revenues from the provision of aviation security 
services and we have developed substantial experience and expertise in that     
field. If we are unable to increase revenues from aviation security services,   
our financial condition and results of operations will be adversely affected.   

    If we are unsuccessful in resolving our disagreements with the TSA
there may be a significant material adverse effect on our financial condition.  

          In February 2002, we entered into an aviation security
services contract with the TSA to continue to provide aviation security services
in all of its current airport locations until the earlier of either the         
completed transition of these security services on an airport by airport basis  
to the U.S. Federal Government or November 2002.                                

                 In connection with payments made by the TSA to Huntleigh USA,
a wholly owned subsidiary of the Company, for aviation security services        
provided in 2002, the Defense Contract Management Agency has indicated that it  
believes that Huntleigh should not have been paid on a fixed cost basis as      
believed by Huntleigh, but on an actual costs plus what the TSA would consider a
reasonable profit. On that later basis Huntleigh may be required to repay to the
TSA the difference between such amount and the actual amounts paid to it.       
Huntleigh however has various claims for additional amounts it considers are due
to it for the services provided to the TSA.                                     

         The Company estimates that if the TSA will claim such
difference from Huntleigh and will prevail in all of its contentions, and none  
of Huntleigh's claims will be recognized, then the Company may suffer a net loss
in an amount of about $27 Million. The Company's above estimate assumes, that   
under USA tax rules it will able to carry-back the losses (if any) that will    
result from the above claims of the TSA. No provisions have been made by the    
Company with respect to the above potential claims.                             

Claim for Loss of Business                  

                 The Security Act provides that all aviation security services
in the U.S. will be handled by the federal government through the TSA. As a     
result of the passage of the Security Act the TSA took over aviation security in
the U.S. For the year ended December 31, 2002, the TSA accounted for 73% of our 
revenues and for the year ended December 31, 2003 the TSA accounted for -0-% of 
our revenues. Our failure to be able to meet the TSA's requirements or to secure
contracts from the TSA will have a material adverse affect on our business.     

            Huntleigh's main business was providing airport security
services to airlines and airports as a result of the creation of the TSA and the
requirement that the TSA take over airport security Huntleigh has lost its      
principal business. Huntleigh has commenced legal action against the U.S.       

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Government for the "Taking"of its business and to protect its rights under the  
Fifth Amendment of the U.S. Constitution. Huntleigh seeks to recover the going  
concern value of the lost business. The suit was brought in the U.S. Court of   
Claim and is in the early stages. There can be no assurance as to the ultimate  
outcome of such claim and whether or not Huntleigh will be successful in        
prosecuting the same.                                                           

   We face significant potential liability claims.

                 As a result of the September 11th terrorists attacks numerous
lawsuits have been commenced against us and our U.S. subsidiary. The cases arise
out of airport security services provided for United Flight 175 out of Logan    
Airport in Boston, Massachusetts which crashed into the World Trade Center. In  
addition, to the present claims additional claims may be asserted. The outcome  
of these or additional cases is uncertain. If there is an adverse outcome with  
respect to any of these claims which is not covered by insurance, then there may
be a significant adverse impact on us.                                          

We are dependent on our key personnel.      

                 Our success will largely depend on the services of our senior
management and executive personnel. The loss of the services of one or more of  
such key personnel could have a material adverse impact on our operations. Our  
success will also be dependent upon our ability to hire and retain additional   
qualified executive personnel. We cannot assure you that we will be able to     
attract, assimilate and retain personnel with the attributes necessary to       
execute our strategy. We cannot assure you that one or more of our executives   
will not leave our employment and either work for a competitor or otherwise     
compete with us.                                                                

We will be dependent on major customers.    

                  If our relationship with our major customers is impaired, then
there may be a material adverse affect on our results of operations and         
financial condition. Our major customers consist of the major airlines servicing
the United States. If such airlines encounter financial difficulty this may have
a material adverse impact on our business.                                      

                Our success will be dependent upon our ability to change our
business strategy.                                                              

        Under our new business strategy we intend to develop
technological solutions and systems for the aviation security industry, develop 
or acquire security activities other than aviation security, invest in security 
related and non-security related businesses, such as entertainment projects and 
seek other revenue producing businesses and business opportunities.             

              We cannot assure you that we will be able to develop new
systems or develop systems that are commercially viable. Our success in         
developing and marketing our systems will also depend on our ability to adapt to
rapid technology changes in the industry and to integrate such changes into our 
systems.                                                                        

          We cannot assure you that we will be successful in our
attempts to change or implement our business strategy. We may not have the      
expertise to be successful in developing our business in areas that are not     
related to the security industry. Our failure to change our business strategy or
implement it successfully will have a material adverse affect on our financial  
condition and results of operations.                                            

       We compete in a highly competitive industry and our
competitors, who may have many more resources than us, may be more successful in
developing new technology and achieving market acceptance of their products.    

               Competition in the aviation security industry as well as in
the non-security related aviation services industry is intense. Many of our     
competitors have greater financial, technical and marketing resources. We expect

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that our competitors will develop and market alternative systems and            
technologies that may have greater functionality or be more cost effective than 
the services we provide or the systems that we may develop. If our competitors  
develop such systems we may not be able to successfully market our systems. Even
if we are able to develop systems with greater functionality which are more cost
effective than those developed by our competitors, we may not be able to achieve
market acceptance of our systems because our competitors have greater financial 
and marketing resources.                                                        

The aviation  security industry is subject to extensive  government  regulation,
the impact of which is difficult to predict.                                    

                 The Security Act has had a significant negative impact on our
aviation security business. In addition, our ability to successfully market new 
systems will be dependent upon government regulations over which we have no     
control. Any existing or new regulation may cause us to incur increased expenses
or impose substantial liability upon us. The likelihood of such new legislation 
is difficult to predict.                                                        

The  markets  for  our  products  and  services  may be  adversely  affected  by
legislation designed to protect privacy rights.                                 

       From time to time, personal identity data bases and
technologies utilizing such data bases have been the focus of organizations and 
individuals seeking to curtail or eliminate the use of personal identity        
information technologies on the grounds that personal information and these     
technologies may be used to diminish personal privacy rights. In the event that 
such initiatives result in restrictive legislation, the market for our products 
may be adversely affected.                                                      

                  Our operations are dependent upon obtaining required licenses.

                  A license to operate is required from the airport authority in
the airports in which we currently operate. Our licenses are usually issued for 
a period of 12 months and are renewable. The loss of, or failure to obtain, a   
license to operate in one or more of such airports could result in the loss of  
or the inability to compete for contracts in the airports in which we have      
licenses.                                                                       

            Our contracts with airports or airlines may be canceled.

              Our services are typically provided pursuant to contracts,
which are cancelable on short notice at any time, with or without cause. We     
cannot assure you that an existing client will decide not to terminate us or    
fail to renew a contract. Any such termination or failure to renew a contract   
with us could have a material adverse effect on our results of operations or    
financial condition.                                                            

        Our financial condition is subject to currency risk.

          Part of our income is derived in foreign countries. We
generally retain our income in local currency at the location the funds are     
received. Since our financial statements are presented in United States dollars,
any significant fluctuation in the currency exchange rate between such currency 
and the United States dollar would affect our results of operations and our     
financial condition.                                                            

               The market price of our common stock may be volatile, which
may make it more difficult for you to resell your shares when you want at prices
you find attractive.                                                            

                 The market price of our common stock may from time to time be
significantly affected by a large number of factors, including, among others,   
variations in our operating results, the depth and liquidity of the trading     
market for our shares, and differences between actual results of operations and 
the results anticipated by investors and securities analysts. Many of the       
factors which affect the market price of our common stock are outside of our    
control and may not even be directly related to us.                             

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             Certain shareholders own approximately 59% of our shares;
their interests could conflict with yours; significant sales of shares held by  
them could have a negative effect on our stock price.                           

        Mr. Menachem Atzmon, a director of the Company, as a
representative of the Atzmon Family Trust and The Estate of Ezra Harel,         
collectively own or control 59% of our issued and outstanding common stock. As a
result of their ownership, and or control, the Atzmon Family Trust and the      
Estate of Ezra Harel are able to significantly influence all matters requiring  
shareholder approval, including the election of directors and approval of       
significant corporate transactions. Such concentration may also have the effect 
of delaying or preventing a change in control. In addition, sales of significant
amounts of shares controled by the Atzmon Family Trust or held by the Estate of 
Ezra Harel or the prospect of these sales, could adversely affect the market    
price of our common stock.                                                      

                We cannot assure you that we will continue to pay dividends.

Although we have paid cash  dividends in the past, we cannot assure you that any
future dividends will be declared or paid.                                      

  We are subject to the laws of the Netherlands.

                  As a Netherlands "Naamloze Vennootschap" (N.V.) public limited
company, we are subject to certain requirements not generally applicable to     
corporations organized under the laws of jurisdictions within the United States.
Among other things, the authority to issue shares is vested in the general      
meeting of shareholders, except to the extent such authority to issue shares has
been delegated by the shareholders or by the Articles of Association to another 
corporate body for a period not exceeding five years. The issuance of the common
shares is generally subject to shareholder preemptive rights, except to the     
extent that such preemptive rights have been excluded or limited by the general 
meeting of shareholders (subject to a qualified majority of two-thirds of the   
votes if less than 50% of the outstanding share capital is present or           
represented) or by the corporate body designated to do so by the general meeting
of shareholders or the Articles of Association. Such a designation may only take
place if such corporate body has also been designated to issue shares.          

          In this regard, the general meeting of shareholders has authorized our
Supervisory Board to issue any authorized and unissued shares at any time up to 
five years from June 26, 2001 the date of such authorization and has authorized 
the Supervisory Board to exclude or limit shareholder preemptive rights with    
respect to any issuance of common shares prior to such date. Such authorizations
may be renewed by the general meeting of shareholders from time to time, for up 
to five years at a time. This authorization would also permit the issuance of   
shares in an acquisition, provided that shareholder approval is required in     
connection with a statutory merger (except that, in certain limited             
circumstances, the board of directors of a surviving company may resolve to     
legally merge the company). Shareholders do not have preemptive rights with     
respect to shares which are issued against payment other than in cash.          

         Our corporate affairs are governed by our Articles of Association and
by the laws governing corporations incorporated in The Netherlands. Our public  
shareholders may have more difficulty in protecting their interests in the face 
of actions by the Supervisory Board or the Management Board, or their members,  
or controlling shareholders, than they would as shareholders of a company       
incorporated in the United States. Under our Articles of Association, adoption  
of our annual accounts by the shareholders discharges the Supervisory Board, the
Management Board and their members from liability in respect of the exercise of 
their duties for the particular financial year, unless an explicit reservation  
is made by the shareholders and without prejudice to the provisions of          
Netherlands law, including provisions relating to liability of members of       
supervisory boards and management boards upon the bankruptcy of a company       
pursuant to the relevant provisions of The Netherlands Civil Code. However, the 
discharge of the Supervisory Board and the Management Board and their members by
the shareholders is not absolute and will not be effective as to matters        

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misrepresented or not disclosed to the shareholders. An individual member of the
Supervisory Board or the Management Board who can prove that he is not at fault 
for such an omission or misrepresentation would not be liable.                  

A U.S. judgment may not be enforceable in The Netherlands.    

   A significant number of our assets are located outside the United
States. In addition, members of the Management and Supervisory Boards [and      
certain experts named herein are residents of countries other than the United   
States ]. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against such   
persons judgments of courts of the United States predicated upon civil          
liabilities under the United States federal securities laws.                    

        There is no treaty between the United States and The Netherlands for
the mutual recognition and enforcement of judgments (other than arbitration     
awards) in civil and commercial matters. Therefore, a final judgment for the    
payment of money rendered by any federal or state court in the United States    
based on civil liability, whether or not predicated solely upon the federal     
securities laws, would not be directly enforceable in The Netherlands. In order 
to enforce any United States judgment obtained against us, proceedings must be  
initiated before a court of competent jurisdiction in The Netherlands. A court  
in The Netherlands will, under current practice, normally issue a judgment      
incorporating the judgment rendered by the United States court if it finds that 
(i) the United States court had jurisdiction over the original proceeding, (ii) 
the judgment was obtained in compliance with principles of due process, (iii)   
the judgment is final and conclusive and (iv) the judgment does not contravene  
the public policy or public order of The Netherlands. We cannot assure you that 
that United States investors will be able to enforce any judgments in civil and 
commercial matters, including judgments under the federal securities laws       
against us or members of the Management or Supervisory Board [or certain experts
named herein] who are residents of The Netherlands or countries other than the  
United States. In addition, a court in The Netherlands might not impose civil   
liability on us or on the members of the Management or Supervisory Boards in an 
original action predicated solely upon the federal securities laws of the United
States brought in a court of competent jurisdiction in The Netherlands.         

Item 4. Information on the Company                          

History and Development of the Company.                     

Unless the context indicates  otherwise,  all references herein to the "Company"
include ICTS  International  N.V.  ("ICTS" or the "Company"),  its  consolidated
subsidiaries,  Demco Consultants, Ltd. ("Demco"), an Israeli affiliate, Procheck
International  B.V. ("PI", an affiliate in The Netherlands) and Ramasso Holdings
B.V.  ("Ramasso",  an  affiliate in The  Netherlands)  and  Huntleigh  USA Corp.
("Huntleigh").                                                                  

                  ICTS is a public limited liability company organized under the
laws of The Netherlands in 1992. ICTS's offices are located at Biesboch 225,    
1181 JC Amstelveen, The Netherlands and its telephone number is +31-20-347-1077.

           The Company's predecessor, International Consultants on
Targeted Security Holland B.V. ("ICTS Holland"), was founded in The Netherlands 
in 1987. Until 1994, subsidiaries and affiliates of ICTS Holland conducted      
similar business in which the Company is currently engaged. As of January 1,    
1994, ICTS Holland's interest in its subsidiaries (other than three minor       
subsidiaries) was transferred to ICTS International B.V. ("ICTS International").
Thereafter, ICTS International purchased from a third party all of the          
outstanding shares of ICTS, incorporated in The Netherlands in 1992 without any 
operations prior to its acquisition by ICTS International. As of January 1,     
1996, the Company acquired all of the assets and assumed all of the liabilities 
of ICTS International.                                                          

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    As of January 1, 1999 the Company acquired 80% of the issued and
outstanding capital stock of Huntleigh and in January 2001 the Company exercised
its option to acquire the remaining 20% at an agreed upon price formula making  
Huntleigh a wholly owned subsidiary. Huntleigh is a provider of aviation        
services in the United States.                                                  

In 2001 and 2002 ICTS sold substantially all of its European
operations in two stages, for an aggregate purchase price of $103 million. As a 
result of the sale, ICTS has fully divested itself from its European operations,
except for its operations in The Netherlands and Russia.                        

       In the wake of the events which occurred on September 11, 2001, the
federal government of the United States, in November, 2001, enacted the Aviation
and Transportation Security Act (the "Security Act") Public Law 107-71. Under   
the Security Act, entities may provide aviation security services in the United 
States only if they are owned and controlled at least 75% by U.S. citizens. As a
company organized under the laws of The Netherlands ICTS may be unable to comply
with the ownership requirements under the Security Act. The Security Act is     
administered through the Transportation Security Administration (the "TSA").    

   In the fourth quarter of 2002, pursuant to the Security Act the
Federal government through the TSA took over substantially all of the aviation  
security operations in U.S. airports. As a result, ICTS through its wholly-owned
subsidiary Huntleigh, provides limited aviation security services in the United 
States.                                                                         

      On December 23, 2003 the Company through wholly owned subsidiaries
purchased from ITA International Tourist Attractions, Ltd., ("ITA") certain     
assets owned by ITA and used by it in the development, establishment and        
operation of motion-based entertainment theaters. The assets purchased consist  
primarily of intangible property and certain equipment. ITA is a company in     
which a principal shareholder of the Company owned in the aggregate in excess of
50% of the shares. The purchase price for the assets purchased was              
$5,429,151.00. The purchase price was paid by set-off against certain debts owed
by ITA to the Company, cash and notes. As a part of the transaction, certain    
agreements made between the Company and ITA in 2001 were terminated, with the   
result that the Company is no longer committed to involve ITA in its existing   
and future entertainment projects. Prior to entering into the transaction the   
Company obtained a fairness opinion as to the fairness of the consideration and 
the transaction to the Company.                                                 

    Shortly after the Baltimore facility was opened and based on its
performances, the Company's management revaluated these two investments and     
determined that the forecasted cash flows from these projects will not cover the
investments thereof, including amounts required to complete the development of  
the facility in Atlantic City estimated as of December 31, 2003 in an amount of 
$5 million. Based on the fair value using discounted cash flows model, the      
Company had recognized an impairment loss of $2,002 in respect of its investment
in Baltimore, and wrote off of its investment in Atlantic City an amount of     
$5,511.                                                                         

The Company currently operates a fully owned motion-based   
entertainment theater in Baltimore, MD and is establishing a new fully-owned    
multi-experience motion-based entertainment theater in Atlantic City, NJ        
scheduled to open by mid-2004. The Company is also a partner in a movie-based   
entertainment facility in Niagara Falls, NY.                                    

Business Overview                                           

General                                     

                ICTS had specialized until 2002 in the provision of aviation
security services. Following the sale of its European operations in 2002 and the
taking of its aviation security business in the United States by the TSA in     
2002, ICTS engages primarily in non-security related activities. These          

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activities consist of non-security aviation security services, operation of     
entertainment related projects and the development of technological services. In
addition, ICTS provides non-security related aviation services and develops     
technological systems and solutions for the security market. ICTS also engages  
in certain other activities, including constructing and developing entertainment
related projects.                                                               

Business Strategy                           

               ICTS is currently pursuing the following business strategy.

Developing Security Related Technology.     

         ICTS is focusing on developing security systems and
technology for the aviation security and non-aviation security markets. ICTS is 
using the know-how and expertise it has acquired in the provision of enhanced   
aviation security services to develop such security systems and technology.     

Developing Entertainment Projects.          

           ICTS is developing entertainment projects know as "Time
Elevators". Time Elevators are educational tourist attractions which combine    
motion based platforms with synchronized movies and sound effects. ICTS has     
opened a Time Elevator project in Baltimore, Maryland and Niagara Falls, New    
York in 2003 and in Atlantic City, New Jersey in 2004.                          

    Aviation Security Operations in The Netherlands.

          ICTS is engaged in aviation security operations in The
Netherlands. In 2002 ICTS increased its stake in its Dutch affiliate, ProCheck  
International to 100%. ICTS also formed a partnership with ICTS Europe through  
which it further expanded its aviation security operations in The Netherlands.  
ICTS Europe was sold by ICTS in 2002 to an unaffiliated third party.            

U.S. Operations.                            

           ICTS continues to provide limited security services and
non-security aviation services in           
the U.S.                                                                        

Other Investments.                          

                ICTS is making investments in companies and properties which
management believes have long term benefits. It is anticipated that such        
investments will be in diverse industries and instruments.                      

Services                                    

                 Services Offered in Europe. Prior to the sale of its European
operations, ICTS primarily provided aviation security services, operated airport
checkpoints, verified travel documents, provided baggage reconciliation         
services, operated electronic equipment, such as x-ray screening devices, and   
operated manual devices. Following the sale, ICTS primarily provides advanced   
passenger screening services in The Netherlands and Russia.                     

                 Services Offered in the United States. Prior to the enactment
of the Security Act, Huntleigh was one of the leading providers of non-security 
aviation services in the United States. Immediately following the enactment of  
the Security Act, but prior to the TSA taking over aviation security services in
the United States, in November 2002, Huntleigh experienced a substantial        
increase in its aviation security services.                                     

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          Huntleigh currently provides limited aviation security
services and nine other separate services at approximately 37 airports in 29    
states which were not affected by the enactment of the Security Act. Each of the
non-aviation security services involves one of the following specific job       
classifications:                                                                

Agent Services.                             

Agent services include: Passenger Service, Baggage Service, Priority Parcel, and
Cargo.  Although an agent is a Huntleigh employee,  the employee is considered a
representative of specific airlines.                                            
Guard Services.                             

            Guard services involve guarding secured areas, including
aircraft.                                                                       

Janitorial Services.                        

                Huntleigh provides cleaning services for aircraft cabins and
portions of airports.                                                           

Maintenance.                                

           Huntleigh provides workers to maintain equipment in one
airport.                                                                        

Aircraft Search.                            

                Search of entire aircraft of international flights to detect
dangerous objects.                                                              

Ramp Services.                              

Ramp services include:                      

           . directing aircraft into the arrival gate and from the
             departure gate . cleaning the aircraft . conducting cabin
              searches . stocking supplies . de-icing the aircraft and .
moving luggage from one airplane to another.

                Shuttle Service. Huntleigh shuttles airline crews from their
hotels to the aircraft in one airport.                                          

              Skycap Services Provider. A skycap assists passengers with
their luggage. Located at the curbside of the check-in at airports, a skycap    
checks in passengers' luggage and meets security requirements established by the
TSA to screen passengers. A skycap also assists arriving passengers with        
transporting luggage from the baggage carousel to ground transportation or other
designated areas.                                                               

             A skycap also may operate electric carts for transporting
passengers through the airport and transport checked baggage from the curbside  
check-in to the airline counter. Concierge Service involves a skycap monitoring 
the baggage carousel to ensure that passengers do not remove luggage not        
belonging to them. In many airports, a skycap at the baggage claim area checks  
to see if the passengers' luggage tags match those on the specific luggage to   
ensure that a passenger is only removing his or her own luggage from the claim  
area.                                                                           

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          Wheelchair attendants. Wheelchair attendants transport
passengers through the airport in airline and/or Company owned wheelchairs.     
Working closely with the attendants are dispatch agents who monitor requests and
assignments for wheelchairs and dispatch the attendants as needed.              

Aviation Security Services                                  

                 ICTS provides pre-departure screening services at airports in
The Netherlands and Russia. Prior to the enactment of the Security Act,         
Huntleigh provided such services in the U.S. Such services are designed to      
prevent or deter the carriage of any explosive, incendiary device, weapon or    
other dangerous objects into the sterile area of an airport concourse and aboard
the aircraft. In 2002 Huntleigh provided such services in the United States     
exclusively to the TSA.                                                         

Technological Systems and Solutions         

         The accumulated know-how and expertise of ICTS in the
implementation of processors for advanced passanger screening enabled ICTS to   
develop its APS technology and system. The APS system is an automated           
computerized system that enables the pre-departure analysis of passenger        
information and is designed to screen airline passengers in a faster and more   
efficient manner. The APS system is currently being operated by ICTS under      
contract for services provided by ICTS Europe, an unaffiliated third party, to  
major United States airlines on flights from Europe to the United States.       

New Technology Initiatives.                 

           IP@SS. ICTS launched in 2003 a trial phase of its IP@SS
project. IP@SS consists of a computerized platform integrating various          
technologies, including document readers, biometrics identification systems and 
a smart-card. The system is modular and may be used on a stand alone basis or   
integrated into an existing check-in system. The system has been designed to    
protect passenger privacy. The system is designed to speed up and simplify the  
processes of identification and security checks of passengers at airports. The  
system enhances customer service provided by airlines and airports to outbound  
passengers.                                                                     

              The project is being developed by ICTS and is performed in
cooperation with various partners. The pilot program is being tested at Schiphol
Airport in Amsterdam, The Netherlands and at Newark Liberty International       
Airport, and is planned to be expanded in the near term to other European       
airports as well as other North American airports.                              

TravelDoc                                   

            ICTS has designed and developed the TravelDoc system for
airlines to quickly scan travel documents, to verify their accuracy and         
authenticity and to ensure that they fulfill the requirements of the country of 
destination. The TravelDoc system utilizes a full page scanner, a small computer
and an operator screen or can be installed on an existing workstation to meet   
immigration requirements and reduce fines imposed on the carrier.               

APIS                                        

                  ICTS has designed and developed a system to assist airlines to
meet the requirements of the U.S. Customs Advance Passenger Information System  
Program. The Security Act requires that all international carriers transmit data
to U.S. Customs about passengers and crew members on inbound flights prior to   
their arrival in the U.S. at high levels of accuracy. ICTS has developed        
advanced algorithms for scanning passports and visas that extracts the          
information required by U.S. Customs. The system utilizes a full page scanner, a
small computer and an operator screen or can be installed on an existing        
workstation.                                                                    

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Consulting, Auditing and Training           

               ICTS provides consulting services to airlines and airports.
ICTS recommends the adoption of specified security procedures, develops         
recruitment and training programs for clients to hire necessary security        
personnel and works with airport authorities to ensure that they comply with    
applicable local requirements. ICTS trains airline employees to screen          
passengers and to perform other security measures through extensive courses and 
written training manuals. ICTS provides these services in The Netherlands and   
Russia, but does not expect to derive significant revenues from these services. 

Airline and Airport Customers               

                In 2002, the TSA accounted for 73% of ICTS's total revenues.
In 2003 ICTS had over 400 clients of which four clients accounted for over 40%  
of ICTS's revenue, in over 50 locations world-wide.                             

Entertainment Projects                      

            ICTS develops tourist attractions combining motion based
platforms and synchronized movies and sound effects ("Time Elevators").         

         On December 23, 2003 the Company through wholly owned
subsidiaries purchased from ITA International Tourist Attractions, Ltd., ("ITA")
certain assets owned by ITA and used by it in the development, establishment and
operation of motion-based entertainment theaters. The assets purchased consist  
primarily of intangible property and certain equipment. ITA is a company in     
which a principal shareholder of the Company owned in the aggregate in excess of
50% of the shares. The purchase price for the assets purchased was              
$5,429,151.00. The purchase price was paid by set-off against certain debts owed
by ITA to the Company, cash and notes. As a part of the transaction, certain    
agreements made between the Company and ITA in 2001 were terminated, with the   
result that the Company is no longer committed to involve ITA in its existing   
and future entertainment projects. Prior to entering into the transaction the   
Company obtained a fairness opinion as to the fairness of the consideration and 
the transaction to the Company.                                                 

           The Company currently operates fully owned motion-based
entertainment theaters in Baltimore, MD and in Atlantic City, NJ. The Company   
is also a partner in a movie-based entertainment facility in Niagara Falls, NY. 

Marketing and Sales                         

                 Marketing and Sales in the U.S. In 2002, substantially all of
the revenues of ICTS were derived in the U.S. ICTS derived most of its revenues 
through contracts which were secured by ICTS as a result of competitive bidding.

                  Marketing and Sales in The Netherlands. Contracts for aviation
security services in The Netherlands are obtained through competitive bids that 
are issued by the applicable airport authorities or agencies.                   

                 Marketing of Security Systems and Technology. ICTS intends to
market its new technology systems and technologies by establishing pilot        
projects with airports and airlines. Upon the demonstration of the viability of 
the systems or technology ICTS intends to develop a marketing plan to distribute
the systems and technology.                                                     

               Marketing of Entertainment Activities. ICTS seeks to locate
its entertainment sites in areas that enjoy concentrated flows of tourists. It  
intends to market its sites through advertising and establishing long term      
relationships with tour and bus operators.                                      

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Leasing Operation                           

          In June 2002 ICTS purchased equipment for an aggregate
purchase price of $23.5 million. The purchase price payable was $14.5 million in
cash and the balance subject to an $8.5 million self amortizing non-recourse    
promissory note payable over five years. Pursuant to an operating lease, the    
equipment was leased to an unaffiliated private Dutch company. The lease        
provides for annual lease payments in the amount of $2.6 million and an option  
to purchase the equipment after five or seven years based upon the then fair    
market value. In the event that the lessee does not exercise the option to      
purchase the equipment upon the expiration of the lease term, then ICTS will be 
obligated to pay license fees in connection with intellectual property          
associated with the equipment in an amount equal to 5% of the revenue derived   
from the use of the equipment if ICTS exercises its option to operate the       
equipment.                                                                      

                In 2003, ICTS determined that the future cash flows from the
leased equipment (including the estimated proceeds from exercise of the option) 
will not recover its investment, and as a result recorded an impairment loss of 
$6,042. The value of the equipment at the option exercise date was based on an  
external assessment.                                                            

                 The Company leases premises under long-term operating leases,
in most cases with renewal options. Lease expenses for the years ended December 
31, 2003, 2002 and 2001 were $1,166, $928 and $1,739 respectively.              

               Future minimum lease payments under long-term leases are as
follows:                                                                        

                                      December 31,
                                    2003

           2004                           $1,208
           2005                            1,110
           2006                            1,012
           2007                              946
           2008 and afterwards            10,027
                                           _________
                                         $14,303
                                          ========
Competition                                 

               Competition in the aviation security industry as well as in
the non-security related aviation services industry is intense. Many of our     
competitors have greater financial, technical and marketing resources.          

            We expect that our competitors will develop and market
alternative systems and technologies that may have greater functionality or be  
more cost effective than the services we provide or the systems that we may     
develop. If our competitors develop such systems we may not be able to          
successfully market our systems. Even if we are able to develop systems with    
greater functionality which are more cost effective than those developed by our 
competitors, we may not be able to achieve market acceptance of our systems     
because our competitors have greater financial and marketing resources.         

Restrictions on Competition                 

                  In connection with the sale of the European operations ICTS is
restricted from conducting business in Europe, (except for The Netherlands and  
Russia) any of the activities in which ICTS Europe was engaged prior to the     
sale. This restriction is effective through February 2005.                      

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               Pursuant to an agreement dated as of July 1, 1995 with ICTS
Global Security (1995) Ltd. ICTS may not provide non-aviation security services 
in Latin America, Turkey or Russia. ICTS Global Security is partially owned by  
Lior Zouker and the Estate of Ezra Harel, the former Chief Executive Officer    
and the former Chairman of Supervisory Board of ICTS and a principal            
shareholder, respectively.                                                      

Aviation Security Regulatory Matters        

            ICTS aviation security activities are subject to various
regulations imposed by authorities and various local and federal agencies having
jurisdiction in the serviced area. ICTS on behalf of its clients was responsible
for adherence to such regulations relating to certain security aspects of their 
activities. ICTS is also responsible to prevent passengers without proper travel
documentation from boarding a flight, thereby avoiding fines otherwise imposed  
on its clients by immigration authorities.                                      

          ICTS is subject to random periodic tests by government
authorities with regard to the professional level of its services and training. 
Any failure to pass such a test may result in the loss of a contract or a       
license to perform services or a fine or both.                                  

                 In the airports in which ICTS operates in The Netherlands and
Russia, a license to operate is required from the respective airport authority. 
ICTS currently holds the licenses required to operate in such locations.        

                 Prior to the enactment of the Security Act, the FAA regulated
the activities of Huntleigh with respect to security services offered at U.S.   
airports. Presently such activities are regulated by the FAA and the TSA.       

                  In order for ICTS to engage in aviation activities in the U.S.
it may be necessary for ICTS to demonstrate that it meets the TSA requirement of
being at least 75% owned and controlled by U.S. citizens.                       

Organizational Structure.                                   

           The following are the significant subsidiaries of ICTS:

ICTS USA, Inc., New York - 100%             
    (a) Huntleigh USA Corporation. (Missouri - 100%)
(b) Explore USA, Inc. (Delaware - 100%)     
                      (i) Explore Atlantic City, LLC (Delaware - 100%)
                       (ii) Explore Baltimore, LLC (Delaware - 100%) (iii)
                    Explore Niagara, LLC (New York - 100%)

   ICTS Technologies B.V. (The Netherlands - 100%)
     (a) ICTS Technologies USA, Inc. (Delaware - 100%)

ICTS Leasing BV (The Netherlands - 100%)    
         Procheck International B.V. (The Netherlands -  100%)

Property, Plant and Equipment.                              

                 The Company leases premises under long-term operating leases,
in most cases with renewal options. Lease expenses for the years ended December 
31, 2003, 2002 and 2001 were $1,166, $928 and $1,739 respectively.              

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               Future minimum lease payments under long-term leases are as
follows:                                                                        
                                      December 31,
                                      2003

           2004                           $1,208
           2005                            1,110
           2006                            1,012
           2007                              946
           2008 and afterwards            10,027
                                         ---------
                                         $14,303
                                         =========

Item 5. Operating and Financial Review and Prospects        

Operating Results                                         

General                                     

               This section contains forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995 concerning 
ICTS's business, operations and financial condition. All statements other than  
statements of historical facts included in this annual report on Form 20-F      
regarding ICTS's strategy, future operations, financial position, costs,        
prospects, plans and objectives of management are forward-looking statements.   
When used in this annual report on Form 20-F the words "expect", "anticipate",  
"intend", "plan", "believe", "seek", "estimate", and similar expressions are    
intended to identify forward-looking statements, although not all               
forward-looking statements contain these identifying words. Because these       
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking      
statements for a number of important reasons, including those discussed under   
"Risk Factors" and elsewhere in this annual report on Form 20-F.                

                 ICTS cannot guarantee any future results, levels of activity,
performance or achievements. The forward-looking statements contained in this   
annual report on Form 20-F represent management's expectations as of the date of
this annual report on Form 20-F and should not be relied upon as representing   
ICTS's expectations as of any other date. Subsequent events and developments    
will cause management's expectations to change. However, while ICTS may elect to
update these forward-looking statements, ICTS specifically disclaims any        
obligation to do so, even if its expectations change.                           

                ICTS had specialized until 2002 in the provision of aviation
security services. Following the sale of its European operations in 2002 and the
taking of its aviation security business in the United States by the TSA in     
2002, ICTS engages primarily in non-security related activities. These          
activities consist of non-security aviation security services, operation of     
entertainment related projects and the development of technological services. In
addition, ICTS provides non-security related aviation services and develops     
technological systems and solutions for the security market. ICTS also engages  
in certain other activities, including constructing and developing entertainment
related projects.                                                               

                In 2001 and 2002 ICTS sold substantially all of its European
operations in two stages, for an aggregate purchase price of $103 million. As a 
result of the sale, ICTS has fully divested itself from its European operations,
except for its operations in The Netherlands and Russia.                        

                 In the fourth quarter of 2002, pursuant to the Security Act
the Federal government through the TSA took over substantially all of the       

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aviation security operations in U.S. airports. As a result, ICTS through its    
wholly-owned subsidiary Huntleigh USA Corp. ("Huntleigh"), provides limited     
aviation security services in the United States.                                

Critical Accounting Policies                                

  The preparation of ICTS's consolidated financial statements in
conformity with accounting principles generally accepted in the United States   
requires management to make estimates and assumptions in certain circumstances  
that affect amounts reported in the accompanying consolidated financial         
statements and related footnotes. Actual results may differ from these          
estimates. To facilitate the understanding of ICTS's business activities,       
described below are certain ICTS accounting policies that are relatively more   
important to the portrayal of its financial condition and results of operations 
and that require management s subjective judgments. ICTS bases its judgments on 
its experience and various other assumptions that it believes to be reasonable  
under the circumstances. Please refer to Note 2 to ICTS's consolidated financial
statements included in this Annual Report on Form 20-F for the year ended       
December 31, 2003 for a summary of all of ICTS's significant accounting         
policies.                                                                       

      The Company considers its most significant accounting policies to be
those discussed below.                                                          

Contract with the TSA                                         

 In February 2002, we entered into an aviation security services
contract with the TSA to continue to provide aviation security services in all  
of its current airport locations until the earlier of either the completed      
transition of these security services on an airport by airport basis to the U.S.
Federal Government or November 2002.                                            

        In connection with payments made by the TSA to Huntleigh USA, a wholly
owned subsidiary of the Company, for aviation security services provided in     
2002, the Defense Contract Management Agency has indicated that it believes that
Huntleigh should not have been paid on a fixed cost basis as believed by        
Huntleigh, but on an actual costs plus what the TSA would consider a reasonable 
profit. On that later basis Huntleigh may be required to repay to the TSA the   
difference between such amount and the actual amounts paid to it. Huntleigh     
however has various claims for additional amounts it considers are due to it for
the services provided to the TSA.                                               

       The Company estimates that if the TSA will claim such difference from
Huntleigh and will prevail in all of its contentions, and none of Huntleigh's   
claims will be recognized, then the Company may suffer a net loss in an amount  
of about $27 Million. The Company's above estimate assumes, that under USA tax  
rules it will able to carry-back the losses (if any) that will result from the  
above claims of the TSA. No provisions have been made by the Company with       
respect to the above potential claims.                                          

Labor Department Issue                                        

         In a letter dated November 21, 2003, the US Department of Labor ("DOL")
advised Huntleigh that it had failed to comply with a clause included in its    
contract with the TSA under which Huntleigh had supposedly been required to pay 
its employees certain minimum wages. The DOL claims that under this clause      
Huntleigh owes such employees an amount of approximately MM $ 7.5 and has       
requested that Huntleigh makes such payment forthwith. On any amount so due,    
Huntleigh will also be required to pay certain employment taxes of approximately
20%.                                                                            

       Huntleigh believes that it has valid defenses to the DOL claim. These
issues are under discussion with the DOL and no assurance can be given as to the
ultimate outcome or success to Huntleigh with the position it is taking. The    
Company has made a provision in its financial statements in an amount the       
Company deemed sufficient to account for its exposure for the above claim.      

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Goodwill                                                    

        As from January 1, 2002, pursuant to Statement of Financial Accounting
Standard ( FAS) No.142 of the Financial Accounting Standards Board of the United
States (the FASB ), "Goodwill and Other Intangible Assets" , goodwill is no     
longer amortized but rather is tested for impairment annually. During 2002, the 
Company identified its various reporting units, which consist of its operating  
segments. The Company has utilized expected future discounted cash flows to     
determine the fair value of the reporting units and whether any impairment of   
goodwill existed as of the date of adoption of FAS 142. As a result of the      
application of the transitional impairment test, the Company does not have to   
record a cumulative effect of accounting change for the estimated impairment of 
goodwill. The Company has designated December 31 of each year as the date on    
which it will perform its annual goodwill impairment test. On December 31, 2003,
an impairment test was conducted on the unamortized goodwill pursuant to which  
it was determined that, as of the date of the impairment test, an impairment    
existed concerning Demco of $797,000. (see Notes 2(g) and 4(b) to the financial 
statements). Changes in the fair value of the reporting units following material
changes in the assumptions as to the future cash flows and/or discount rates    
could result in an unexpected impairment charge to goodwill.                    

In 2002, as a result of the enactment of the Security Act (as described  above),
ICTS  performed  quarterly  interim  impairment  tests,  taking into account the
expected  future cash flows from the TSA contract  through  November  2002,  and
subsequently  wrote off, as of  September  30, 2002 the balance of the  goodwill
attributable  to the U.S.  aviation  security  operations  in the amount of $8.5
million.                                                                        

Functional and reporting currency                             

     As of January 1, 2002, subsequent to the sale of ICTS's interest in
ICTS Europe, the functional currency of ICTS and its U.S. operations is the U.S.
dollar because substanitally all of the revenues and operating costs are in     
dollars. Prior to January 1, 2002 the functional currency was primarily the euro
.. The financial statements of subsidiaries whose functional currency is not the
dollar are translated into dollars in accordance with the principles set forth  
in Statement of Financial Accounting Standards ("FAS") No. 52 of the Financial  
Accounting Standards Board of the USA ("FASB"). Assets and liabilities are      
translated from the local currencies to dollars at year-end exchange rates.     
Income and expense items are translated at average exchange rates during the    
year.                                                                           

Revenue recognition                                           

      Revenue is recognized when services are rendered to customers, which
are performed based on terms contracted in a contractual arrangement provided   
the fee is fixed and determinable, the services have been rendered and          
collection of the related receivable is probable. Revenue from leased equipment 
is recognized ratably over the year.                                            

Impairment in value of long-lived assets                  

        ICTS has adopted FAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", effective January 1, 2002. FAS 144 requires that         
long-lived assets, held and used by an entity be reviewed for impairment        
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. Under FAS 144, if the sum of the expected    
future cash flows (undiscounted and without interest charges) of the long-lived 
assets is less than the carrying amount of such assets, an impairment loss would
be recognized, and the assets would be written down to their estimated fair     
values. On December 31, 2003 an impairment test was conducted on the carrying   
value of long-lived assets of the Company pursuant to which it was determined   
that, as of the date of the impairment test, the impairment existed in          
connection with equipment at Explore's facilities in Baltimore, Maryland and    
Atlantic City, New Jersey in the amount of $9,108,675and leased equipment of    
$6,042,000. An amount of $1,595 was booked as liability concerning future       
development costs. (see Notes 1(b) and 7(e) to the financial statements).       

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Discussion and Analysis of  Results of Operations         

       The following table summarizes certain statement of operations data
for ICTS for the years ended December 31, 2001, 2002 and 2003:                  

                                                        [Enlarge/Download Table]

                                                                                                     
                                                              Year ended December 31,                
                                                            2003               2002           2001   
---------------------------------------------------- ------------------ -------------- --------------
REVENUES                                                      $ 71,571       $279,931       $212,137 

---------------------------------------------------- ------------------ -------------- --------------
COST OF REVENUES                                                57,562        214,054        189,925 
                                                                              -------        ------- 
---------------------------------------------------- ------------------ -------------- --------------
GROSS PROFIT                                                    14,009         65,877         22,212 
---------------------------------------------------- ------------------ -------------- --------------
IMPAIRMENT OF ASSETS                                            14,352          9,156                
---------------------------------------------------- ------------------ -------------- --------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                     9,216         25,636         19,461 
                                                                               ------         ------ 
---------------------------------------------------- ------------------ -------------- --------------
OPERATING INCOME                                              ( 9,559)         31,085          2,751 
---------------------------------------------------- ------------------ -------------- --------------
INTEREST INCOME                                                  2,248          2,072          1,649 
---------------------------------------------------- ------------------ -------------- --------------
INTEREST EXPENSE                                               (1,222)        (1,678)        (1,637) 
---------------------------------------------------- ------------------ -------------- --------------
EXCHANGE DIFFERENCES                                             (242)          2,356          1,965 
---------------------------------------------------- ------------------ -------------- --------------
OTHER INCOME (EXPENSES)                                          (353)         41,229         29,520 
                                                                               ------         ------ 
---------------------------------------------------- ------------------ -------------- --------------
INCOME BEFORE TAXES ON INCOME                                 ( 9,120)         75,064         34,248 
---------------------------------------------------- ------------------ -------------- --------------
TAXES ON INCOME                                                  3,115         16,442          4,919 
---------------------------------------------------- ------------------ -------------- --------------
INCOME FROM OPERATIONS OF THE COMPANY AND ITS                                                        
SUBSIDIAIRIES                                                 (12,243)         58,622         29,329 
---------------------------------------------------- ------------------ -------------- --------------
SHARE IN PROFITS (LOSSES) OF ASSOCIATED COMPANIES                                                    
                                                               (6,661)        (1,807)          (395) 
---------------------------------------------------- ------------------ -------------- --------------
MINORITY INTERESTS IN LOSSES (PROFITS) OF                            -                               
SUBSIDIARIES                                                                  _______        (2,736) 
---------------------------------------------------- ------------------ -------------- --------------
NET INCOME FOR THE YEAR                                      $(15,904)        $56,815        $26,198 
---------------------------------------------------- ------------------ -------------- --------------
OTHER COMPREHENSIVE INCOME (LOSS):                                                                   
---------------------------------------------------- ------------------ -------------- --------------
Translation adjustments                                          3,456            710        (1,811) 
Unrealized gains (losses) on marketable securities                 794            731          (345) 
Reclassification adjustment for losses for                                                           
available for sale securities included in net income               237          (771)            368 
                                                                                -----            --- 
---------------------------------------------------- ------------------ -------------- --------------
                                                                 4,487            670        (1,788) 
                                                                                  ---        ------- 
---------------------------------------------------- ------------------ -------------- --------------
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR                                $57,485        $24,410 
                                                              $ 14,417         ======         ====== 
---------------------------------------------------- ------------------ -------------- --------------
EARNINGS PER SHARE:                                                                                  
          Basic                                                $(2.90)          $8.85          $4.18 
                                                               ======           =====           ==== 
          Diluted                                              $(2.90)          $8.80          $4.09 
                                                               =======           ====           ==== 

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

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     The following table sets forth, for the annual periods indicated,
certain statement of operations data as a percentage of revenues:               

                                                                [Download Table]

                                                        
                               Year Ended December 31,  

                                  2003      2002    2001

Revenues.....................      100%     100%    100%
Cost of revenues.............     80.4%    76.5%   89.5%
Gross profit................      19.6%    23.5%   10.5%
Selling, general and                                    
  administrative expenses.....    12.9%     9.2%    9.2%
Operating income .............   (13.4%)   11.1%    1.3%
Net income ...................   (26.4%)   20.3%   12.4%

          The statements of income for the year 2001 include the
activities of ICTS Europe, which was sold in February 2002.                     

         Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

      Revenues. Revenues for the year ended December 31, 2003 were $71.6
million (2002: $279.9 million), and consisted of $59.1 million (2002: $274      
million) from U.S. operations, and $12.4 million (2002: $5.9 million) from other
operations.                                                                     

         The decrease in revenues from U.S. operations is primarily the result
of decreased sales of aviation security services pursuant to contracts with the 
TSA following the September 11th events. Revenues derived from such services in 
2002 were $205.7 million (73% of ICTS's total revenues in that year). As a      
result of the Security Act since November 2002, ICTS provides limited aviation  
security services within the United States. Therefore, in 2003 the Company did  
not generate any revenues pursuant to a contract with the TSA.                  

     Almost all revenues in the U.S. ($59.1 million), are derived from
other than aviation security services, compared with $39.0 million for 2002.    
Such increase is primarily attributable to an increase in sales to existing     
airline customers through expanding ICTS's location base and the offering of new
services.                                                                       

         Gross Profit. Gross profit is defined as revenues less costs directly
related to such revenues as well as certain indirect expenses such as airport   
offices, airport fees, local training and other direct labor related expenses   
such as uniforms and transportation.  Gross profit was positively impacted by a 
non-recurring contribution of $8.6 million in the third quarter. The            
non-recurring contribution is primarily the result of a reversal of an accrual  
made in 2002 to account for potential liabilities to former employees of the    
Company in its USA aviation security business, net of certain new accruals      
booked primarily to account for other estimated potential liabilities to such   
employees.                                                                      

        Gross profit for the year ended December 31, 2003 was $14.0 million,
19.6%, as a percentage of revenue (2002: $65.9 million, 23.5% as a percentage of
revenue). Management believes that the decrease in gross profit as a percentage 
of revenues is primarily attributable to the decrease in                        
aviation security services as per the TSA contract.                             

Impairment  of Assets.  For the year ended  December  31,  2003,  ICTS  incurred
expenses of $14.3  million  (2002:  9.2 million)  attributable  to impairment of
assets.  The expense is primarily  attributable  to the  impairment of equipment
related to the Companies'  entertainment  business in the U.S.A. In addition,   
the Company  recorded an  impairment  loss in amount of $6,042  related to lease
equipment  in The  Netherlands  and  goodwill  impairment  related to Demco,  an
Israeli subsidiary.                                                             

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      Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $9.2 million for the year ended December 31, 2003, 
12.9% as a percentage of revenues, as compared to $25.6 million, 9.2% as a      
percentage of revenues for the year ended December 31, 2002. The decrease in    
selling, general and administrative expenses is primarily attributable to the   
decrease in aviation security services.                                         

         Operating Profit. Operating loss for the year ended December 31, 2003
was $16.4 million as compared to an operating profit of $31.1 million for the   
year ended December 31, 2002.                                                   

      Financial (Expenses) Income, Net. Financial (expenses) income, net
includes interest income (net of interest expense), and adjustments due to the  
impact of exchange rate fluctuations. The interest and financial income         
increased due the sale of certain traded shares during 2003.                    

         Other Income (Expense), Net. Other income for the year ended December
31, 2003 was $353 thousand negative as compared to $41.2 million for the year   
ended December 31, 2002. Other expenses during 2003 included mainly accounting  
provisions related to the Companies' investments in Artlink. Other income for   
the year ended December 31, 2002 includes the profit on the sale of 55% interest
in ICTS Europe which resulted in gross proceeds, in the amount of $41.2 million.

      Income Taxes. Although the company incurred a loss from operations
before taxes on a consolidated basis, it still incurred taxes in its USA        
subsidiary, Huntleigh. The reason being that Huntleigh is a separate entity for 
tax purposes and as such incurs taxes on its profits.                           

       Share in Profits and (Losses) of Associated Companies. The share in
losses of associated companies which includes amortization of intangible assets 
for the year ended December 31, 2003 was $6.7 million.                          

     Net income. As a result of the foregoing, ICTS's net loss totaled
approximately $18.9 million in the year ended December 31, 2003, as compared to 
approximately $56.8 million profit for the year ended December 31, 2002.        

       Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

     Revenues. Revenues for the year ended December 31, 2002 were $279.9
million (2001: $212.1 million), and consisted of $274.0 million (2001: $96.7    
million) from U.S. operations, no revenues (2001: $113.1 million) from ICTS     
Europe and $5.9 million (2001: $2.3 million) from other operations. The lack of 
revenue from ICTS Europe in 2002 is the result of the sale of ICTS's 55%        
interest in ICTS Europe in February 2002.                                       

       The increase in revenues from U.S. operations is primarily the result
of increased sales of aviation security services pursuant to contracts with the 
TSA following the September 11th events. Revenues derived from such services    
were $205.7 million (73% of ICTS's total revenues). For the first month and     
one-half for 2002 the Company provided aviation security services to its airline
clients generating revenues of approximately $30 million. As a result of the    
Security Act since November 2002, ICTS does not provide aviation security       
services within the United States.                                              

 Revenues derived in the U.S., other than from aviation security
services, were $39.0 million (2001: $27.7 million). Such increase is primarily  
attributable to an increase in sales to existing airline customers through      
expanding ICTS's location base and the offering of new services.                

       Gross Profit. Gross profit is defined as revenues less costs directly
related to such revenues as well as certain indirect expenses such as airport   
offices, airport fees, local training and other direct labor related expenses   
such as uniforms and transportation.                                            

      Gross profit for the year ended December 31, 2002 was $65.9 million,
23.5%, as a percentage of revenue (2001: $22.2 million, 10.5% as a percentage of

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revenue). Management believes that the increase in gross profit as a percentage 
of revenues is primarily attributable to the increase in the provision of       
aviation security services.                                                     

        Impairment of Intangible Assets. For the year ended December 31, 2002,
ICTS incurred expenses of $9.2 million attributable to impairment of intangible 
assets. The expense is primarily attributable to the impairment of goodwill in  
the U.S. subsidiaries as a result of the TSA taking over aviation security      
activities in the U.S. in November 2002.                                        

    Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $25.6 million for the year ended December 31, 2002,
9.2% as a percentage of revenues, as compared to $19.4 million, 9.2% as a       
percentage of revenues for the year ended December 31, 2001. The increase in    
selling, general and administrative expenses is primarily attributable to       
increases in provisions for bad debts in the amount of $5 million, legal and    
insurance costs in the amount of $2.6 million, payroll expenses in the amount of
$700,000 and offset by the reduction of selling, general and administrative     
expenses attributable to ICTS Europe in the amount of $4.8 million.             

         Operating Profit. Operating profit for the year ended December 31, 2002
was $31.1 million as compared to $2.8 million for the year ended December 31,   
2001.                                                                           

    Financial (Expenses) Income, Net. Financial (expenses) income, net
includes interest income (net of interest expense), and adjustments due to the  
impact of exchange rate fluctuations. The interest income increased due to the  
stronger cash position of ICTS, despite the decrease in interest rates on time  
deposits over the course of 2002. Interest expenses increased compared to 2001, 
as a result of additional credit facilities that were at ICTS's disposal during 
2002.                                                                           

       Other Income (Expense), Net. Other income for the year ended December
31, 2002 was $41.2 million as compared to $29.0 million for the year ended      
December 31, 2001. Other income for the year ended December 31, 2002 includes   
the profit on the sale of 55% interest in ICTS Europe which resulted in gross   
proceeds, in the amount of $41.2 million.                                       

       Income Taxes. ICTS's effective income tax rate for the year ended
December 31, 2002 was 21.9% as compared to 14.4% in the year ended December 31, 
2001. The increase in the effective tax rate is primarily attributable to an    
increase in non-deductible expenses for the year ended December 31, 2002 as well
as a decrease in non-taxable capital gains in The Netherlands as a percentage of
total income.                                                                   

       Share in Profits and (Losses) of Associated Companies. The share in
profits (losses) of associated companies which includes amortization of         
intangible assets for the year ended December 31, 2002 was $1.8 million.        

         Net income. As a result of the foregoing, ICTS's net income increased
by approximately $30.6 million in the year ended December 31, 2002, to $56.8    
million, as compared to approximately $26.2 million for the year ended December 
31, 2001.                                                                       

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 

    Revenues. Revenues for the year ended December 31, 2001 were approximately
$212.1 million (2000: $147.4 million), and consisted of $113.1 million (2000:   
$77.7 million) from ICTS Europe, $96.7 million (2000: $66.6 million) from U.S.  
operations, and $2.3 million (2000: $3.1 million) from other operations. The    
increase in revenues for both ICTS Europe and U.S. operations was primarily     
attributable to internal growth of ICTS's operations due to newly added         
locations together with price increases in the U.S. effective in October 2001.  
The addition of new locations and the price increases outweighed the negative   
impact of the cancellation of flights as a result of the September 11 events.   

For the year ended December 31, 2001, revenues derived from aviation  
security services in the U.S. were $68.9 million (71% of U.S. revenues).        

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Revenues derived from services, other than aviation security services in
the United States, for the year ended December 31, 2001 were $30.1 million as   
compared to $27.1 million for the year ended December 31, 2000.                 

   Gross Profit. Gross profit for the year ended December 31, 2001 was $22.2
million 10.5% as a percentage of revenues (2000: $15.8 million, 10.7% as a      
percentage of revenues) consisted primarily of a profit of $13.2 million (2000: 
$10.4 million) from ICTS Europe and a profit of $9.2 million (2000: $5.3        
million) from U.S. operations. This increase in gross profit is due primarily to
the increase in revenue. The decrease in gross profit as a percentage of revenue
is due primarily to start-up costs of approximately $1.4 million resulting from 
new airport locations in Europe, which was partially offset by an increase in   
gross profit as a percentage of revenues from U.S. operations.                  

Selling, General and Administrative Expenses. Selling, general and    
administrative expenses was $19.4 million, 9.2% as a percentage of revenues, for
the year ended December 31, 2001, as compared to $11.6 million, 7.9% as a       
percentage of revenues for the year ended Decemver 31, 2000. This increase is   
primarily due to $4.9 million related to the sale of ICTS Europe, and expenses  
related to the expansion of the headquarters of ICTS Europe.                    

     Operating Profit. Operating profit for the year ended December 31, 2001 was
$2.7 million and included $8.4 million (2000: $6.6 million) of operating profits
of ICTS Europe.                                                                 

     Financial (Expenses) Income, Net. Financial (expenses) income, net includes
interest income (net of interest expense), and adjustments due to the impact of 
exchange rate fluctuations. Interest Income increased due to the stronger cash  
position of ICTS, as a result of the receipt of the proceeds for the sale of the
45% interest in ICTS Europe in early 2001, despite the decrease in interest     
rates on time deposits over the course of 2001. Interest expenses decreased, as 
a result of partial repayment of outstanding lines of credit.                   

   Other Income (Expense), Net. Other income for the year ended December 31,
2001 was $29.3 million. Other income was primarily attributable to the profit on
the sale of a 45% interest in ICTS Europe, in the amount of $34.3 million, which
was partially offset by a loss of approximately $4.5 million related to a       
write-off of ICTS's investments in several technology start-up companies due to 
their financial condition and ICTS's assessment of their future prospects.      

    Income Taxes. ICTS's effective income tax rate for the year ended December
31, 2001 was 14.4% as compared to 47.4% in the year ended December 31, 2000. The
decrease in the effective tax rate was primarily attributable to non-taxable    
capital gains in The Netherlands derived by ICTS from the sale of a 45% interest
in ICTS Europe.                                                                 

  Minority Interest. This item reflects primarily the 45% interest of ICTS
Europe owned by an unaffiliated party effective January 2001.                   

Share in losses of associated companies. Share in losses of associated
companies was $395,000 for the year ended December 31, 2001.                    

 Net income. As a result of the foregoing ICTS's net income increased by
$25.2 million for the year ended December 31, 2001, to $26.2 million, as        
compared to $870,000 for the year ended December 31, 2000.                      

Liquidity and Capital Resources                                       

ICTS's  principal cash  requirement  for its operations is the payment of wages.
Working capital is financed  primarily by cash from operating  activities and by
short-term borrowings. As of December 31, 2003, we had cash and cash equivalents
of $7.7 million, and restricted cash and short term investments of $3.1 million.

Net cash used by operating  activities  for the year ended December 31, 2003 was
$19.1  million as compared to net cash  provided by operating  activities  $61.6
million for the year ended  December 31, 2002 and net cash provided by operating

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activities  of $987 for the year ended  December 31, 2001.  The decrease in cash
for the year ended December 31, 2003 was primarily  attributable  to net loss of
$25.8 million  offset by non-cash  expenses such as shares in losses of         
associated  companies  of $6.7  million  and  changes  in  operating  assets and
liabilities of $28.8 million,.  The changes in operating  assets and liabilities
were primarily  attributable to $2.1 million decrease in accounts receivable and
an decrease of $28.9 million in accrued  expenses and other  liabilities,  which
was primarily  related to severance pay and employee's  claims of $19 million in
connection with the reduction of ICTS's aviation security activities.           

   Net cash used in investing activities was $3.2 million for the year ended
December 31, 2003 as compared to net cash used in investing activities of       
$324 for the year ended December 31, 2002 and net cash provided by investing    
activities of $23.5 million for the year ended December 31, 2001. Net cash used 
in investing activities was primarily attributable to the purchase of equipment 
of $7.9 million, $5.2 million for other investments. This was partly offeset by 
proceeds from sale of marketable securities at $3.7 million, repayment of loans 
granted to related parties at $3.7 million, and decrease in time deposits and   
restricted cash at $4.7 million.                                                

  Net cash used in financing activities was $2.4 million and $46.1 million
for the years ended December 31, 2003 and December 31, 2002, respectively and   
net cash used in financing activities was $10.5 million for the year ended      
December 31, 2001.                                                              

  In June 2002 ICTS purchased equipment for an aggregate purchase price of
$23.5 million. The purchase price was payable $14.5 million in cash and the     
balance subject to an $8.5 million self amortizing non-recourse promissory note 
payable over five years. Pursuant to an operating lease, the equipment was      
leased to a private Dutch company. The lease provides for annual lease payments 
in the amount of E 2.9 million and an option to purchase the equipment after    
five or seven years based upon the then fair market value. In the event that    
the lessee does not exercise the option to purchase the equipment upon the      
expiration of the lease term, then ICTS will be obligated to pay license fees in
connection with intellectual property associated with the equipment in an amount
equal to 5% of the revenue derived from the use of the equipment if ICTS        
exercises its option to operate the equipment.                                  

On February 17, 2002, ICTS entered into an aviation security services 
contract with the TSA to continue to provide aviation security services in all  
of its current airport locations until the earlier of either the completed      
transition of these security services on an airport by airport basis to the U.S.
Federal Government or November 2, 2002. In accordance with the contract, the    
U.S. Federal Government provided ICTS with a non-interest bearing partial       
payment of $26 million to be repaid at the rate of $1.3 million a month         
commencing April 2002. As of December 31, 2003, $11.7 million of the $26 million
had been repaid. The TSA in accordance with standard practices is in the process
of auditing ICTS's billings to the TSA pursuant to the contract with the TSA for
the provision of aviation security services. In the event that the TSA has a    
significant claim against ICTS and is successful, then there may be a material  
adverse effect on ICTS's financial condition.                                   

     As a result of the September 11th terrorists attacks numerous lawsuits have
been commenced against ICTS and its U.S. subsidiary. The cases arise out of     
airport security services provided for United Flight 175 out of Logan Airport in
Boston, Massachusetts which crashed into the World Trade Center. In addition, to
the present claims additional claims may be asserted. The outcome of these or   
additional cases is uncertain. If there is an adverse outcome with respect to   
any of these claims which is not covered by insurance, then there may be a      
significant adverse impact on us.                                               

   The following table summarizes ICTS's obligations to make future payments
under contracts:                                                                

Contractual Obligations Due by Period at December 31, 2003.           

     The Company leases premises under long-term operating leases, in most cases
with renewal options. Lease expenses for the years ended December 31, 2003, 2002
and 2001 were $1,166, $____ and $______ respectively.                           

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       Future minimum lease payments under long-term leases are as
follows:                                                                        
                  December 31,
                    2003
                   ---------------
2004                     $1,208           
2005                      1,110           
2006                      1,012           
2007                        946           
2008 and afterwards      10,027           
              ------
             $14,303
            ======

  The following table summarizes ICTS's guarantees and their
expiration dates:                                                               

    The Company has outstanding a guaranty to ABN Amro for rent in the
amount of $13 which is outstanding during the term of this lease. The Company,  
in addition, has an outstanding guaranty to Bilu Investments, Ltd. in the amount
of $2,515.                                                                      

    In January 2002, IMA entered into a loan facility agreement with a
German bank. As of December 31, 2003 the company and ITA, collectively and      
individually, guaranteed the loan in full to the bank. The guarantee is a       
continuing guarantee for the obligations of IMA. As of December 31, 2003 IMA's  
net obligations to the bank amounted to $1,683. Taking into account the deferred
note to ITA of $546 (which serves as a security to this guarantee               
the company recorded a liability of $1,137 in respect of this                   
guarantee.                                                                      

        Our future capital requirements, the timing and amount of expenditures
will depend on our success in developing and implementing our new business      
strategy. Based on our current plans, we believe that our existing cash         
balances, cash flows from operating and available borrowing will be sufficient  
to satisfy our capital requirements for at least the next 12 months.            

Research and development, patents and licenses, etc.          

      ICTS has recently launched a trial phase of its IP@SS project. IP@SS
consists of a computerized platform integrating various technologies, including 
document readers, biometrics identification systems and a smart-card. The system
is modular and may be used on a stand alone basis or integrated into an existing
check-in system. The system has been designed to protect passenger privacy. The 
system is designed to speed up and simplify the processes of identification and 
security checks of passengers at airports. The system enhances customer service 
provided by airlines and airports to outbound passengers.                       

      The project is being developed by ICTS and is performed in
cooperation with various partners. The pilot program is being testedat Schiphol 
Airport in Amsterdam, The Netherlands and at Newark Liberty International       
Airport, New Jersey in the United States and is planned to be expanded in the   
near term to other European airports as well as other North American airports.  

Trend information                                             

        Labor market conditions at a particular airport location may
require the Company to increase its prices. Cost of labor is the most important 
variable in determining any cost increases.                                     

Item 6. Directors, Senior Management and Employees            

             The following table lists the directors and executive officers of
ICTS.                                                                           

                                                                [Download Table]

                                                                 

                  Age  Position                                  
Boaz Harel        40   Chairman of the Supervisory Board         
Menachem Atzmon   59   Member of the Supervisory Board           
M. Albert Nissim  70   Member of the Supervisory Board, Secretary
Elie Housman      64   Member of the Supervisory Board           
Moshe Winer       54   Member of the Supervisiory Board          
David W. Sass     68   Member of the Supervisory Board           
Philip M. Getter  67   Member of the Supervisory Board and       
                       Chairman of the Audit Committee           
Lynda Davey       49   Member of the Supervisory Board           
Michael Barnea    48   Managing Director and CEO                 
Stefan Vermeulen  33   Chief Financial Officer                   

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Boaz Harel has been the  Managing  Director of Leedan  between 1993 and December
31, 1997.  Mr. Harel became  Chairman of the Company in January  2004.  Mr. Boaz
Harel is the  Director of  Pioneer  Commercial  Funding  Corp.  ("Pioneer"),  a 
publicly-traded  company,  which has no business  at this time,  serving in such
capacity since November 1996. Pioneer is an affiliate of Harmony. Mr. Boaz Harel
is  the  brother  of the  late  Mr.  Ezra  Harel,  the  former  Chairman  of the
Supervisory Board of the Company.                                               

Menachem J. Atzmon is a Chartered  accountant (Isr). Mr. Atzmon is a controlling
shareholder  of  Harmony  Ventures  B.V.  Since  1996 he has been  the  managing
director of Albermale  Investment  Ltd. and Kent  Investment  Holding Ltd., both
investment  companies.  Since  January  1998 he has  served  as CEO of  Seehafen
Rostock.  He has been a member of the Supervisory  Board of ICTS since 1999. Mr.
Atzmon has been investigated by the Israeli  Securities and Exchange  Commission
as a part of an  investigation  conducted by such agency for suspected  criminal
acts under Israeli law, in  connection  with his past  involvement  with Rogosin
Enterprises, Ltd., an Israeli company, as a third party.                        

M. Albert Nissim has served as Secretary of ICTS since January 1994 and became a
member of the Supervisory  Board in 2002. Mr. Nissim also serves as President of
ICTS - USA, Inc.  From 1994 to 1995, he worked as the managing  director of ICTS
and from 1990 to the present, he has been Vice-President and a director of Tuffy
Associates.  Mr.  Nissim has been the  President of Pioneer  Commercial  Funding
Corp. ("Pioneer") since January 1997 and also serves as the Chairman.           

Elie Housman has served as Chairman of Inksure Technologies, Inc. since February
2002.  Mr.  Housman was a  principal  at  Charterhouse  Group  International,  a
privately held merchant bank,  from 1989 until June 2001. At  Charterhouse,  Mr.
Housman was  involved in the  acquisition  of a number of  companies  with total
sales of several hundred million  dollars.  Mr. Housman was the Chairman of Novo
Plc.  in  London,  a leading  company  in the  broadcast  storage  and  services
industry.  At present,  Mr.  Housman is a director of a number of privately held
companies in the United States.  He became a member of the Supervisory  Board of
ICTS in 2002.                                                                   

Moshe Winer became a member of the  Supervisory  Board of ICTS in 2002.  For the
past ten years has been the principal of several  businesses  in the  automotive
services field.                                                                 

David W. Sass for the past 43 years has been a  practicing  attorney in New York
City and is  currently a senior  partner in the law firm of  McLaughlin & Stern,
LLP. He has been a director of ICTS since 2002.  Mr. Sass was also a director of
BarPoint.com,  Inc, an online and  wireless  product  information  and  shopping
service  provider..  He is also  corporate  secretary  and a director of Pioneer
Commercial  Funding  Corp.  Mr. Sass became a director of Inksure  Technologies,
Inc.  in  2003,  a  company  which  develops,   markets  and  sells   customized
authentication systems designed to enhance the security of documents and branded
products and to meet the growing demand for protection from  counterfeiting  and
diversion. He is also a director of several privately held corporations.        

Philip M. Getter,  since 2000 he is a partner of DAMG  Capital,  LLC  Investment
Bankers.  Prior thereto he was most  recently  head of Investment  Banking and a
member of the board of directors of Prime Charter,  Ltd. He has more than thirty
years of corporate finance experience. Having served as Administrative Assistant
to the Director of United States Atomic Energy  Commission from 1958 to 1959, he
began his Wall  Street  career as an  analyst  at Bache & Co. in 1959.  He was a
partner with Shearson,  Hammill & Company from 1961 to 1969 and a Senior Partner
of Devon Securities,  an international  investment banking and research boutique
from 1969 to 1975.  Mr.  Getter was a member of the New York Society of Security
Analysts.  From 1975 to 1983 he was President and CEO of Generics Corporation of
America, a public company that was one of the largest generic drug manufacturers
in the United States.  As Chairman and CEO of Wolins Pharmacal from 1977 to 1983
he led the reorganization and restructuring one of the oldest and largest direct
to the profession distributors of pharmaceuticals.                              

He has been a member of the League of American Theatres and Producers,  Advisory
Board of the American  Theatre Wing,  Trustee of The Kurt Weill  Foundation  for
Music,  a member  of the Tony  Administration  Committee  and has  produced  for
Broadway,   television   and  film.   He  writes   frequently   concerning   the
communications, education and entertainment industries.                         

Mr. Getter received his B.S. in Industrial Relations from Cornell University. He
is a member of several  industry  organizations  and serves on various boards of

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both public and private organizations and is Chairman of the Audit Committees of
EVCI Career Colleges, Inksure Technologies, Inc. as well as the Company.        

Lynda  Davey  is Chief  Executive  Officer  of  Avalon  Group,  Ltd.  a  private
investment  banking firm she  co-founded in 1992. She also serves as Chairperson
of Avalon Securities, Inc., an NASD member broker-dealer,  and NY Venture Space,
LLC, a provider of interim office space.  From 1988  throughout  1991, Ms. Davey
was Managing Director of The Tribeca Corporation,  a New York based buyout firm.
Prior to 1988, Ms. Davey was Vice President in the corporate finance  department
of Salomon  Brothers Inc. She is a director of Tuffy  Associates Corp. Ms. Davey
also serves on the Advisory Council of the Center for Women's Business  Research
and  Retail  Finance  Group of Wells  Fargo  Bank.  She  became a member  of the
Supervisory Board of ICTS in 2002.                                              

Michael  Barnea has been employed by the Company since 2002. Mr. Barnea has also
been a member of the  supervisory  board of ICTS between  1996-2000 and has been
actively  involved with mergers and  acquisitions as well as other activities of
ICTS.  Mr.  Barnea is a graduate of the Tel Aviv School of Law.  Mr.  Barnea has
been investigated by the Israeli Securities and Exchange Commission as a part of
an  investigation  conducted by such agency for  suspected  criminal  acts under
Israeli law, in connection with his past involvement  with Rogosin  Enterprises,
Ltd., an Israeli company.                                                       

Stefan Vermeulen is a chartered accountant (the Netherlands).  Mr. Vermeulen has
been the Chief  Financial  Officer of ICTS since 2001.  Before joining ICTS, Mr.
Vermeulen  worked as an  internal  auditor  for Sara  Lee/Douwe  Egberts  in the
Netherlands from 1999 until 2001. Prior to that he worked as an internal auditor
for Intergraph for two years.  Previously  Mr.  Vermeulen  worked as an external
auditor with Deloitte & Touche in the Netherlands for seven years.  Mr.Vermeulen
holds a masters degree in information management.                               

Compensation                                                  

   Effective as of January 1, 2004, ICTS entered into a two year
agreement with Mr. Boaz Harel providing for the following: base compensation in 
the amount of $20,400 per month, per annum after taking a 30% pay reduction.    

       Mr. Barnea is employed under a four (4) year Employment Agreement
commencing January 1, 2004 at an annual compensation rate of $140,000 per year. 
The total cost of his employment for 2004 is approximately $330,000 and         
approximately $320,000 for any year thereafter.                                 

        Each member of the Supervisory Board who is not an employee of the
Company receives an annual fee of $10,000 and a fee for each Board or committee 
meeting attended of $1,000 and the Chairman of the Audit Committee receives an  
additional $10,000 per year.                                                    

Board practices                                               

          ICTS has a Supervisory Board and a Management Board. The Supervisory
Board has the primary responsibility for supervising the policies of the        
Management Board and the general course of corporate affairs and recommending   
the adoption of the annual financial statements of ICTS by its shareholders. The
Management Board is responsible for the day-to-day operations of ICTS. Members  
of the Supervisory Board and the Management Board are appointed by the          
shareholders for a term of one year. Non-executive officers are appointed by and
serve at the pleasure of the Management Board.                                  

         The members of the Supervisory Board and their period of service on
the Supervisory Board are as follows: Boaz Harel (2004), Menachem Atzmon (1999),
M. Albert Nissim (2003), Elie Housman (2002), Moshe Winer (2002), David W. Sass 
(2002), Philip M. Getter (2003) and Lynda Davey (2003).                         

The Audit  Committee  consists of Philip M.  Getter,  Chairman,  Lynda Davey and
Moshe Winer, all of whom are independant and have financial expertise. The audit
committee  evaluates  ICTS's  accounting  policies and  practices  and financial
reporting and internal control structures, selects independent auditors to audit
the financial  statements  and confers with the auditors and the  officers.  The
Audit Committee has an Operating Charter as well.                               

         ICTS's compensation committee consists of Boaz Harel, Chairman, Mr.
Nissim and Ms. Davey. The compensation committee determines salaries, incentives

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and other forms of compensation for ICTS's executive officers and administrators
stock plans and employee benefit plans.                                         

       The Supervisory Board of the Company has adopted a Code of Ethics for
principal Executive Officers and Senior financial Officers.                     

         The Articles of Association of ICTS require at least one member for
both the Management Board and the Supervisory Board, but do not specify a       
maximum number of members for such boards. The general meeting of shareholders  
determines the exact number of members of both the Management Board and the     
Supervisory Board. Under the laws of the Netherlands and the Articles of        
Association, each member of the Supervisory Board and Management Board holds    
office until such member's resignation, death or removal, with or without cause,
by the shareholders or, in the case of members of the Supervisory Board, upon   
reaching the mandatory retirement age of 72.                                    

Employees                                                     

 Prior to the sale of its European operations, ICTS employed
approximately 5,000 people in Europe on a regular basis. After the sale of the  
European operations, the number of employees in Europe is approximately 470.    

           In the United States, prior to the enactment of the Security Act ICTS
employed approximately 5,000 people, of which approximately 1,300 were          
unionized. Subsequent to the enactment of the Security Act, but prior to        
November 2002 ICTS employed approximately 11,000 people, of which approximately 
1,300 were unionized. Most of the unionized employees are skycaps and screeners.
ICTS believes that its relationships with employees are generally good. As a    
result of the TSA taking over airport security ICTS currently employs           
approximately 3,000 persons.                                                    

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Share ownership.                                              

          The following table sets forth the number of shares of common stock,
directly and indirectly, owned by all directors and executives of the Company as
of May 31, 2003.                                                                

                                                                [Download Table]

                                                              

                                Number of Shares              
                                Beneficially Owned  Percentage

Boaz Harel                              -           -         
Atzmon Family Trust(1)          3,948,500           59%       
M. Albert Nissim                        -           -         
Moshe Winer                         7,000           *         
David W. Sass                            -          -         
Philip M. Getter                         -          -         
Lynda Davey                              -          -         
Michael Barnea                           -          -         
Eli Hausmann                             -          -         
Estate of Ezra Harel(1)         3,948,500           59%       

All Executive Officers and                                    
Directors as a Group 9 persons  3,955,500           59.2%     

* Less than 1%                                                

        1. Harmony Ventures BV, owns directly and indirectly approximately 59%
of the issued and outstanding Common Shares. A family trust for the benefit of  
the family of Mr. Menachem J. Atzmon (the "Atzmon Family Trust") and the Estate 
of Ezra Harel own 100% of the outstanding shares of Harmony Ventures BV and may 
be deemed to control Harmony Ventures BV. Mr. Atzmon disclaims any beneficial   
interest in the Atzmon Family Trust. Harmony Ventures BV, the Atzmon Family     
Trust and the Estate of Ezra Harel may be able to appoint all the directors of  
ICTS and control the affairs of ICTS.                                           

Options to Purchase Securities.                               

          On June 22, 1999 shareholders adopted the 1999 Equity Incentive Plan
(the "Plan"). The Plan provides a means whereby employees, officers, directors, 
and certain consultants and independent contractors of the Company ("Qualified  
Grantees") may acquire the Common Shares of the Company pursuant to grants of   
(I) Incentive Stock Options ("ISO") and (ii) "non-qualified stock options". A   
summary of the significant provisions of the Plan is set forth below. The       
following description of the Plan is qualified in its entirety by reference to  
the Plan itself.                                                                

    The purpose of the Plan is to further the long-term stability,
continuing growth and financial success of the Company by attracting and        
retaining key employees, directors and selected advisors through the use of     
stock incentives, while stimulating the efforts of these individuals upon whose 
judgment and interest the Company is and will be largely dependent for the      
successful conduct of its business. The Company believes that the Plan will     
strengthen these individuals' desire to remain with the Company and will further
the identification of their interests with those of the Company's shareholders. 

     The Plan provides that options to purchase up to 600,000 Common
Shares of the Company may be issued to the employees and outside directors. All 
present and future employees shall be eligible to receive incentive awards under
the Plan, and all present and future non-employee directors shall be eligible to
receive non-statutory options under the Plan. An eligible employee or           
non-employee director shall be notified in writing, stating the number of shares
for which options are granted, the option price per share, and conditions       
surrounding the grant and exercise of the options.                              

           The exercise price of shares of Company Stock covered by an ISO shall
not be less than 100% of the fair market value of such shares on the date of    
grant; provided that if an ISO is granted to an employee who, at the time of the
grant, is a 10% shareholder, then the exercise price of the shares covered by   
the incentive stock option shall not be less than 110% of the fair market value 
of such shares on the date of the grant. The exercise price of shares covered by
a non-qualified stock option shall be not less than 85% of the fair market value
of such shares on the date of the grant. The Plan shall be administered by the  
Compensation Committee.                                                         

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     As of May 31, 2004 ICTS has granted options to purchase 212,500
Common Shares, all of which have been granted to directors and executive        
officers of the Company as a group, at exercise prices ranging from $4.50 to    
$8.50 per share under the Plan. These options vest over various terms, ranging  
from immediately to five years. Outstanding options expire at various times, but
not later than January 2007.                                                    

Item 7. Major Shareholders and Related Party Transactions     

Major Shareholders.                                           

      The following table sets forth certain information regarding the
beneficial ownership of the Common Shares of ICTS, as of May 31, 2004, by each  
person, other than officers and directors, who is known by ICTS to own          
beneficially more than 5% of the outstanding Common Shares:                     

            Number of Shares
                                Beneficially Owned        Percentage

Estate of Ezra Harel(1)      3,948,500                    59% 
Atzmon Family Trust(1)       3,948,500                    59% 
M. Albert Nissim                    -                      -  
Moshe Winer                      7,000                     *  
David W. Sass                       -                      -  
Philip M. Getter                    -                      -  
Lynda Davey                         -                      -  
Michael Barnea                      -                      -  
Eli Housman                         -                      -  
Boaz Harel                          -                      -  

All Executive Officers and    3,855,500                59.2%  
Directors as a Group 10 persons                               
---------------------------                                   
* Less than 1%                                                

        1. Harmony Ventures BV, owns directly and indirectly approximately 59%
of the issued and outstanding Common Shares. The Atzmon Family Trust and the    
Estate of Ezra Harel own 100% of the outstanding shares of Harmony Ventures BV  
and may be deemed to control Harmony Ventures BV. Mr. Atzmon disclaims any      
beneficial interest in the Atzmon Family Trust. Harmony Ventures BV, the Atzmon 
Family Trust and the Estate of Ezra Harel may be able to appoint all the        
directors of ICTS and control the affairs of ICTS.                              

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Related Party Transactions.                                   

       In 2001 and 2002, as part of the sale of its European operations,
ICTS in exchange for services rendered by the members of the Supervisory Board  
and certain executives paid out the following bonuses:                          

                                                        [Enlarge/Download Table]

                                                                                         

------------------------------------ --------------------- ----------------------------- 
           Name                                     2001                        2002     
           ----                                     ----                        ----     

         Ezra Harel                        $ 1,800,000 (1)                $  2,451,000(1)
         Boaz Harel                        $   169,000 (2)                $     71,000   
         Savinoam Avivi                    $    18,000                    $     23,000   
         Michael Barnea                    $   225,000 (3)                $    293,000(3)
         Gerald Gitner                     $   118,000                    $     24,000   
         Menachem  Atzmon                  $   412,000 (4)                $    541,000(4)
         Amos Lapidot                      $    18,000                    $     23,000   
         Lior Zouker                       $ 1,080,000 (5)                $  1,499,000(5)
         Albert Nissim                     $    30,000                    $     36,000   
         Stefan Vermeulen                        0                        $     45,000   
         Eli Talmor                        $     0                                   0   
         Doron Zicher                      $    21,000                    $    146,000   
         Leedan                            $   163,000 (6)                $  1,208,000   
                                           $ 1,000,000                                   


 (1) This amount was due to Mr. Harel pursuant to his employment
agreement and was designated by him to be paid to Leedan, on behalf of Harmony. 

         (2) Mr. Harel resigned as a member of the Supervisory Board on November
12, 2001. In exchange for this cash payment Mr. Harel also surrendered 16,667   
stock options.                                                                  

      (3) In consideration for services provided by Pinkhill Business Ltd.

         (4) Was assigned to Harmony BV in favor of the shareholder and was paid
to Leedan.                                                                      

         (5) This amount was paid pursuant to Mr. Zouker's employment agreement.

      (6) In exchange for part of this cash payment Mr. Zicher surrendered
6,667 of stock options.                                                         

In August  1997,  ICTS,  as part of a group  consisting  of Leedan  Systems  and
Properties  Enterprises  (1993) Ltd. and Rogosin  Development  and Holdings Ltd.
("Rogosin"),  each at the time,  an  affiliate  of Leedan,  invested  in a joint
venture,  Bilu  Investments Ltd.  ("Bilu").  Bilu is engaged in the financing of
real  estate  projects  in  Israel,  primarily  in the  residential  market.  In
consideration for a 9.3% equity interest in Bilu, ICTS contributed  $259,000 and
has guaranteed  $2,915,000 of debt  obligations of Bilu. In 2000 Bilu issued 25%
of its shares to an unaffiliated party in consideration for an equity investment
of US $2,000,000 and the provision of guarantees for debt obligations of Bilu in
an amount of US  $3,800,000.  As a result , ICTS's  equity  interest in Bilu has
been  diluted to 7% and ICTS's  guarantee  was  reduced to  $2,515,000  of which
$700,000  is on behalf  of each of Leedan  and  Rogosin,  respectively.  Rogosin
became  an  unaffiliated  party  in  2002.  (See  Note  6(e)  to  the  financial
statements).                                                                    

In connection with release of certain  guarantees of various debt obligations of
a third party procured by ICTS in 1997, in 2000 ICTS purchased from unaffiliated

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parties a $1,000,000  debenture  bearing interest at 10% per annum, due November
26,  2004,  issued by  Pioneer.  This  debenture  is  guaranteed  by Leedan,  an
affiliate of the Estate of Ezra Harel and Mr. Atzmon.                           

       In July 2000, each of ICTS and ICTS Tourist Attractions Ltd. ("ITA"),
purchased 16 common shares for $16,000 each of Ramasso from Leedan, representing
40% each of the outstanding share capital of Ramasso. The remaining 20% shares  
in Ramasso are held by a company controlled by Leedan. ICTS provided loans to   
Ramasso from time to time aggregating approximately $3,000,000 bearing an annual
interest rate of 4.25% which has no fixed repayment. Ramasso owns and operates, 
a Time Elevator in Rome, Italy. In April, 2003 the Company provided a financial 
institution that financed the Time Elevator in Rome, with a guaranty securing   
the repayment of such financing. At the time the guaranty was provided the      
amount of the financing provided by such financial institution to Time Elevator 
in Rome has been net 1,838,390 Euro's. (See Note 5(b) to the financial          
statements).                                                                    

   In December 2000, ICTS exercised an option to purchase 100 common
shares of ITA for $600,000, representing 10% of the outstanding share capital of
ITA. On October 14, 2001, ICTS agreed to increase its investment in ITA under   
the following principal terms: (a) ICTS provided ITA with a $3,000,000 loan     
[which released a $1,000,000 bank guaranty previously provided by ICTS in favor 
of ITA]; (b) ICTS was granted with a warrant to purchase 12% of ITA shares      
exercisable during a period of three years, at an exercise price that shall be  
determined according to an evaluation of ITA to be made by an independent       
consultant; (C)) ICTS was granted [a right of first refusal] to establish and   
own, on its own account, any Time Elevator project to be initiated by ITA in the
United States [and Europe]; (d) ITA will supervise and manage the establishment 
of such projects for a fee that shall be equal to 20% of the projects costs; (e)
ICTS has the option to acquire from ITA 20% of ITA's stake in each Time Elevator
project of ITA in Europe for a period of two years from the start of such       
project; and (f) ITA has the option to acquire from ICTS 20% of ICTS's stake in 
each Time Elevator project of ICTS for a period of two years from the start of  
such project. The first project for which ICTS exercise its right of first      
refusal is in Atlantic City, New Jersey where ICTS is currently engaged in the  
establishment of the Time Elevator project. The second project in which ICTS    
exercised its right of first refusal, is in Baltimore, Maryland where ICTS is   
currently establishing a Time Elevator project. As of May 31, 2004, ICTS has    
invested $9,000,000 in the Atlantic City project and $4,400,000 in the          
Baltimore, Maryland project. ITA is entitled to receive a management fee of 20% 
for the services they provide in the development and construction of each of    
these projects.                                                                 

          On December 23, 2003 the Company through wholly owned subsidiaries
purchased from ITA International Tourist Attractions, Ltd., ("ITA") certain     
assets owned by ITA and used by it in the development, establishment and        
operation of motion-based entertainment theaters. The assets purchased consist  
primarily of intangible property and certain equipment. ITA is a company in     
which principal shareholder of the Company owed in the aggregate in excess of   
50% of the shares. The purchase price for the assets purchased was              
$5,429,151.00. The purchase price was paid by set-off against certain debts owed
by ITA to the Company, cash and notes. As a part of the transaction, certain    
agreements made between the Company and ITA in 2001 were terminated, with the   
result that the Company is no longer committed to involve ITA in its existing   
and future entertainment projects. Prior to entering into the transaction the   
Company obtained a fairness opinion as to the fairness of the consideration and 
the transaction to the Company.                                                 

 The Company currently operates a fully owned motion-based
entertainment theater in Baltimore, MD and is establishing a new fully-owned    
multi-experience motion-based entertainment theater in Atlantic City, NJ        
scheduled to open by mid-2004. The Company is also a partner in a movie-based   
entertainment facility in Niagara Falls, NY.                                    

         ITA is an Israeli based private company established in 1994 which
has been engaged in the business of developing Time Elevators. Mr. Ezra Harel   
and the Azmon Family Trust were the principal shareholders of ITA.              

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          On July 24, 2001, ICTS, through an assignment from Noaz Management
Company, invested $400,000 in Artlink Inc, a company with expertise in curating 
and producing art exhibits, servicing and representing young artists. Mr. Ezra  
Harel was a principal shareholder of Noaz Management Company.                   

      During 2001 and 2002 ICTS provided loans to Leedan aggregating
approximately $3.6 million bearing interest at libor plus 3%. The loans were    
repaid in the first half of 2003.                                               

      During the period from April to September 2002, ICTS purchased
4,106,895 shares of Inksure Technologies Inc. ("Inksure"), which represents     
34.3% of Inksure's outstanding shares for a purchase price of $5,986,000. In    
October 2002, Mr. Elie Housman, the Chairman of the Board of Inksure, was       
appointed to the ICTS Supervisory Board. Mr. Getter and Mr. Sass, members of the
ICTS Supervisory Board and our directors were elected to the Board of Inksure.  
Messrs. Housman, Getter and Sass, as well as an entity assoicated with the      
Atzmon Family Trust, own shares and warrants in Inksure. In addition, Messrs.   
Housman, Getter and Sass hold options to purchase Inksure securities. Inksure   
develops, markets and sells customized authentications systems designed to      
enhance the security of documents and branded products and to meet the growing  
demand for protection from counterfeiting and diversion. In March 2004 the      
Company participated in Inksure's private placement purchasing 544,118          
additional shares at an aggregate purchase price of $370,000. The Company owns  
approximately 36% of the outstanding shares of Inksure.                         

     During 1998, ICTS purchased 150,000 shares of common stock of
Pioneer from Leedan for a purchase price of $5.00 per share. Pioneer is a sister
corporation through common ownership through Harmony. ICTS purchased 29,000     
additional shares on October 10, 2001 at $2.25 per share. In addition, on       
February 1, 2002, ICTS subscribed for an additional 260,000 shares at $2.00 per 
share. In January 2003, ICTS purchased 235,300 shares of common stock of Pioneer
Commercial Funding Corp. at a purchase price of $0.90 per share in a private    
placement. Mr. Albert Nissim, the secretary and member of the ICTS Supervisory  
Board is the president and a Chairman of Pioneer, Lynda Davey, a member of the  
ICTS Supervisory Board was a director of Pioneer and David W. Sass, a member of 
the ICTS Supervisory Board is secretary of Pioneer and currently a director of  
that company along with Mr. Boaz Hreal and M. Albert Nissim. The Estate of Ezra 
Harel and the Atzmon Family Trust are also principal shareholders of Pioneer.   

Item 8. Financial Information                                                   

Consolidated Statements and Other Financial Information.                        

See pages F-1 through F- 49 incorporated herein by reference.               

Legal Proceedings                                                               

        As a result of the September 11th terrorists attacks numerous lawsuits
have commenced against Huntleigh and ICTS. Huntleigh has been named in 51       
lawsuits and ICTS in 51 lawsuits All of the cases were filed in the United      
States District Court, Southern District of New York. The cases arise out of    
Huntleigh's airport security service for United Flight 175 out of Logan Airport 
in Boston, Massachusetts. All of the cases involve wrongful death except one    
which involves property damage. The cases are in their early stages.            

       Although these are the only claims brought against Huntleigh and ICTS
with respect to the terrorist attacks of September 11, 2001, Huntleigh and ICTS 
anticipate additional related claims. See " Risk Factors-Potential For Liability
Claims."                                                                        

Under current legislation  Huntleigh and one other security company entered into
agreements with the TSA have their liability  limited to the amount of insurance
coverage that they carry. The legislation applies to Huntleigh, but not ICTS.   

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The Company has commenced an action against the U.S.  Government  with regard to
the Fifth Amendment rights relating to the taking of its business.              

Dividend Policy                                                                 

     On each of July 23, 2001 and May 13, 2002, ICTS declared and paid a
$2.25 dividend per Share ($1.69 net of all withholding taxes required by The    
Netherlands) and on December 10, 2002 ICTS declared and paid a dividend of $3.00
per share (net of all withholding taxes required by The Netherlands). For a     
discussion of the applicable taxes on such dividends see, "Netherlands Dividend 
Withholding Tax". The declaration of dividends will be at the discretion of our 
board of directors and will depend upon our earnings, capital requirements,     
financial position, general economic conditions, and other pertinent factors. We
cannot assure you that dividends will be paid in the future.                    

Significant Changes.                                                            

None                                                                            

Item 9. The Offer and Listing                                                   

     ICTS's shares of common stock have traded on the NASDAQ National Market
since 1996 under the symbol ICTS.                                               

The reported high and low sales prices per share during the years ending        
December 31, 2001, 2002 and 2003 as reported on NASDAQ were as follows:         

The reported  high and low closing sales prices per share during each quarter as
reported on NASDAQ were as follows:                                             

2001:                             High    Low               
                   ----    ---
First quarter             $7.81  $5.75      
Second quarter             7.55   4.75      
Third quarter             10.60   4.00      
Fourth quarter            11.59   6.51      

2002:                             High     Low              
                   ----    ---
First quarter             $7.75   $6.71     
Second quarter            10.20    6.04     
Third quarter              7.72    5.00     
Fourth quarter             8.62    4.91     

2003:                              High    Low                
                   ----    ---
First quarter             $6.14   $5.08     
Second quarter             5.10    3.99     
Third quarter              4.42    3.12     
Fourth quarter             3.63    2.49     

2004:                              High    Low                
                   ----    ---
First quarter             $3.98   $3.03     
Second quarter            $8.42   $3.25     

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Item 10. Additional Information                               
Memorandum and Articles of Association                        

Introduction                                                  
The material provisions of the Company's Articles of Association are  
summarized below. Such summaries do not purport to be complete statements of    
these provisions and are qualified in their entirety by reference to such       
exhibit. The Company was established by the Department of Justice at Amstelveen,
The Netherlands on October 9, 1992. The objectives of the Company are generally 
to manage and finance businesses, extend loans and invest capital as described  
in greater detail in Article 2 of the Company's Articles of Association.        

Shares                                                                
     The Company's authorized share capital is currently divided into 17,000,000
common shares,par value 0.45 Euro per common share. The common shares may be in 
bearer or registered form.                                                      

Dividends                                                             
   Dividends on common shares may be paid out of annual profits shown in the
Company's annual accounts, which must be adopted by the Company's Supervisory   
Board.                                                                          
     The Management Board, with the prior approval of the Supervisory Board, may
decide that all or part of the Company's profits should be retained and not be  
made available for distribution to shareholders. Those profits that are not     
retained shall be distributed to holders of common shares, provided that the    
distribution does not reduce shareholders' equity below the issued share capital
increased by the amount of reserves required by Netherlands law. At its         
discretion, subject to statutory provisions, the Management Board may, with the 
prior approval of the Supervisory Board, distribute one or more interim         
dividends on the common shares before the annual accounts have been approved by 
the Company's shareholders. Existing reserves that are distributable in         
accordance with Netherlands law may be made available for distribution upon     
proposal by the Management Board, subject to prior approval by the Supervisory  
Board. With respect to cash payments, the rights to dividends and distributions 
shall lapse if such dividends or distributions are not claimed within five years
following the day after the date on which they were made available.             

Voting Rights                                                         

Members of the Company's Supervisory Board are appointed by the general meeting.
The Company's  Articles of  Association  provide that the term of office of each
Supervisory  Director  will  expire no later  than June in each  calendar  year.
Members  of the  Supervisory  Board may be  re-appointed.  General  Meetings  of
Shareholders                                                                    

     The Company's general meetings of shareholders will be held at least once a
year, not later than six months after the end of the fiscal year. Notices       
convening a general meeting will be mailed to holders of registered shares at   
least 15 days before the general meeting and will be published in national      
newspapers in The Netherlands and abroad in countries where the Company's bearer
shares are admitted for official quotation. In order to attend, address and vote
at the general meeting of shareholders, the holders of the Company's registered 
shares must notify it in writing of their intention to attend the meeting and   
holders of the Company's bearer shares must direct the depository to their      
bearer shares, each as specified in the published notice. The Company currently 
does not solicit from or nominate proxies for its shareholders and is exempt    
from the proxy rules of the Securities Exchange Act of 1934. However,           
shareholders and other persons entitled to attend the general meetings of       
shareholders may be represented by proxies with written authority.              

Other general meetings of shareholders may be held as often as deemed 
necessary by the Supervisory Board or the Management Board and must be held if  
one or more shareholders or other persons entitled to attend the general meeting
of shareholders jointly representing at least 10% of the Company's issued share 

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capital make a written request to the Supervisory Board or the Management Board 
that a meeting must be held and specifying in detail the business to be dealt   
with at such meeting. Resolutions are adopted at general meetings of            
shareholders by a majority of the votes cast, except where a different          
proportion of votes is required by the Articles of Association or Netherlands   
law, in a meeting in which holders of at least one-third of the outstanding     
common shares are represented. Each share carries one vote.                     

Amendment of Articles of Association and Winding Up                   

    A resolution presented to the general meeting of shareholders amending the
Company's Articles of Association or winding up the Company may only be taken   
after a proposal made by the Management Board and approved by the Supervisory   
Board. A resolution to dissolve the Company must be approved by at least a      
three-fourths majority of the votes cast. Approval of Annual Accounts           

The Company's annual Netherlands statutory accounts, together with a  
certificate of its auditors, will be submitted to the general meeting of        
shareholders for approval. Consistent with business practice in The Netherlands 
and as provided by the Company's Articles of Association, approval of the annual
accounts by the shareholders discharges the Management Board and the Supervisory
Board from liability for the performance of their respective duties for the past
financial year. Under Netherlands law, this discharge is not absolute and will  
not be effective with respect to matters which are not disclosed to the         
shareholders.                                                                   

Liquidation Rights                                                    

In the event of the Company's dissolution and liquidation, the assets 
remaining after payment of all debts and liquidation expenses are to be divided 
proportionately among the holders of the common shares.                         

Issues of Shares; Pre-emptive Rights                          

    The Company's Supervisory Board has the power to issue shares. The
shareholders have by a authorizing resolution provided such authority for a five
year period ending June 30, 2006. The number of shares the Supervisory Board is 
authorized to issue must be set at the time of the resolution and may not exceed
17,000,000 shares of the common shares then outstanding.                        

       Shareholders have a pro rata pre-emptive right of subscription to any
common shares issued for the purpose of raising capital, which right may be     
limited or eliminated. If designated for this purpose by the general meeting of 
shareholders (whether by means of any authorizing resolution or an amendment to 
the Company's Articles of Association).                                         

Repurchase and Cancellation of Shares                         

     The Company may repurchase its common shares, subject to compliance
with the requirements of certain laws of The Netherlands (and provided the      
aggregate nominal value of the Company's common shares acquired by it at any one
time amounts to no more than one-tenth of its issued share capital). Common     
shares owned by the Company may not be voted or counted for quorum purposes. Any
such purchases are subject to the approval of the Supervisory Board and the     
authorization of the general meeting of shareholders. Authorization is not      
effective for more than 18 months. The Company may resell shares it purchases.  
Upon a proposal of the Management Board and approval of the Supervisory Board,  
the Company's shareholders at the general meeting shall have the power to decide
to cancel shares acquired by the Company or to reduce the nominal value of the  
common shares. Any such proposal is subject to general requirements of          
Netherlands law with respect to reduction of share capital.                     

         Shares may only be cancelled by vote of the shareholders at the general
meeting. Only shares which the Company holds or for which it holds the          
depository receipts may be cancelled. However, an entire class may be cancelled 
provided the Company repays the par value to the holders of such shares.        

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Material contracts                                            

For  material  contracts  See "Item 8 - Financial  Information,  B.  Significant
Changes".                                                                       

Exchange controls                                           

There are no governmental laws, decrees or regulations in the 
Netherlands, the Company's jurisdiction of organization, that restrict the      
Company's export or import of capital in any material respect, including, but   
not limited to, foreign exchange controls.                                      

      There are no limitations imposed by Netherlands law or the Company's
charter documents on the right of nonresident or foreign owners to hold or vote 
Common Shares.                                                                  

Taxation                                                      

United States Federal Income Tax Consequences                 

   The following discussion summarizes the material anticipated U.S.
federal income tax consequences of the acquisition, ownership and disposition of
shares by a U.S. Holder (as defined below). This summary deals only with shares 
held as capital assets and does not deal with the tax consequences applicable to
all categories of investors some of which (such as tax-exempt entities, banks,  
broker-dealers, investors who hold shares as part of hedging or conversion      
transactions and investors whose functional currency is not the U.S. dollar) may
be subject to special rules. This summary does not deal with the tax            
consequences for U.S. Holders who own at any time directly or indirectly through
certain related parties 10% or more of the voting stock or nominal paid-in      
capital of the Company.                                                         

      The summary does not purport to be a complete analysis or listing of
all the potential tax consequences of holding shares, nor does it purport to    
furnish information in same detail or with attention to an investor's specific  
tax circumstances that would be provided by an investor's own tax adviser.      
Accordingly, prospective purchasers of shares are advised to consult their own  
tax advisers with respect to their particular circumstances and with respect to 
the effects of U.S. federal, state, local, or other laws to which they may be   
subject.                                                                        

    As used herein, the term `U.S. Holder' means a beneficial owner of
shares that is (I) for United States federal income tax purposes a citizen or   
resident of the United States, (ii) a corporation or other entity created or    
organized in or under the laws of the United States or any political subdivision
thereof, or (iii) an estate or trust the income of which is subject to United   
States federal income taxation regardless of its source.                        

       The summary is based on the Internal Revenue Code of 1986, as amended
(the `Code'), judicial decisions, administrative pronouncements, and existing   
and proposed Treasury regulations, changes to any of which after the date of    
this Annual Report on Form 20-F could apply on a retroactive basis and affect   
the tax consequences described herein.                                          

Taxation of Dividends                                     

         For U.S. federal income tax purposes, the gross amount of distributions
(including any withholding tax thereon) made by the Company out of its current  
or accumulated earnings and profits (as determined under U.S. federal income tax
principles) will be included in the gross income of a direct U.S. Holder as     
foreign source dividend income on the date of receipt but will not be eligible  
for the dividends received deduction generally allowed to U.S. corporations.    
Distributions in excess of the earnings and profits of the Company will be      
treated, for U.S. federal income tax purposes, first as a nontaxable return of  
capital to the extent of the U.S. Holder's basis in the shares (thereby         
increasing the amount of any gain and decreasing the amount of any loss realized
on the subsequent disposition of such shares) and then as a gain from the sale  
or exchange of the shares. The amount of any dividend paid in euro will be equal
to the U.S. dollar value of the euro on the date of receipt regardless of       
whether the U.S. Holder converts the payment into U.S. dollars. Gain or loss, if
any, recognized by a U.S. Holder resulting from currency exchange fluctuations  
during the period from the date the dividend is includable to the date such     
payment is converted into U.S. dollars and any exchange gain or loss will be    
ordinary income or loss.                                                        

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Foreign Tax Credits                                       

         U.S. Holders will generally be entitled to claim a credit against their
United States federal income tax liability for the amount of Netherlands        
dividend withholding tax imposed on dividends paid to U.S. Holders. See         
Netherlands Dividend Withholding Tax.. U.S. Holders who are entitled to the     
benefits of a reduced rate of Netherlands dividend withholding tax under the    
U.S. Tax Treaty will be allowed a credit for only the amount of withholding tax 
provided for under the U.S. Tax Treaty (i.e. 15%). However, the full amount of  
the dividend, including any withheld amounts in excess of 15%, will be subject  
to current United States federal income taxation whether or not such Holder     
obtained a refund of the excess amount withheld. The U.S. Holder is also        
entitled to a U.S. foreign tax credit for Dutch corporate taxes assessed on the 
earnings and profits that are distributed. To the extent that Dutch corporate   
income tax has reduced the accumulated earnings and profits (i.e. the taxes have
been paid or at least accrued with an assessment), these taxes accompany the    
dividend at the same pro-rata percentage as the dividend to the accumulated     
earnings and profits. The dividend income against which U.S. tax is assessed    
must be grossed up by the amount of Dutch taxes to be claimed as a credit in    
order to reverse the effect of the reduction to taxable earnings and profits.   
The amount of the credit for Netherlands income tax in accordance with the U.S. 
Tax Treaty will be subject to limitations contained in the foreign tax credit   
provisions of the Code. In the event the Company pays a dividend to a U.S.      
Holder out of the earnings of a non-Dutch subsidiary, however, it is possible   
that under certain circumstances such U.S. Holder would not be entitled to claim
a credit for a portion of any Dutch taxes withheld by the Company from such     
dividend. The portion of Dutch withholding tax that may not be creditable in    
this instance equals a maximum of 3% of the gross amount of such dividend (or   
20% of the Dutch taxes withheld in the case of a U.S. Holder entitled to claim a
15% withholding rate under the U.S. Tax Treaty). This limitation could only     
potentially apply under circumstances where the Company pays dividends on the   
shares.                                                                         

         Depending on the particular circumstances of the U.S. Holder, dividends
accrued from shares will generally be classified, for foreign tax credit        
purposes, as passive income or financial services income. A U.S. Holder who     
finds it more advantageous because of such limitations, to claim The Netherlands
dividend withholding tax as a deduction instead of a credit may do so, but only 
for a year for which such Holder does not claim a credit for any foreign taxes. 
If the U.S.Holder is a U.S .partnership, trust, or estate, any tax credit is    
available only to the extent that the income derived by such partnership,       
trusts, or estate is subject to U.S. tax on the income of a resident either in  
its hands or in the hands of its partners or beneficiaries, as the case may be. 

Taxation on Sale or Disposition of Shares                 

     U.S. Holders will recognize capital gain or loss for U.S. federal
income tax purposes on the sale or other disposition of shares in an amount     
equal to the difference between the U.S. dollar value of the amount realized and
the U.S. Holder's adjusted tax basis in the shares. In general, a U.S. Holder's 
adjusted tax basis in the shares will be equal to the amount paid by the U.S.   
Holder for such shares. For shares held less than a year, any such gain or loss 
will generally be treated as short-term gain or loss and taxed as ordinary gain 
or loss. If the shares have been held for more than a year, any such gain or    
loss will generally be treated as long-term capital gain or loss. Rates of tax  
on long-term capital gains vary depending on the holding period. U.S. Holders   
are advised to consult a competent tax adviser regarding applicable capital     
gains tax provisions and sourcing of capital gains and losses for foreign tax   
credit purposes.                                                                

Gift and Estate Tax                                       

        An individual U.S. Holder may be subject to U.S. gift and estate taxes
on shares in the same manner and to the same extent as on other types of        
personal property.                                                              

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Backup Withholding and Information Reporting              

 Payments in respect of the shares may be subject to information
reporting to the U.S. Internal Revenue Service and to a 31% U.S. backup         
withholding tax. Backup withholding generally will not apply, however, to a     
Holder who furnishes a correct taxpayer identification number or certificate of 
foreign status and makes any other required certification or who is otherwise   
exempt from backup withholding. Generally, a U.S. Holder will provide such      
certification on Form W-9 (Request for Taxpayer Identification Number and       
Certification) and a non-US Holder will provide such certification on Form W-8  
(Certificate of Foreign Status).                                                

Foreign Personal Holding Companies                        

      The Company or any of its non-US subsidiaries may be classified as a
`foreign personal holding company' (`FPHC') if in any taxable year five or fewer
persons who are U.S. citizens or residents own (directly or constructively after
the application of certain attribution rules) more than 50% of the Company's    
stock (a `US Group') and more than 60% of the gross income of the Company or of 
any subsidiary consists of passive income for purposes of the FPHC rules. There 
is a look-through rule for dividends and interest received from related persons.
Accordingly, dividends and interest received by the Company from its            
subsidiaries will be re-characterized based on the income of the subsidiaries.  

        If the Company or any of its subsidiaries is or becomes a FPHC, each
U.S.Holder of the Company (including a U.S. corporation) who held stock in the  
Company on the last day of the taxable year of the Company, or, if earlier, the 
last day of its taxable year in which a U.S. Group existed with respect to the  
Company, is required to include in gross income as a dividend such shareholder's
pro rata portion of the undistributed FPHC income of the Company or the         
subsidiary, even if no cash dividend was actually paid. In this case, if the    
Company is a FPHC, a U.S. Holder is entitled to increase its tax basis in the   
shares of the Company by the amount of a deemed dividend from the Company. If a 
subsidiary of the Company is a FPHC, a U.S. Holder in the Company should be     
afforded similar relief, although the law is unclear as to the form of the      
relief.                                                                         

Taxes in the Netherlands                                      

The following is a general discussion of the tax laws in the Netherlands as they
relate to the operations of the Company :                                       

Corporate Income Taxes                                        

 Each subsidiary of ICTS is subject to taxation according to the
applicable tax laws with respect to its place of incorporation, residency or    
operations. ICTS is incorporated under the laws of the Netherlands and is       
therefore subject to the tax laws of the Netherlands.                           

        As of January 1 2002, for Dutch corporate income tax purposes business
affiliates should calculate their profits at arms length. Therefore, if in      
transactions between such affiliates, certain benefits are bestowed on either   
entity because of such affiliation and if any profits are realized due to such  
association, then both entities should include such profits as part of their    
income.                                                                         

Participation exemption                                       

    In addition, all income of ICTS arising from dividends paid by its
subsidiaries or affiliates or capital gains from the sale of its shares in      
subsidiaries or affiliates is exempt from corporate income tax in the           
Netherlands if the following conditions are fulfilled: (i) ICTS must hold at    
least 5% of the nominal paid-in capital of the subsidiary or affiliate, (ii) the
subsidiary or affiliate must be an operating company, (iii) the subsidiary or   
affiliate must be subject to taxation of its profits in its jurisdiction of     
incorporation or residence and (iv) for non-European Community subsidiaries or  

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affiliates or for European Community subsidiaries or affiliates in which ICTS   
owns less than 25% of the nominal paid-in capital, as well as for larger        
shareholdings if the EU company is to benefit from the participation exemption, 
ICTS must not hold the shares in the subsidiary or the affiliate merely as a    
portfolio investment (which is deemed to be the case if the activities of the   
subsidiary or affiliate consist mainly of the financing (directly or indirectly)
entities related to ICTS or assets of such entities). Furthermore, the          
participation is denied if 70 percent or more of the assets of any participation
would consist of interests in companies which would not be considered qualifying
participations if the interests would have been directly held by ICTS. The      
participation exemption will also be excluded for participations in EU companies
with foreign branches if the branches would not have been exempted in case they 
would have been held directly by ICTS.                                          

     Consequently, income of ICTS arising from dividends paid by its
subsidiaries or affiliates or capital gains from the sale of its shares in its  
subsidiaries or affiliates may be exempt from corporate income tax in the       
Netherlands.                                                                    

Limitations on set-off of losses                              

        As from 1 January 2004, new rules have been introduced that may affect
the carry forward of losses of prior years against profits made in 2004 and     
subsequent years. Generally, the new rules provide that, if the activities of a 
company for the entire year entirely or almost entirely (i.e. 90%) consist(ed)  
for 90% or more of the holding of participations or (in)directly financing      
related companies, losses resulting from these activities can only be set off   
against:                                                                        

1. the profits of years in which the activities of the taxpayer for (almost) the
entire year also (almost) entirely consisted of the holding of participations or
(in)directly financing of related companies; and 2. the book value of debt      
claims on related companies less the book value of debts to these companies in  
(almost) the entire year does not exceed the book value of other comparable     
debts less the book value of other comparable debts at the end of the year in   
which the loss was realized.                                                    

    The new rules clarify that the activities of a company will not be
deemed to be (almost) entirely consisting of the holding of participations or   
(in)directly financing related companies if at least 25 employees are engaged in
other activities on a full-time basis.                                          

The following is a summary of Netherlands tax consequences to a holder of Common
Shares who is not, or is not deemed to be, a resident of the Netherlands for    
purposes of the relevant tax codes (a "non-resident Shareholder") and is based  
upon laws and relevant interpretations thereof in effect as of the date of this 
Annual Report, all of which are subject to change, possibly on a retroactive    
basis. The summary does not address taxes imposed by the Netherlands and its    
political subdivisions, other than the dividend withholding tax, the individual 
income tax, the corporate income tax, the net wealth tax and the gift and       
inheritance tax. The discussion does not address the tax consequences under tax 
laws in any other jurisdiction besides the Netherlands.                         

Netherlands Tax Consequences of Holding Shares                

The following is a general discussion of the tax laws in the Netherlands as they
relate to the holding shares of the Company :                                   

Dividend Withholding Tax in the Netherlands                   

ICTS currently does not anticipate paying any dividends in the
foreseeable future. To the extent that dividends are distributed by ICTS, such  
dividends ordinarily would be subject, under the tax laws of the Netherlands, to
a withholding tax at a rate of 25%. Dividends include distributions in cash or  

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in kind, constructive dividends and redemption and liquidation proceeds in      
excess of, for the Netherlands tax purposes, recognized paid-in capital. Share  
dividends are also subject to the Netherlands dividend withholding tax, unless  
distributed out of the paid-in share premium of ICTS as recognized for tax      
purposes in the Netherlands.                                                    

        A non-resident Shareholder can be eligible for a reduction or a refund
of the Dutch dividend withholding tax under a tax convention which is in effect 
between the country of residence of the shareholder and the Netherlands. The    
Netherlands has concluded such conventions with, among others, the United       
States, most European Community countries, Canada, Switzerland and Japan. Under 
most of these conventions, a dividend withholding tax in the Netherlands is     
reduced to a rate of 15% or less.                                               

       Under the tax convention currently in force between the United States
and the Netherlands (the "Treaty"), dividends paid by ICTS to an individual     
shareholder resident in the United States or a corporate shareholder organized  
under the laws of the United States or any State or territory thereof entitled  
to the benefits of the Treaty (each, a "U.S. Treaty Shareholder") are generally 
eligible for a reduction in the rate of the Netherlands= dividend withholding to
15%, unless such U.S. Treaty Shareholder has a permanent establishment in the   
Netherlands to which the Common Shares are attributable.                        

   Generally, there is no dividend withholding tax applicable in the
Netherlands on the sale or disposition of Common Shares to persons other than   
ICTS or its subsidiaries or affiliates. In case of sale or disposition of common
shares to ICTS or any of its subsidiaries, the dividend withholding tax in the  
Netherlands may apply. However, after January 1, 2001, in limited circumstances,
the Dutch dividend withholding tax will not apply to repurchases of shares by   
ICTS.                                                                           

        In addition, in an effort to reduce the practice of dividend stripping
to reduce or avoid the applicable taxes, the Dutch tax authorities have         
introduced new laws to avoid such practices effective retroactively from April  
27, 2001.                                                                       

Income Tax and Corporate Income Tax in the Netherlands        

  A non-resident Shareholder will not be subject to income tax and
corporate income tax in the Netherlands with respect to dividends distributed by
ICTS on the Common Shares or with respect to capital gains derived from the sale
or disposal of Common Shares, provided that:                                    

                 (a) the non-resident Shareholder does not carry on a business
in the Netherlands through a permanent establishment or a permanent             
representative to which or to whom the Common Shares are attributable; and      

              (b) the non-resident Shareholder does not have a direct or
indirect substantial interest or deemed substantial interest in the share       
capital of ICTS as defined in the tax code in the Netherlands or, in the event  
the non-resident Shareholder does have such a substantial interest, such        
interest forms part of the assets of an enterprise of that non-resident         
Shareholder; and                                                                

                  (c) the non-resident Shareholder is not entitled to a share in
the profits of an enterprise effectively managed in the Netherlands, other than 
through ownership of securities or through employment, to which enterprise the  
Common Shares are attributable.                                                 

         Generally, a substantial interest in the share capital of ICTS does not
exist if the non-resident Shareholder, alone or together with certain close     
relatives, does not own, directly or indirectly, 5% or more of the issued       
capital of any class of shares in ICTS, options to acquire 5% or more of the    
issued capital of any class of shares or certain profit-sharing rights. In case 
of a substantial interest claims the non-resident Shareholder has on ICTS may   
belong to such substantial interest. Non-resident Shareholders owning a         
substantial interest in ICTS may be subject to income tax upon the occurrence of
certain events, for example when they cease to own a substantial interest.      

       The above paragraph concerning substantial interest holders refers to
tax legislation which became effective January 1, 1997. Special rules may apply 
to non-resident Shareholders who owned a substantial interest or deemed         

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substantial interest under the rules applicable before such dates and to        
non-resident Shareholders who own a substantial interest or deemed substantial  
interest as a result of modifications of the special tax regime for substantial 
interest holders as of such dates.                                              

         As of January 1, 2001, a non-resident individual taxpayer can opt to be
treated like a resident of the Netherlands for tax purposes. This choice will   
allow the individual to benefit from deductions and other tax benefits only     
available to residents of the Netherlands. However, in most cases, this choice  
may not prove beneficial since then the individual will be liable for its       
worldwide income as well as its entire worldwide holdings to taxes in the       
Netherlands.                                                                    

Net Wealth Tax in the Netherlands                             

     Net wealth tax in the Netherlands was abolished on January 1, 2001.

Gift, Inheritance Tax and Transfer Tax Upon Gift or Death in the Netherlands    

        A gift or inheritance of Common Shares from a non-resident Shareholder
will not be subject to gift, inheritance tax, and transfer tax upon gift or     
death in the Netherlands provided that:                                         

                (a) (i) the Common Shares are not an asset attributable to a
resident enterprise or to a permanent establishment or a permanent              
representative of a non-resident enterprise, as well as the Common Shares are   
not an asset that comes of a co-entitlement other than being a shareholder, in  
such an enterprise and (ii) the non-resident Shareholder is not entitled to a   
share in the profits of an enterprise effectively managed in the Netherlands,   
other than through ownership of securities or through employment, to which      
enterprise the Common Shares are attributable.                                  

                 (b) the Common Shares held by the non-resident do not qualify
as "fictitious real estate holdings" for Dutch real estate transfer tax         
purposes.                                                                       

               (c) the non-resident Shareholder has not been a resident of
the Netherlands at any time during the ten years preceding the time of the gift 
or death or, in the event he or she has been a resident of the Netherlands in   
that period, the non-resident Shareholder is not a citizen of the Netherlands at
the time of the gift or death; and                                              

          (d) for purposes of the tax on gifts, the non-resident
Shareholder has not been a resident of the Netherlands at any time during the   
twelve months preceding the time of the gift.                                   

                (e) the beneficiaries of a deceased non-resident Shareholder
have not requested the treatment of the deceased Shareholder as a resident of   
the Netherlands according to the Dutch inheritance taxes.                       

                 (f) In case of a grant of the Common Shares by a non-resident
Shareholder, the donee has not requested to have the donor treated as a resident
of the Netherlands for Dutch gift tax purposes.                                 

Documents on display                                                            

The Company is subject to the informational requirements of the Securities      
Exchange Act of 1934, as amended. In accordance with these requirements, the    
Company files reports and other information with the United States Securities   
and Exchange Commission (`SEC'). These materials may be inspected at the        
Company's office in Amstelveen, The Netherlands.. Documents filed with the SEC  
may also be read and copied at the SEC's public reference room at Room 1024,    

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Judiciary Plaza Building, 450 Fifth Street N.W., Washington, D.C. 20549 and at  
the regional offices of the SEC located at 500 West Madison Street, Suite 1400, 
Chicago, IL 60661. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The SEC also maintains a web site at             
http://www.sec.gov that contains reports, proxy statements and other information
regarding registrants that file electronically with the SEC.                    

Subsidiary Information                                                        

Not applicable                                                

Item 11. Quantitative and Qualitative Disclosure About Market Risk              

Foreign Currency Exchange Risk -  See Item 3 - Risk Factors;          

See Item 5. Operating and Financial  Review and Prospects - Operating  results -
General; and See Item 10 - Exchange Controls.                                   

Item 12. Description of Securities Other than Equity Securities                 

Not applicable                                                

 PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies                        

Not applicable                                                

Item 14.  Material  Modifications  to the Rights of Security  Holders and Use of
Proceeds                                                                        

Not applicable                                                

Item 15. Controls and Procedures.                                               

Based on their evaluation of the Company's disclosure controls and procedures   
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act  
of 1934) as of a date within 90 days of the filing date of this Annual Report on
Form 20-F, the Company's chief executive officer and chief financial officer    
have concluded that the Company's disclosure controls and procedures are        
designed to ensure that information required to be disclosed by the Company in  
the reports that it files or submits under the Exchange Act is recorded,        
processed, summarized and reported within the time periods specified in the     
SEC's rules and forms and are operating in an effective manner.                 

There were no significant changes in the Company's internal controls or in  
other factors that could significantly affect these controls subsequent to the  
date of their most recent evaluation.                                           

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Item 16C.         Principal Accountant Fees and Services      

Auditors' fees for the year 2003 were the following:          

Audit fees                                                                      
Audit fees                                          $452,544                    
Other accounting services fees                        $  685                    
Sub total                                           $453,229                    
Non-Audit services:                                                             
Tax consultation services                            $50,527                    
Tax returns                                          $54,000                    
Total non-audit services                            $104,527                    

Total fees                                          $557,756                    

                                                                PART III
Item 17. Financial Statements                                 
See Item 18.                              
Item 18. Financial Statements                                 
Report of Independent Auditors                                
Consolidated Financial Statements:                            
Consolidated Balance Sheets                                   
Consolidated Statements of Operations                         
and Comprehensive Income                                      
Consolidated Statements of Changes in                         
Shareholders' Equity.                                         
Consolidated of Statements of Cash Flows                      
Notes to Consolidated Financial Statements                    

Item 19.  Exhibits                                            
1. Articles of Association of the Company.*                   

2. Specimen of the Company's Common Stock.*                   

  Certification by the Registrant's Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley   
Act of 2002                                                                     
  Certification by the Registrant's Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley   
Act of 2002                                                                     
* Incorporated by reference to the Company's 1999 annual report     
filed with the Commission on Form 20-F.                                         

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 ICTS INTERNATIONAL N.V.
2003 ANNUAL REPORT

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]

                                                                                                                                    

                                                                                                     Page                           
Report of independent auditors                                                                    F-2 - F-3                         
Consolidated financial statements:                                                                                                  
    Consolidated balance sheets                                                                   F-4 - F-5                         
    Consolidated statements of operations and comprehensive income (loss)                            F-6                            
    Consolidated 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-52                        

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                                                                                         Kesselman & Kesselman                      
                                                                                         Certified Public Accountants               
                                                                                         (Isr.)                                     
                                                                                         Trade Tower, 25 Hamered Street             
                                                                                         Tel Aviv 68125 Israel                      
                                                                                         P.O Box 452 Tel Aviv 61003                 
                                                                                         Telephone +972-3-7954555                   
                                                                                         Facsimile +972-3-7954556                   

REPORT OF INDEPENDENT AUDITORS                                                                                                      

To the Shareholders of                                                                                                              
ICTS INTERNATIONAL N.V.                                                                                                             

We  have  audited  the   accompanying   consolidated   balance  sheets  of  ICTS                                                    
International  N.V. (the "Company") and its subsidiaries as of December 31, 2003                                                    
and  2002,   and  the  related   consolidated   statements  of  operations   and                                                    
comprehensive income, changes in shareholders'equity and cash flows for each of                                                     
the  three  years  in the  period  ended  December  31,  2003.  These  financial                                                    
statements  are the  responsibility  of the  Company'  board of  directors  and                                                     
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 subsidiaries,  whose assets                                                    
included in  consolidation,  constitute  approximately 2% of total  consolidated                                                    
assets  as of  December  2002,  and whose  revenues  included  in  consolidation                                                    
constitute  approximately  0.3% and 14% of total  consolidated  revenues for the                                                    
years  ended  December  31,  2002 and 2001  respectively.  We did not  audit the                                                    
financial statements of certain associated  companies,  the Company's investment                                                    
in which, as reflected in the balance sheets as of December 31, 2003 and 2002 is                                                    
$4 million and $9.6 million,  respectively,  and the Company's share in excess                                                      
of losses over profits of which is a net amount of $1.7 million,  $1.6 and $0.39                                                    
million in 2003, 2002 and 2001,  respectively.  The financial  statements of the                                                    
above  subsidiaries and associated  companies were audited by other  independent                                                    
auditors,  whose reports have been furnished to us, and our opinion,  insofar as                                                    
it relates to amounts included for those  companies,  is based on the reports of                                                    
the other independent auditors.                                                                                                     

We conducted our audits in accordance  with the standards of the Public  Company                                                    
Accounting  Oversight  Board  (United  State) and auditing  standards  generally                                                    
accepted in Israel,  including those prescribed by the Israeli auditors (Mode of                                                    
performance) Regulations, 1973. Those standards require that we plan and perform                                                    
the audit to obtain reasonable  assurance about whether the financial statements                                                    
are free of material misstatement. An audit includes 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 the Company's  Supervisory  board of directors and management,                                                    
as well as evaluating the overall financial statement  presentation.  We believe                                                    
that our  audits  and  reports  of the  other  independent  auditors  provide  a                                                    
reasonable basis for our opinion.                                                                                                   

In our  opinion,  based on our  audits  and the  reports  of  other  independent                                                    
auditors,  the  consolidated  financial  statements  referred  to above  present                                                    
fairly, in all material  respects,  the consolidated  financial  position of the                                                    
Company  and  its  subsidiaries  as of  December 31, 2003  and  2002,  and  the                                                     
consolidated  results of their operations and comprehensive  income, the changes                                                    
in their  shareholders'  equity and their cash flows for each of the three years                                                    
in the period ended December 31,  2003, in conformity with accounting principles                                                    
generally accepted in the United States of America.                                                                                 

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Without  qualifying our opinion,  we draw attention to Note 14b(3),  regarding a                                                    
dispute between the company's  subsidiary in the U.S.A.  and the  Transportation                                                    
Security  Administration  ("TSA"),  with respect to the basis of  calculation of                                                    
payments for security  services  rendered in 2002, in respect of which,  the TSA                                                    
might be claiming refund of material amounts.                                                                                       

As  discussed in note 2g to the  consolidated  financial  statements,  effective                                                    
January 1, 2002,  the Company  changed its method of accounting  for goodwill to                                                    
conform with FASB Statement of Financial  Accounting  Standard No. 142 "Goodwill                                                    
and Other Intangible Assets".                                                                                                       

Tel Aviv, Israel                                                                      Kesselman & Kesselman                         
    July 13, 2004                                                             Certified Public Accountants (Isr.)                   
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                                                        ICTS INTERNATIONAL N.V.                                                     
                                                      CONSOLIDATED BALANCE SHEETS                                                   
                                                (US $ in thousands, except share data)                                              

                                                                                          December 31,                              
                                                                                       2003          2002                           
                                       A s s e t s                                                                                  
         CURRENT ASSETS:                                                                                                            
             Cash and cash equivalents (note 2c)                                         $7,660       $32,465                       
             Restricted cash and short term investments (note 3)                          3,114        13,083                       
             Accounts receivable - trade                                                 13,798        15,628                       
             Short-term loan to a related party (note 19c)                                              3,738                       
             Prepaid expenses                                                             1,323         1,108                       
             Deferred income taxes (note 16b)                                               385         5,409                       
             Other current assets                                                         4,583         1,804                       
                                                                                        _______       _______                       
                    T o t a l  current assets                                            30,863        73,235                       
                                                                                        _______       _______                       
         INVESTMENTS:                                                                                                               
             Investments in associated companies (note 5)                                 5,308         9,919                       
             Other investments (note 6)                                                  16,287         9,558                       
             Deferred income taxes (note 16b)                                                33            28                       
                                                                                        _______       _______                       
                                                                                         21,628        19,505                       
                                                                                        _______       _______                       
         PROPERTY AND EQUIPMENT (note 7):                                                                                           
             Cost                                                                        30,629        32,408                       
             Less - accumulated depreciation and amortization                             6,666         2,991                       
                                                                                        _______       _______                       
                                                                                         23,963        29,417                       
                                                                                        _______       _______                       
         GOODWILL (note 8)                                                                  314         1,167                       
                                                                                        _______       _______                       
          OTHER ASSETS , net of                                                                                                     
             accumulated amortization (note 9)                                            7,732         2,120                       
                                                                                        _______       _______                       
                    T o t a l  assets                                                   $84,500      $125,444                       
                                                                                        _______       _______                       
                                                                                        _______       _______                       

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                                                                                                December 31,                        
                                                                                             2003          2002                     
                             Liabilities and shareholders' equity                                                                   
       CURRENT LIABILITIES:                                                                                                         
           Short-term bank credit (note 10)                                                   $4,387        $8,651                  
           Current maturities of long-term liabilities (note 12)                               2,752         2,097                  
           Accounts payable - trade                                                              964           975                  
           Liabilities for losses of associated companies (note 5)                             2,130                                
           Accrued expenses and other liabilities (note 11)                                   17,865        46,585                  
                                                                                             _______       _______                  
                  Total  current liabilities                                                  28,098        58,308                  
                                                                                             _______       _______                  
       LONG-TERM LIABILITIES:                                                                                                       
           Accrued severance pay (note 13)                                                        90            78                  
           Deferred income taxes (note 16b)                                                       19                                
           Long-term liabilities, net of current maturities (note 12)                          9,332         5,680                  
                                                                                             _______       _______                  
                  T o t a l  long-term liabilities                                             9,441         5,758                  
                                                                                             _______       _______                  
       COMMITMENTS AND CONTINGENT                                                                                                   
           LIABILITIES (note 14)                                                                                                    
                                                                                             _______       _______                  
                  T o t a l  liabilities                                                      37,539        64,066                  
                                                                                             _______       _______                  
       SHAREHOLDERS' EQUITY:                                                                                                        
          Share capital - shares of common stock, par value 0.45 Euro,                                                              
              December 31, 2003 and 2002:                                                                                           
              Authorized - 17,000,000 shares; issued and outstanding -                                                              
              6,672,980 shares.                                                                3,605         3,605                  
           Additional paid-in capital                                                         19,670        19,670                  
           Retained earnings                                                                  30,612        49,516                  
           Accumulated other comprehensive loss                                               (5,947)      (10,434)                 
                                                                                             _______       _______                  
                                                                                              47,940        62,357                  

       Treasury stock at cost - December 31, 2003 and 2002-159,880 shares                       (979)         (979)                 
                                                                                             _______       _______                  
                  Total  shareholders' equity                                                 46,961        61,378                  
                                                                                             _______       _______                  
                  Total  liabilities and shareholders' equity                                $84,500      $125,444                  
                                                                                             _______       _______                  
                                                                                             _______       _______                  

                         The accompanying notes are an integral part of the consolidated financial statements.                      
F-5                                                                                                                                 

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                                                        ICTS INTERNATIONAL N.V.                                                     
                                    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME                                  
                                              (US $ in thousands, except per share data)                                            

                                                                                        Year ended December 31,                     
                                                                                    2003           2002          2001               

REVENUES (note 1b,c)                                                               $71,571       $279,931      $212,137             
COST OF REVENUES                                                                    57,562        214,054       189,925             
                                                                                   _______        _______       _______             
GROSS PROFIT                                                                        14,009         65,877        22,212             
SELLING, GENERAL AND ADMINISTRATIVE                                                                                                 
    EXPENSES                                                                         9,216         25,636        19,461             
IMPAIRMENT OF ASSETS (notes 7,8,9)                                                  14,352          9,156                           
CONTRACT SETTLEMENT EXPENSES (note 5a(3))                                            9,559                                          
                                                                                   _______        _______       _______             
OPERATING INCOME (LOSS)                                                            ( 9,559)        31,085         2,751             
INTEREST INCOME                                                                      2,248          2,072         1,649             
INTEREST EXPENSE                                                                    (1,222)        (1,678)       (1,637)            
EXCHANGE DIFFERENCES                                                                  (242)         2,356         1,965             
OTHER INCOME (EXPENSES), net (note 15)                                                (353)        41,229        29,520             
                                                                                   _______        _______       _______             
INCOME (LOSS) BEFORE TAXES ON INCOME                                               ( 9,128)        75,064        34,248             
TAXES ON INCOME (note 16)                                                            3,115         16,442         4,919             
                                                                                   _______        _______       _______             
INCOME (LOSS) FROM OPERATIONS OF THE COMPANY                                                                                        
    AND ITS SUBSIDIARIES                                                           (12,243)        58,622        29,329             
SHARE IN LOSSES OF ASSOCIATED                                                                                                       
    COMPANIES - net (note 5)                                                        (6,661)        (1,807)         (395)            
MINORITY INTERESTS IN PROFITS OF                                                                                                    
    SUBSIDIARIES - net                                                                                           (2,736)            
                                                                                   _______        _______       _______             
NET INCOME (LOSS) FOR THE YEAR                                                    $(18,904)       $56,815       $26,198             
                                                                                   _______        _______       _______             
OTHER COMPREHENSIVE INCOME (LOSS):                                                                                                  
    Translation adjustments                                                          3,456            710        (1,811)            
    Unrealized gains (losses) on marketable securities                                 794            731          (345)            
    Reclassification adjustment for losses for available for sale                                                                   
        securities included in net income                                              237           (771)          368             
                                                                                   _______        _______       _______             
                                                                                     4,487            670        (1,788)            
                                                                                   _______        _______       _______             
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE                                                                                           
    YEAR                                                                          $(14,417)       $57,485       $24,410             
                                                                                   _______        _______       _______             
                                                                                   _______        _______       _______             
EARNINGS (LOSSES) PER SHARE (note 20):                                                                                              
    Basic                                                                           $(2.90)         $8.85         $4.18             
                                                                                   _______        _______       _______             
                                                                                   _______        _______       _______             
    Diluted                                                                         $(2.90)         $8.80         $4.09             
                                                                                   _______        _______       _______             
                                                                                   _______        _______       _______             

The accompanying notes are an integral part of the consolidated financial statements.                                               
F-6                                                                                                                                 

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                                               ICTS INTERNATIONAL N.V.                                                              
                              CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                                            
                                        (US $ in thousands, except share data)                                                      

                                  Shares of common                                               Accumulated                        
                                      stock                Additional    Other                   other                              
                                    Number                  paid-in      capital      Retained   comprehensive   Treasury           
                                    of shares    Amount     capital      surplus      earnings    loss            stock     Total   

BALANCE AT JANUARY 1, 2001          6,248,869    $3,565      $19,102        $45       $14,824    $(9,316)      $(1,775)   $26,445   
CHANGES DURING 2001:                                                                                                                
  Stock options exercised              69,100        27          435                                                          462   
                                                                                                                           _______  
  Cost of acquisition of treasury     (18,902)                                                                    (132)      (132)  
stock                                                                                                                               
                                                                                                                           _______  
  Stock options exercised from                                                                                                      
treasury                                                                                                                            
    Stock                              33,333                               (20)                                   187        167   
                                                                                                                           _______  
  Dividend                                                                                (14,092)                         (14,092) 
                                                                                                                           _______  
  Comprehensive income:                                                                                                             
    Net income                                                                             26,198                           26,198  
    Other comprehensive income                                                                                                      
(loss):                                                                                                                             
      Translation adjustments                                                                         (1,811)               (1,811) 
      Unrealized gains on marketable                                                                                                
       Securities                                                                                         23                   23   
                                                                                                                            _______ 
      Total comprehensive income                                                                                            24,410  
                                    ________   _______      _______    _______       _______        _______       _______   _______ 
BALANCE AT DECEMBER 31, 2001       6,332,400   13,592       19,537         25        26,930      * (11,104)      (1,720)   $37,260  
                                   ________   _______      _______    _______       _______        _______        _______   _______ 
CHANGES DURING 2002:                                                                                                                
  Stock options exercised             32,400       13          133                                                             146  
                                                                                                                           _______  
  Cost of acquisition of treasury   (120,000)                                                                      (907)      (907) 
stock                                                                                                                               
                                                                                                                               ___  
  Options issued to consultants                                           29                                                    29  
(note 21)                                                                                                                           
                                                                                                                              _____ 
  Stock options exercised from                                                                                                      
treasury                                                                                                                            
    Stock                            268,300                            (54)          (36)                           1,648    1,558 
                                                                                                                             ______ 
  Dividend                                                                         (34,193)                                 (34,193)
                                                                                                                            _______ 
  Comprehensive income:                                                                                                             
    Net income                                                                      56,815                                  56,815  
    Other comprehensive income                                                                                                      
(loss):                                                                                                                             
      Translation adjustments                                                                           710                    710  
      Unrealized losses on marketable                                                                                               
       Securities                                                                                       (40)                   (40) 
                                                                                                                            _______ 
      Total comprehensive income                                                                                            57,485  
                                   ________   _______      _______    _______       _______        _______        _______   _______ 
BALANCE AT DECEMBER 31, 2002      6,513,100     3,605       19,670        --        49,516      * (10,434)         (979)   $61,378  
                                   ________   _______      _______    _______       _______        _______        _______   _______ 
CHANGES DURING 2003:                                                                                                                

  Comprehensive loss:                                                                                                               
    Loss                                                                           (18,904)                                (18,904) 
    Other comprehensive income:                                                                                                     
      Translation adjustments                                                                              3,456            3,456   
      Unrealized gains on marketable                                                                                                
       Securities                                                                                          1,031            1,031   
                                                                                                                            ______  
      Total comprehensive loss                                                                                            (14,417)  
                                  ________   _______      _______    _______       _______        _______        _______   _______  
BALANCE AT DECEMBER 31, 2003     6,513,100    $3,605      $19,670        --       $30,612       $*(5,947)        $(979)   $46,961   
                                  ________   _______      _______    _______       _______        _______        _______   _______  

* Composed as follows:                                                                                                              
                                                                                       December 31,                                 
                                                                             2003          2002          2001                       
    Cumulative translation adjustments                                       $(6,677)     $(10,133)     $(10,843)                   
    Cumulative unrealized gains (losses) on marketable securities                730          (301)         (261)                   
                                                                             _______       _______       _______                    
                                                                             $(5,947)     $(10,434)     $(11,104)                   
                                                                             _______       _______       _______                    

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

F-7                                                                                                                                 

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                                                                                                       (Continued) - 1              
                                               ICTS INTERNATIONAL N.V.                                                              
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS                                                       
                                                 (US $ in thousands)                                                                

                                                                                            Year ended December 31,                 
                                                                                     2003           2002            2001            
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                               
    Net income (loss) for the year                                                $(18,904)       $56,815       $26,198             
    Adjustments to reconcile net income to net cash provided by                                                                     
       (used in) operating activities:                                                                                              
       Depreciation and amortization.                                                3,417          1,481         2,105             
       Impairment of  assets                                                        14,352          9,156                           
              Loss on contract settlement                                            5,266                                          
       Deferred income taxes                                                         5,047         (4,273)          (84)            
       Increase (decrease) in accrued severance pay                                      6             (9)            8             
       Options to service providers and consultants                                                    29                           
       Capital loss (gain) on fixed assets                                               6             (3)          550             
       Gain on sale  of the investment in ICTS Europe                                             (42,797)      (34,260)            
       Realized loss (gain) on sale of other investments                                             (108)       (1,232)            
       Unrealized profit on sale of APS                                                                            (468)            
        Realized loss (gain) on marketable securities                                 (737)            89           780             
        Revaluation of short term deposits                                                            (33)                          
       Write off of loans                                                                                           334             
       Write off of Investments and impairment of investment                           400          1,672         4,489             
       Minority interests                                                                                         2,736             
       Share in losses of associated companies                                       6,661          2,036           395             
       Interest from other long-term investments (derivative)                          (31)           (52)                          
              Interest on a loan to associated company                                (100)                                         
       Changes in operating assets and liabilities:                                                                                 
           Accounts receivable                                                       2,097          8,784       (13,768)            
           Other current assets and prepaid expenses                                (2,436)           469        (1,248)            
           Accounts payable                                                            (44)           139         1,441             
           Accrued expenses and other liabilities                                  (28,852)        28,230        13,011             
                                                                                    ______         ______        ______             
    Net cash provided by (used in) operating activities                            (19,118)        61,625           987             
                                                                                    ______         ______        ______             
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                               
    Purchase of equipment and construction of entertainment projects                (7,895)       (20,346)       (1,564)            
    Acquisitions of subsidiaries and operations (a)                                   (711)        (1,273)                          
    Associated companies - acquisition of shares and granting of loans              (2,109)        (8,448)       (3,524)            
    Acquisition of the 20% minority share in subsidiary                                                          (1,900)            
    Other investments                                                               (5,202)        (9,050)       (2,100)            
    Proceeds from sale of equipment                                                     92            508           557             
    Proceeds from sale  of investment in ICTS Europe, net                                          49,387        38,420             
    Cash in subsidiary excluded from consolidation                                                               (7,388)            
    Proceeds from sale of associated company                                                                      2,000             
    Proceeds from sale of other investments                                          1,000          1,458            79             
    Long term loans granted to a related party                                                     (1,500)       (2,219)            
       Repayment of long term loans granted to related parties                       3,700                                          
    Decrease (increase) of time deposits and restricted cash                         4,735         (8,154)                          
    Purchase of marketable securities available for sale                                           (3,309)       (1,235)            
    Proceeds from sale of marketable securities available for sale                   3,726            318           388             
    Proceeds from sale of short-term investments                                                        7         2,031             
    Decrease (increase) in other assets                                               (579)            78           (19)            
                                                                                    ______         ______        ______             
    Net cash provided by (used in) investing activities                             (3,243)          (324)       23,526             
                                                                                    ______         ______        ______             
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                               
    Stock options exercised                                                                         1,704           629             
    Cost of acquisition of treasury stock                                                            (907)         (132)            
    Dividend paid                                                                                 (34,193)      (14,092)            
    Long-term loan received                                                          4,113                       51,078             
    Repayments of long-term liabilities                                             (2,266)       (16,249)      (51,282)            
    Net increase (decrease) in short-term bank credit                               (4,270)         3,587         3,287             
                                                                                    ______         ______        ______             
    Net cash used in financing activities                                           (2,423)       (46,058)      (10,512)            
                                                                                    ______         ______        ______             
EFFECT OF CHANGES IN FOREIGN CURRENCY                                                                                               
    EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                        (21)          (192)       (2,893)            
                                                                                    ______         ______        ______             
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   (24,805)        15,051        11,108             
BALANCE OF CASH AND CASH EQUIVALENTS                                                                                                
    AT BEGINNING OF YEAR                                                            32,465         17,414         6,306             
                                                                                    ______         ______        ______             
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR                                 $7,660        $32,465       $17,414             
                                                                                    ______         ______        ______             
                                                                                    ______         ______        ______             
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                                               ICTS INTERNATIONAL N.V.                                                              
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS                                                       
                                                 (US $ in thousands)                                                                

                                                                                     Year ended December 31,                        
                                                                                2003          2002          2001                    
SUPPLEMENTAL DISCLOSURES OF CASH                                                                                                    
    FLOW ACTIVITIES:                                                                                                                
    Cash paid during the year for:                                                                                                  
    Interest                                                                       $578         $906        $1,199                  
                                                                                _______       ______        ______                  
    Taxes on income                                                              $5,679      $19,876        $2,548                  
                                                                                _______      _______       _______                  
SUPPLEMENTAL DISCLOSURES OF NON-CASH                                                                                                
    INVESTING AND FINANCING ACTIVITIES:                                                                                             
    Investment in Subsidiary (note 4b)                                                          $589                                
                                                                                             _______                                
    Purchase of  equipment (note 7d)                                                          $8,500                                
                                                                                             _______                                

                                                                             Year ended December 31,                                
                                                                                2003         2002                                   
(a) Acquisitions of subsidiaries and operations (see notes 4                                                                        
       and 5a(3)):                                                                                                                  
       Assets and liabilities of the subsidiaries and operations                                                                    
         acquired at date of acquisition, net of cash acquired:                                                                     
           Working capital, excluding cash and cash equivalents                                $410                                 
           Property, equipment and investments                                   $163           183                                 
              Intangible assets                                                 5,266         2,701                                 
           Accrued severance pay                                                                 (3)                                
                                                                             _______          _______                               
                                                                                5,429         3,291                                 
       Goodwill                                                                               1,181                                 
       Less:                                                                                                                        
         Carrying amount of investments in those companies                                                                          
           prior to consolidation                                                            (2,610)                                
         Long term liabilities - issuance of notes                             (1,176)                                              
         Loan, including interest thereon, which was granted                                                                        
           in the past and waived                                              (3,542)                                              
                                                                             _______         _______                                
                                                                                  711         1,862                                 
       Less- non-cash investment                                                                589                                 
                                                                             _______         _______                                
                                                                                 $711        $1,273                                 

                The accompanying notes are an integral part of the consolidated financial statements.                               
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NOTE 1 - GENERAL                                                                                                                    

a.       Operations                                                                                                                 

                  ICTS International  N.V.,  including its subsidiaries  (collectively  referred to                                 
                  herein as "ICTS" or "the Company"),  is a provider of aviation security and other                                 
                  aviation  related  services.  ICTS also  engages  in  certain  other  activities,                                 
                  including  constructing  and  developing   entertainment  related  projects,  and                                 
                  leasing of equipment.                                                                                             
                  As mentioned in b. below,  in 2002 the Company  derived a substantial  portion of                                 
                  its revenues from  providing  aviation  security  services to the  Transportation                                 
                  Security  Administration  ("TSA").  Commencing  November 2002 the Company  ceased                                 
                  providing  such  services to the TSA but  continues to provide  such  services to                                 
                  aviation companies and others. As to Segment Information see note 18.                                             

             b.   Effect  of the  events  of  September  11,  2001 and  Aviation  and  Transportation                               
                  Security Act                                                                                                      

                  On November  19,  2001,  as a result of the events of  September  11,  2001,  the                                 
                  Aviation  and  Transportation  Security Act was signed into law. The Aviation and                                 
                  Transportation  Security Act made airport security  including  security screening                                 
                  operations for passenger air  transportation  and intrastate air transportation a                                 
                  direct  responsibility of the Federal government as administered by the TSA. As a                                 
                  result, in accordance with a contract signed with the TSA ("TSA  Contract"),  the                                 
                  Company has  provided  screening  services in its  airport  locations  during the                                 
                  transition   period  through   November  2002,  when  all  such  activities  were                                 
                  transferred  to the TSA.  Through  December  31,  2002,  the Company has recorded                                 
                  revenues  of  approximately  $205  million  from  the  TSA.  As a  result  of the                                 
                  foregoing  the  Company  closed  certain  locations  and  dismissed  part  of its                                 
                  employees.  Closure and  severance  expenses in the amount of $27.3  million were                                 
                  included in  operating  expenses of 2002.  As to the dispute with the TSA,                                        
                  see note 14b(3).                                                                                                  

                  During 2003, the  Department of Labor in the US ("DOL")  finalized its audit of the                               
                  Company's  subsidiary  concerning  the pay rates used to  compensate  employees for                               
                  services rendered  pursuant to the TSA Contract.  The DOL concluded that in certain                               
                  instances,  employees  had not been paid the correct  base rate,  fringe  benefits,                               
                  vacation  and holiday pay by the  subsidiary.  As of December  31, 2003 a liability                               
                  relating  to  the  audit  of  approximately   $7.2  million  was  recorded  in  the                               
                  consolidated financial statements.                                                                                

                  The TSA Contract  indicates that the Company will receive  notification  in writing                               
                  at  least  30  calendar  days  in  advance  of a  location  transition.  Under  the                               
                  provisions of the Worker  Adjustment  and  Retraining  Notification  Act (the "WARN                               
                  Act"),  the  Company  is  required  to  give 60 days  written  notification  to its                               
                  employees of an involuntary  termination.  At December 31, 2002 and throughout most                               
                  of fiscal 2003,  management estimated the Company's liability under the WARN Act to                               
                  approximate $18.9 million, which had been                                                                         

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NOTE 1 - GENERAL (continued)                                                                                                        

                   recorded by the Company in cost of  revenues in 2002.  However,  during the fourth                               
                  quarter  of fiscal  2003,  the  Company  obtained  a legal  letter  from an outside                               
                  counsel  indicating  that the Company  may have  meritorious  defenses  against the                               
                  payment of a  substantial  portion  of the  recorded  accrual.  Based on the points                               
                  noted in the legal  letter  and given  the fact that no claims  have been  filed to                               
                  date by former employees seeking  compensation  under the WARN Act provisions,  the                               
                  Company  reviewed its  original  estimate  and reduced the  estimated  liability to                               
                  approximately  $1.1  million at December  31, 2003 by recording a credit to cost of                               
                  revenues in 2003 of approximately  $17.8 million.  The Company is still pursuing an                               
                  exemption  from the U.S.  Federal  government for all or a portion of the liability                               
                  under the WARN Act;  however,  at December 31, 2003, no exemption has been received                               
                  nor has the  Company  obtained  an  opinion  from its  legal  counsel  that such an                               
                  exemption is probable.                                                                                            

                  As to the other outstanding issues, see note 14b(3).                                                              

             c.   Sale of ICTS Europe Holding B.V. ("ICTS Europe"):                                                                 

                 1) On October 5, 2000,  the Company  entered into a share  purchase  agreement  (the                               
                 "Share  Purchase  Agreement")  with Fraport AG  ("Fraport"),  whereby Fraport was to                               
                 acquire,  in two  stages of 45% and 55% in 2001 and 2002,  respectively,  the shares                               
                 of ICTS Europe.                                                                                                    
                     As a result of the sale, the Company has fully  divested  itself of its European                               
                     operations  except  for  the  operations  of  the  Company's  subsidiary  in the                               
                     Netherlands   and  countries  that  were  formerly  part  of  the  Soviet  Union                               
                     republics,   including   Russia,   and   Kazakhstan,   and  took  upon   certain                               
                     restrictions on its operations, see note14c.                                                                   

                     The  capital  gains  on  these  sales,   net  of  transaction   expenses,   were                               
                     approximately  $42 million  and $34  million,  and were  included  among  "other                               
                     income" in the first quarters of 2002 and 2001, respectively.                                                  

                     As a result of the sale,  as above,  and  under its  provisions,  ICTS  could no                               
                     longer  exercise  control over ICTS Europe.  Therefore,  as of December 31, 2001                               
                     ICTS  Europe's  assets  and  liabilities   were  excluded  from   consolidation;                               
                     however,  the 2001  consolidated  results of  operations  include the results of                               
                     ICTS Europe through December 31, 2001.                                                                         

                  2) The following  table presents the operating data of ICTS Europe  included in the                               
                     financial statements:                                                                                          
                                                                              Year ended December                                   
                                                                                      31,                                           
                                                                             -----------------------                                
                                                                                      2001                                          

                          Revenues                                                   113,088                                        
                                                                                     _______                                        
                          Gross profit                                                13,253                                        
                                                                                     _______                                        
                          Operating income                                            8,418                                         
                                                                                     _______                                        
                          Net income                                                  4,166                                         
                                                                                     _______                                        

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NOTE 1 - GENERAL (continued)                                                                                                        

             d.   Use of estimates in the preparation of financial statements                                                       

                  The preparation of financial  statements in conformity with U.S. GAAP (as defined                                 
                  herein)  requires  management to make estimates and  assumptions  that affect the                                 
                  reported  amounts of assets and liabilities  and disclosure of contingent  assets                                 
                  and  liabilities  at the  dates  of the  financial  statements  and the  reported                                 
                  amounts of revenues and expenses  during the reporting  periods.  Actual  results                                 
                  could differ from those estimates.                                                                                

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES                                                                                            

             The  consolidated   financial   statements  have  been  prepared  in  accordance  with                                 
             accounting principles generally accepted in the USA ("U.S. GAAP").                                                     

             The significant accounting policies are as follows:                                                                    

             a.   Functional and reporting currency                                                                                 

                  The  accompanying  financial  statements  have  been  prepared  in  U.S.  dollars                                 
                  ("dollars"  or  "$").  As of  January  1,  2002,  subsequent  to the  sale of the                                 
                  Company's European activities,  (see note 1c),  substantially all of the revenues                                 
                  of ICTS  and its U.S.  operations  are  received,  and  substantially  all of its                                 
                  operating costs are incurred in dollars.  Therefore,  the functional  currency of                                 
                  ICTS and its U.S.  operations  is the dollar  (prior to January 1, 2002 the Dutch                                 
                  Guilder was the functional currency of the Company).  The financial statements of                                 
                  subsidiaries  whose  functional  currency is not the dollar are  translated  into                                 
                  dollars in  accordance  with the  principles  set forth in Statement of Financial                                 
                  Accounting  Standards ("FAS") No. 52 of the Financial  Accounting Standards Board                                 
                  of the USA  ("FASB).  Assets  and  liabilities  are  translated  from the  local                                  
                  currencies to dollars at year-end  exchange  rates.  Income and expense items are                                 
                  translated at average exchange rates during the year.                                                             

                  Gains or losses resulting from  translation are included as a separate  component                                 
                  of other  comprehensive  income (loss).  Cumulative  translation  adjustments are                                 
                  reflected  as  a  separate  component  of  shareholders'   equity,  under  other                                  
                  comprehensive income (loss).                                                                                      

                  Until  December 31, 2001, the  functional  currency of ICTS and its  subsidiaries                                 
                  was the local currency in which the entity operated.  The financial statements of                                 
                  ICTS  and  its  subsidiaries,  in  which  the  dollar  was not  their  functional                                 
                  currency,  were  translated  into dollars in accordance  with the  principles set                                 
                  forth in FAS 52.                                                                                                  

                  The Company accounted for the change of the functional currency  prospectively as                                 
                  from January 1, 2002.                                                                                             

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                

b.       Principles of consolidation                                                                                                

                  The consolidated  financial  statements include the accounts of ICTS and its over                                 
                  50% controlled  subsidiaries.  Significant intercompany accounts and transactions                                 
                  have been eliminated.  Profits from intercompany  transactions,  not yet realized                                 
                  outside the Company, have also been eliminated.                                                                   

             c.   Cash equivalents                                                                                                  

                  The Company  considers all highly liquid  investments,  which include  short-term                                 
                  bank deposits (up to three months from date of deposit)  that are not  restricted                                 
                  as to withdrawal or use, to be cash equivalents.                                                                  

             d.   Marketable securities and other investments:                                                                      

                  1)   Marketable securities                                                                                        

                       The Company  classifies  its existing  marketable  securities  in accordance                                 
                       with the provisions of FAS 115,  "Accounting for Certain Investments in Debt                                 
                       and Equity  Securities",  as  available-for-sale.  Securities  classified as                                 
                       available-for-sale  are reported at fair value (which is is determined based                                 
                       upon the quoted  market  prices) with  unrealized  gains and losses,  net of                                 
                       related  tax,  recorded  as  a  separate   component  of  accumulated  other                                 
                       comprehensive  income (loss) in shareholders'  equity until realized.  Gains                                 
                       and losses on  securities  sold are  included  in interest  income.  For all                                 
                       investment  securities,  unrealized losses that are other than temporary are                                 
                       recognized  in the  income  statement.  The  Company  does  not  hold  these                                 
                       securities for speculative or trading purposes. See also note 6b and 6c.                                     

                  2)   Other investments                                                                                            

                       Investments in less than  20%-owned,  privately-held  companies in which the                                 
                       Company  does not have the ability to  exercise  significant  influence  are                                 
                       stated at cost.  The Company's  management  evaluates its  investments  from                                 
                       time to time and, if necessary,  recognizes  losses for other than temporary                                 
                       declines in the value of these investments.                                                                  

             e.   Investments in associated companies                                                                               

                  Investments  in companies in which the Company holds a 20% interest or more or in                                 
                  which it has the ability to exercise significant influence,  provided it does not                                 
                  have control, are accounted for by the equity method                                                              

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                

             f.   Property and equipment                                                                                            

                  Property and  equipment are stated at cost.  Depreciation  and  amortization  are                                 
                  computed  using the  straight-line  method over the estimated  useful life of the                                 
                  assets.   The  estimated  useful  life  used  in  determining   depreciation  and                                 
                  amortization is as follows:                                                                                       

                                                                              Years                                                 
                      Equipment leased out                                     8-15                                                 
                      Equipment and facilities                                 3-16                                                 
                                                                           (mainly 15)                                              
                      Vehicles                                                 3-7                                                  
                      Office furniture and equipment                           3-14                                                 

                  Leasehold  improvements are amortized by the straight-line method over the period                                 
                  of the lease or the  estimated  useful  life of the  improvements,  whichever  is                                 
                  shorter (3-5 years).                                                                                              

             g.   Goodwill                                                                                                          

                  On January  1,  2002,  the  Company  adopted  FAS No.  142,  "Goodwill  and Other                                 
                  Intangible  Assets".  Pursuant to FAS 142  goodwill is no longer  amortized  but                                  
                  rather tested for impairment at least annually.                                                                   

                  Prior to January 1, 2002 goodwill was amortized by the straight-line  method over                                 
                  the period of 20 years, see also note 8b.                                                                         

                  The  Company  identified  its  various  reporting  units,  which  consist  of its                                 
                  operating  segments.  The Company has utilized  expected  future  discounted cash                                 
                  flows to  determine  the fair  value  of the  reporting  units  and  whether  any                                 
                  impairment of goodwill existed as of the date of adoption.                                                        

                  The Company  has  selected  December 31 of each year as the date on which it will                                 
                  perform its annual goodwill  impairment test. As of December 31, 2003 goodwill of                                 
                  $797 relating to the other operating segment was written off (see note 4b).                                       

                  In  addition  to the  annual  impairment  test  and as a  result  of the  imposed                                 
                  transfer of the aviation  security  operations  to the TSA in November  2002 (see                                 
                  note 1b), the Company performed interim  impairment tests, based on expected cash                                 
                  flows from the TSA  Contract,  on the  goodwill  relating to its U.S.A  reporting                                 
                  unit. The interim  impairment test performed as of September 30, 2002 resulted in                                 
                  an impairment  and the company wrote off the balance of the goodwill in an amount                                 
                  of $8,484 in 2002.                                                                                                

             h.   Other assets and Intangible assets                                                                                

                  The intangible  asset  pertaining to customer  relationships  is being  amortized                                 
                  over 10 years.  Technology is being  amortized  over 3 years and presented net of                                 
                  write down in value. See note 9.                                                                                  
                  As to know-how acquired in December 2003 see notes 5a(3) and 9.                                                   
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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                

i.       Impairment in value of long-lived assets                                                                                   

                  The Company has adopted FAS 144,  "Accounting  for the  Impairment or Disposal of                                 
                  Long-Lived  Assets",  effective January 1, 2002. FAS 144 requires that long-lived                                 
                  assets,  held and used by an entity be reviewed for impairment whenever events or                                 
                  changes in circumstances  indicate that the carrying amount of the assets may not                                 
                  be  recoverable.  Under  FAS 144,  if the sum of the  expected  future cash flows                                 
                  (undiscounted  and without  interest  charges) of the  long-lived  assets is less                                 
                  than the carrying amount of such assets,  an impairment loss would be recognized,                                 
                  and the assets would be written down to their estimated fair values.                                              

             j.   Treasury stock                                                                                                    

                  The treasury  stock was acquired by the Company for issuance upon the exercise of                                 
                  options  issued under the employee  option plan.  The treasury stock is presented                                 
                  as a reduction of shareholders'  equity,  at its cost. Gains on the sale of these                                 
                  shares,  net of losses and of the related tax, are recorded  under "other capital                                 
                  surplus".                                                                                                         

             k.   Revenue recognition                                                                                               

                  Revenue from services is  recognized  when services are rendered to the Company's                                 
                  customers,  based on terms contained in a contractual  arrangement,  provided the                                 
                  fee is fixed and  determinable,  the services have been rendered,  and collection                                 
                  of the related receivable is reasonably assured.                                                                  

                  Revenue from leased equipment is recognized ratably over the lease term.                                          

             l.   Earnings (losses) per share ("EPS"):                                                                              

                  1)   Basic EPS is computed by dividing net income (loss) by the weighted  average                                 
                       number of shares  of common  stock  outstanding  during  each  year,  net of                                 
                       treasury stock.                                                                                              

                  2)   Diluted EPS is computed by  dividing  net income  (loss) by the  weighted                                    
                       average  number of shares  outstanding  during the year,  net of treasury                                    
                       stock,  taking into account the potential  dilution that could occur upon                                    
                       the  exercise of options  granted  under stock  options  plan,  using the                                    
                       treasury stock method.                                                                                       

             m.   Deferred income taxes                                                                                             

                  Deferred  income taxes are created for temporary  differences  between the assets                                 
                  and  liabilities  as measured in the financial  statements  and for tax purposes.                                 
                  Deferred  taxes are computed using the enacted tax rates expected to be in effect                                 
                  when these differences reverse. Measurement of deferred tax                                                       
                  liabilities  and assets is based on provisions of the tax laws,  and deferred tax                                 
                  assets are reduced,  if necessary,  by the amount of tax benefits the realization                                 
                  of which is not considered likely, based on available evidence.                                                   

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                

                  Deferred  tax  liabilities  and assets are  classified  as current or  non-current,                               
                  based on the  classification  of the  related  asset  or  liability  for  financial                               
                  reporting  purposes,  or according to the  expected  reversal  date of the specific                               
                  temporary  differences,  if not  related  to an asset or  liability  for  financial                               
                  reporting purposes.                                                                                               

                  Deferred  taxes  in  respect  of  disposal  of  investments  in  subsidiaries   and                               
                  associated  companies  have not been taken into account in  computing  the deferred                               
                  taxes,  since,  under the laws of The Netherlands,  such disposal of investments is                               
                  tax exempt.                                                                                                       

             n.   Concentrations of credit risks - allowance for doubtful accounts                                                  
                  The Company and its  subsidiaries  operate  mostly in the  aviation  industry.  The                               
                  Company  renders  services  to a large  number  of  airline  companies  to which it                               
                  provides  credit,  with  no  collateral.  Due to  the  slow-down  in  the  aviation                               
                  industry,  (see also note 1b),  some airline  companies  may have  difficulties  in                               
                  meeting their financial  obligations.  This could have a material adverse effect on                               
                  the  Company's  business.  The Company and its  subsidiaries  regularly  review the                               
                  credit worthiness of their customers and determine the credit line, if any.                                       
                  The allowance for doubtful  accounts is determined  for specific  debts doubtful of                               
                  collection.  The bad debts expenses  (collection)  were $(264),  $5,297 and $684 in                               
                  2003, 2002, and 2001 respectively.                                                                                

o.       Advertising costs                                                                                                          

                  These costs are expensed as incurred. Advertising costs in, 2003 were $552 (in                                    
                  2002 and 2001 there were no advertising costs).                                                                   

p.       Stock based compensation:                                                                                                  

                  1)   Employee stock based compensation                                                                            
                       The Company  accounts for employee  stock based  compensation  in accordance  with                           
                       Accounting  Principles  Board  Opinion  No. 25  "Accounting  for  Stock  Issued to                           
                       Employees"  ("APB  25") and  related  interpretations.  Under APB 25  compensation                           
                       cost for employee stock option plans is measured  using the intrinsic  value based                           
                       method  of  accounting,  and is  amortized  by the  straight-line  method  against                           
                       income, over the expected service period.                                                                    

                       FAS 123,  "Accounting for Stock-Based  Compensation",  establishes a fair value based                        
                       method of accounting for employee stock options or similar  equity  instruments,  and                        
                       encourages  adoption of such method for stock compensation  plans.  However,  it also                        
                       allows  companies to continue  accounting for those plans according to the accounting                        
                       treatment prescribed by APB 25.                                                                              

                       The Company has elected to continue  accounting  for  employee  stock option plans                           
                       under APB 25, and has accordingly complied with the disclosure                                               
                       requirements  set forth in FAS 123 and amended by FAS 148 for  companies  electing                           
                       to apply APB 25.                                                                                             

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                 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                                                               

                  The following  table  illustrates the effect on net income and earnings per share                                 
                  assuming  the  Company  had  applied  the fair value  recognition  provisions  of                                 
                  FAS 123 to stock-based employee compensation:                                                                     

                                                                                       Year ended December 31,                      
                                                                                   2003          2002           2001                
                                                                                             in thousands                           
                                                                              ----------------------------------------              
                                                                                       (except per share data)                      
                  Net income as reported                                           $(18,904)      $56,815       $26,198             
                  Add: stock based employee compensation expenses,                                                                  
                        included in reported net income                                   -             -             -             
                  Deduct: stock based employee compensation expenses                                                                
                        determined under fair value method for all awards               (27)         (493)         (809)            
                                                                                    _______       _______         _______           
                  Pro-forma net income                                             $(18,931)      $56,322       $25,389             
                                                                                    _______       _______        _______            
                  Earnings (losses)  per share:                                                                                     
                        Basic - as reported                                          (2.90)         8.85          4.18              
                                                                                    _______       _______       _______             

                        Basic  - pro-forma                                           (2.91)         8.77          4.05              
                                                                                    _______       _______       _______             
                        Diluted - as reported                                        (2.90)         8.80          4.09              
                                                                                    _______       _______        _______            
                        Diluted - pro-forma                                          (2.91)         8.73          3.96              
                                                                                    _______       _______       _______             

                  2)   Non-employee stock based compensation                                                                        

                       The Company  accounts  for options  granted to  non-employees  in exchange for                               
                       services  received,  using  the fair  value  based  method  of  accounting  as                               
                       prescribed by FAS 123, based on the fair value of the options granted.                                       

             q.   Comprehensive Income (loss)                                                                                       

                  In addition to net income,  other  comprehensive  income (loss) includes unrealized                               
                  gains  and  losses  on  available-for-sale   securities  and  currency  translation                               
                  adjustments of non-dollar currency financial statements of investee companies.                                    

             r.   Costs Associated with Exit or Disposal Activities                                                                 

In June 2002, the FASB issued  Statement on Financial  Accounting  Standards No.                                                    
146  ("SFAS  146"),  Accounting  for  Costs  Associated  with  Exit or  Disposal                                                    
Activities. SFAS 146 provides guidance on the financial accounting and reporting                                                    
for costs  associated  with exit or disposal  activities and nullifies  Emerging                                                    
Issues Task Force Issue No. 94-3,  Liability  Recognition  for Certain  Employee                                                    
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain                                                    
Costs Incurred in a  Restructuring).  The Company's  adoption of SFAS 146 during                                                    
the  current  fiscal  year  did not  have a  material  impact  on the  Company's                                                    
financial  statements as no new  restructuring  activity has occurred  since the                                                    
Company's adoption of SFAS 146.                                                                                                     

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 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                               

             s.   Recently issued accounting pronouncements                                                                         

                  1)   In December 2003, the FASB issued SFAS No. 132 (revised  2003),  "Employers'                                 
                       Disclosures about Pensions and Other Postretirement  Benefits,  an amendment                                 
                       of FASB  Statements No. 87, 88 and 106, and a revision of FASB Statement No.                                 
                       132  ("FAS  132  (revised   2003)")".   This  Statement  revises  employers'                                 
                       disclosures about pension plans and other  postretirement  benefit plans. It                                 
                       does not change the  measurement  or  recognition  of those  plans.  The new                                 
                       rules require  additional  disclosures about the assets,  obligations,  cash                                 
                       flows,  and net periodic  benefit cost of defined  benefit pension plans and                                 
                       other postretirement benefit plans.                                                                          
                       Part of the new  disclosures  provisions  are  effective  for 2003  calendar                                 
                       year-end  financial  statements,  and  accordingly  have been applied by the                                 
                       company  in  these  consolidated  financial  statements.  The  rest  of  the                                 
                       provisions  of this  Statement,  which  have a  later  effective  date,  are                                 
                       currently being evaluated by the company.                                                                    

                  2)   In May 2003, the FASB issued FAS No. 150,  "Accounting for Certain Financial                                 
                       Instruments with  Characteristics of both Liabilities and Equity" (FAS 150).                                 
                       FAS 150  establishes  standards  for how an issuer  classifies  and measures                                 
                       certain financial  instruments with  characteristics of both liabilities and                                 
                       equity.  FAS 150 is  effective  for  financial  instruments  entered into or                                 
                       modified after May 31, 2003, and otherwise (except for certain  instruments)                                 
                       is effective at the beginning of the first interim  period  beginning  after                                 
                       June 15, 2003. Effective July 1, 2003, the Company adopted FAS 150.                                          
                       The  adoption  of FAS 150 did not have a  material  effect on the  company's                                 
                       financial position or results of operations.                                                                 

                  3)   In January 2003, the FASB issued FASB  Interpretation  No. 46,  "Consolidation  of                           
                       Variable  Interest  Entities" (FIN 46). Under FIN 46,  entities are separated into                           
                       two  categories:  (1) those  for  which  voting  interests  are used to  determine                           
                       consolidation  (this is the most  common  classification)  and (2) those for which                           
                       variable  interests  are used to determine  consolidation.  FIN 46 explains how to                           
                       identify  Variable  Interest  Entities ("VIE"s) and how to determine when a public                           
                       company should include the assets,  liabilities,  non-controlling  interests,  and                           
                       results of activities of a VIE in its consolidated financial statements.                                     

                       Since  issuing  FIN  46,  the  FASB  has  proposed   various   amendments  to  the                           
                       interpretation  and has deferred its effective dates.  Most recently,  in December                           
                       2003,  the  FASB  issued  a  revised  version  of FIN 46 (FIN  46-R),  which  also                           
                       provides for a partial deferral of FIN 46. This partial  deferral  established the                           
                       effective  dates for the  application  of FIN 46 and FIN 46-R  based on the nature                           
                       of the VIE and the date upon which the public  company  became  involved  with the                           
                       VIE. In general,  the deferral  provides that (i) for VIEs created before February                           
                       1, 2003, a public  company must apply FIN 46-R at the end of the first  interim or                           

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                       annual  period  ending after March 15,  2004,  and may be required to apply FIN 46                           
                       at the end of the first interim or annual  period ending after  December 15, 2003,                           
                       if the VIE is a special  purpose  entity,  and (ii) for VIEs created after January                           
                       31,  2003, a public  company must apply FIN 46 at the end of the first  interim or                           
                       annual period ending after  December 15, 2003,  as previously  required,  and then                           
                       apply FIN 46-R at the end of the first interim or annual  reporting  period ending                           
                       after March 15, 2004.                                                                                        

                       As of December 31, 2003 the company has no variable  interests in any VIE.                                   
                       Accordingly, while there can be no assurance  that it will not have variable interests                       
                       in one or more VIEs in the future, the company believes that the adoption of FIN 46 and                      
                       FIN 46-R will not have  material  impact on its  financial  position,  results  of                           
                       operations and cash flows.                                                                                   

v.       Reclassification                                                                                                           

                  Certain  comparative  figures  have been  reclassified  to conform to the current                                 
                  year presentation.                                                                                                

NOTE 3 - RESTRICTED CASH AND SHORT TERM INVESTMENTS                                                                                 

                                                                                   December 31,                                     
                                                                                 2003         2002                                  
              Time deposits and restricted cash *                                $3,088       $10,337                               
              Marketable securities - available for sale                             26         2,746                               
                                                                                 ______        ______                               
                                                                                 $3,114       $13,083                               
                                                                                 ______        ______                               
                                                                                 ______        ______                               
              Gross unrealized gains (losses) resulting from                                                                        
                    their presentation at market value                               $1         $(237)                              
                                                                                 ______        ______                               
                                                                                 ______        ______                               

                * As of December 31, 2003, dollar  denominated  deposits bearing interest mainly at                                 
                    3.7%.                                                                                                           

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NOTE 4 - TRANSACTIONS REGARDING CERTAIN SUBSIDIARIES:                                                                               

             a.   In  September   2002,   ICTS  increased  its  percentage   interest  in  Procheck                                 
                  International  B.V.  ("PI")  to 100%  for  a cash  consideration  of  $2,845.  PI                                 
                  provides security services in The Netherlands at Schiphol Airport Amsterdam.  The                                 
                  purchase  price  exceeded  the  acquired  share of the fair  market  value of the                                 
                  identified net assets of PI by approximately  $1,879,  which was allocated to the                                 
                  contract  with  Schiphol  Airport.  This  intangible  asset is  amortized  by the                                 
                  straight line method,  over its estimated  useful life, which is estimated as 10                                  
                  years. PI is fully consolidated as from September 30, 2002.                                                       

             b.   In July 1, 2002,  ICTS  increased its  percentage  interest in Demco  Consultants                                 
                  Ltd.  ("Demco")  from 37% to 67% for cash  consideration  of $410. As part of the                                 
                  above  transaction,  ICTS has been granted a 13 months option  commencing July 1,                                 
                  2003 to purchase  the  remaining  33% equity from the  minority  shareholders  in                                 
                  Demco for $589,  and the  Company  has granted to the  minority  shareholders  an                                 
                  option to sell the same equity to the company for $533. As a result,  the Company                                 
                  had fully  consolidated  Demco as of July,  2002, and recorded a liability to the                                 
                  minority  in the amount of $589.  The  purchase  price  exceeded  the fair market                                 
                  value of the  tangible  net  assets  of Demco by  approximately  $440,  which was                                 
                  allocated  to  goodwill.   The  goodwill  was  attributed  to  "other  operations                                 
                  segment".                                                                                                         

                  Demco provides  services for planning,  organization  and  establishment of large                                 
                  scale national systems infrastructures  designed to assist local governments with                                 
                  the  operations,  control and the proper decision making during national or local                                 
                  emergencies.                                                                                                      

                  During 2003 the minority  shareholder  exercised  its put option.  The balance of                                 
                  the  liability  (in excess of the final cost of the  option  that was  exercised)                                 
                  was written off against the goodwill  that was recorded in 2002,  at the time the                                 
                  exercise was recorded.                                                                                            
                  At the end of the third  quarter of 2003, as it turned out that Demco will not be                                 
                  able to realize its  business  plans,  the company  tested  Demco's  goodwill for                                 
                  impairment and wrote off the balance of this goodwill of $797.                                                    

C.       Information regarding first time consolidation of PI and Demco                                                             

                  The following table presents the pro forma results of operations for 2001 and                                     
                  2002 as if the acquisitions of control in PI and Demco had occurred on the first                                  
                  day of the periods presented:                                                                                     

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

                          Revenues                                        $285,895         $217,571                                 
                                                                           _______          _______                                 
                                                                           _______          _______                                 
                          Gross profit                                     $67,652          $24,156                                 
                                                                           _______          _______                                 
                                                                           _______          _______                                 
                          Operating income                                 $34,257           $4,718                                 
                                                                           _______          _______                                 
                                                                           _______          _______                                 
                          Net income                                       $58,427          $27,069                                 
                                                                           _______          _______                                 
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NOTE 4 - TRANSACTIONS REGARDING CERTAIN SUBSIDIARIES (continued):                                                                   

c.       As to the sale of the European holdings operations, see note 1c.                                                           

d. In April 2001, ICTS entered into an agreement with the minority  shareholders                                                    
of AMS Ltd.  ("AMS"),  for the exchange of its  shareholding  in AMS (51%),  for                                                    
shares held by AMS, which  primarily  included its 33%  shareholding in APS B.V.                                                    
The exchange was recorded at fair value and as a result, ICTS recognized capital                                                    
gain of $980.  In November  2001,  ICTS sold its  acquired  interests in APS (as                                                    
above) to PI for a cash consideration of $2,000. As a result of this transaction                                                    
ICTS  recognized  a  capital  gain of $237  (representing  the  part of the gain                                                    
realized from the sale to the minority of PI).                                                                                      

e. On January  10,  2001,  the  Company  exercised  its option to  purchase  the                                                    
remaining  20% of the  shares  of  common  stock of  Huntleigh  USA  Corporation                                                    
("Huntleigh"),  a company based in St. Louis, Missouri, for $1,900. The purchase                                                    
price exceeded the fair market value of the acquired share in the identified net                                                    
assets of Huntleigh by approximately $2,229, which was allocated to goodwill.                                                       

As to the changes  relating to Huntleigh's  operations as a result of the events                                                    
of September 11, and the Aviation and Transportation  Security Act, see note 1b.                                                    
As to the impairment and write off of goodwill assigned to the U.S.  operations-                                                    
see note 2g.                                                                                                                        

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES                                                                                        

             a.   Composed and presented as follows:                                                                                

                                                                                              December 31,                          
                                                                                           2003          2002                       
                Investment in Pioneer (1)                                                  $1,725        $1,765                     
                Investment in 35.7% interest of InkSure Technologies Inc. (2)               3,583         4,926                     
                Investment in 10% interest in ITA-International Tourist                                                             
                    Attraction Ltd. (3)                                                         -         3,184                     
                Investment in 40% interest in Ramasso Holding B.V. (4)                     (1,137)                                  
                Investment in 50% interest in ICTS-NAS (5)                                   (993)           44                     
                                                                                           ______        ______                     
                                                                                           $3,178        $9,919                     
                                                                                           ______        ______                     

                The investment is presented in the balance sheets as follows:                                                       
                    Among investments                                                       5,308         9,919                     
                    Among current liabilities                                              (2,130)                                  
                                                                                           ______        ______                     
                                                                                           $3,178        $9,919                     
                                                                                           ______        ______                     
                                                                                           ______        ______                     
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                  NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                                                          

                       (1) Investment in Pioneer - Composed as follows:                                                             
                                                                                         December 31,                               
                                                                                         2003          2002                         
                        Shares (14.2%) (a)                                               $356          $496                         
                        Subordinated debentures (b)                                     1,369         1,269                         
                                                                                      _______       _______                         
                                                                                       $1,725        $1,765                         
                                                                                      _______       _______                         
                                                                                      _______       _______                         

(a) In 1998,  ICTS  acquired  5.4%  interest  in  Pioneer.  In 2002 the  Company                                                    
acquired in private placement  offerings  additional shares  (representing  8.8%                                                    
shareholding). After these transactions the Company holds approximately 14.2% of                                                    
the outstanding shares of Pioneer (443,250 shares). The excess of costs of these                                                    
investments  over  the  acquired  share  in  Pioneer's  net  assets  of $766 was                                                    
attributed  to goodwill.  In addition,  Pioneer  granted to the Company a 5 year                                                    
warrant (commencing February 2002) to purchase 13,000 shares at a price of $2.25                                                    
per share and a 3 year  warrant  (commencing  January  2003) to  purchase  5,883                                                    
shares at a price of $1.00 per share.                                                                                               

Following  the  2002  acquisition  ICTS  has  determined  that  it had  obtained                                                    
significant influence, and as a result changed its method of accounting for this                                                    
investment to the equity  method.  Prior years  figures have been  retroactively                                                    
adjusted.                                                                                                                           

Effective  February 20, 2003,  Pioneer's shares are no longer listed on the NASD                                                    
Electronic  Bulletin Board stock market and the company is no longer a reporting                                                    
company under the Securities Exchange Act of 1934.                                                                                  

(b) In January 2000, ICTS acquired a $1,000 non-marketable debenture of Pioneer,                                                    
bearing  interest at the rate of 10% per annum. The debenture is due in November                                                    
2004,  and its repayment is guaranteed  by Leedan  International  Holdings B.V a                                                    
subsidiary of Leedan Business  Enterprise Ltd. (hereafter - "Leedan" - a company                                                    
controlled  by the  company's  shareholders).  As of December  31, 2003 the loan                                                    
includes an accrued  interest of $369 (2002 - $269). Due to legal procedures and                                                    
based on the opinion of its legal  advisors,  management  estimates that Pioneer                                                    
will be able to repay the  debenture,  however,  not before the  procedures  are                                                    
finalized, therefore the amount is classified among long term assets.                                                               

(2) During the period from April to September  2002,  ICTS  purchased  4,106,895                                                    
shares,  which represent 34.3% of InkSure  Technologies  Inc.  ("Inksure") for a                                                    
consideration  of $5,986.  The purchase  price exceeded the fair market value of                                                    
the net assets of Inksure by approximately  $3,881,  of which $660 was allocated                                                    
to in process R&D and was  expensed  immediately  (this  amount was  included in                                                    
"share in losses of associated  companies,  net").  And the remaining $3,221 was                                                    
attributed  to  technology   purchased   and  is  being   amortized   using  the                                                    
straight-line method over 7 years.                                                                                                  

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NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                                                                            

                       As  a  result  of  a  reverse  merger  with  a  non-operating  public  shell                                 
                       corporation,  performed by Inksure in October 2002,  the company  became the                                 
                       shareholder  of the merged quoted company (which changed its name to Inksure                                 
                       Technologies Inc).                                                                                           

                       In July 2003, ICTS purchased  another 174,542 shares for a consideration  of                                 
                       $192.  The amount  exceeding  the fair value of the  tangible net assets was                                 
                       attributed  to  technology  purchased  and  is to  be  amortized  using  the                                 
                       straight-line  method over 5.75 years (the  remaining life of the technology                                 
                       purchased in 2002).                                                                                          

                       The  market  value  of the  shares  (35.7%)  as of  December  31,  2003  was                                 
                       $4,494.                                                                                                      

                  (3)  In December  2000,  the Company  exercised  an option to purchase a total of                                 
                       10%  interest  of  ITA (a  company  under  the  control  of  one  of  ICTS's                                 
                       shareholders).                                                                                               

                       Comprised as follows:                                                                                        
                                                                                 December 31,                                       
                                                                             2003           2002                                    
                       Investment in 10% of the shares (a)                                   $184                                   
                       Loan (b)                                                             3,000                                   
                                                                             ______        ______                                   
                                                                               $-          $3,184                                   
                                                                             ______        ______                                   

                       In December 2003 the Company  signed an agreement to buy the  activities and                                 
                       fixed   assets   ($163)  of  ITA.   The  Company  paid  a  total  amount  of                                 
                       approximately  $5.4  million by waiving  the  $3,000  loan and $542  accrued                                 
                       interest,  issuing a deferred note of $546 and a promissory note of $685 and                                 
                       by paying  $711 in cash to ITA.  As to the  terms of these  notes - see note                                 
                       12. The purchase price was based on fairness  opinion that was based on free                                 
                       cash  generated  from  future  projects  of ITA,  in which  ICTS  planned to                                 
                       invest.  Through  the date of  acquisition  the free cash of ITA was derived                                 
                       mainly  from  ICTS  under an  agreement  between  ICTS and  ITA,  which  was                                 
                       cancelled in the acquisition  agreement  mentioned above (see note 19g). The                                 
                       amount  exceeding the fair value of the net tangible  assets was  attributed                                 
                       to know-how.                                                                                                 

                       Subsequent  to  December  31,  2003,  as a result of the poor  results  of the                               
                       entertainment projects (see note 7e) and their impairment,  management resolved                              
                       to cease the development of this  business  and not to start new projects in the                             
                       foreseeable  future.  As a result,  the company  has  written off the entire                                 
                       amount of the  know-how as above,  and carried the loss from the impairment to                               
                       results from operations in 2004 (see note 9).                                                                

                       (a)  In October  2001,  the  Company  was  granted a warrant to  purchase an                                 
                            additional  12% of ITA  shares,  exercisable  over a  period  of  three                                 
                            years,  at an exercise  price that shall be determined  according to an                                 
                            evaluation  of  ITA  to be  made  by an  independent  consultant.  As a                                 
                            result, ICTS has determined that it obtained  significant  influence in                                 
                            ITA and  therefore,  accounted for its investment by the equity method.                                 
                            As a result of the  agreement  signed in  December  2003,  the  warrant                                 
                            expired. The investment in ITA as of December 2003 is valued at zero.                                   
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NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                                                                            

                       (b)  The loan bore annual  interest of Libor +3%.  The loan was waived as part                               
                            of the above mentioned deal.                                                                            

                   (4)  (a) The  investment  is comprised  of  investment  in 40% of the  outstanding                               
                            shares of Ramasso Holdings B.V.  ("Ramasso") and a loan (see below).  The                               
                            remaining  60%  shareholdings  of Ramasso are held by ITA (40%) and other                               
                            affiliates.  The loan,  in an original  amount of $2,988 and  $2,464,  at                               
                            December  31,  2003 and 2002,  respectively,  bears  annual  interest  of                               
                            4.25%, and has no fixed repayment date.                                                                 
                            Ramasso is engaged in  construction of an  entertainment  project in Rome                               
                            owned and  managed  by  Italian  Multimedia  Attraction  SPA  ("IMA"),  a                               
                            wholly owned subsidiary of Ramasso.                                                                     

                            In 2003 Ramasso  recognized an impairment  loss on its  investment in IMA's                             
                            assets and  recorded a loss of $2,429 which  resulted in a negative  equity                             
                            in the amount of $4,588.  After  taking into account the  additional  loans                             
                            granted by ICTS in 2003,  and the  guarantee  described in (b) below,  ICTS                             
                            recorded its share in the losses of Ramasso in the amount of $2,361.                                    

                        (b) In January 2002,  IMA entered into a loan facility  agreement with a German                             
                            bank.  As of  December  31,  2003 the  Company  and ITA,  collectively  and                             
                            individually,  guaranteed  the loan in full to the bank. The guarantee is a                             
                            continuing  guarantee for the  obligations  of IMA. As of December 31, 2003                             
                            IMA's net obligations to the bank amounted to $1,683.                                                   
                            Taking into  account the  deferred  note to ITA of $546 (which  serves as a                             
                            security  to this  guarantee  (see  (3)  above))  the  company  recorded  a                             
                            liability of only $1,137 in respect of this guarantee.                                                  

                           Subsequent  to  December  31,  2003  as a  result  of IMA not  been  able to                             
                           continue  and  finance  its   operations,   IMA  entered   into   bankruptcy                             
                           procedures,  and ICTS  representatives in the board of directors of IMA have                             
                           resigned.  Although the Company  believes  that it accounted in full for its                             
                           exposure  as to this  investment,  it is still  dependent  on the outcome of                             
                           the Italian court bankruptcy proceedings.                                                                

                  (5)  In  September  2002,  ICTS and ICTS Europe  established  a joint  venture,  ICTS                             
                       Netherlands  Airport Services VOF ("NAS"),  owned equally by the parties,  which                             
                       provides  security  services at Amsterdam  Schiphol  Airport in The Netherlands.                             
                       NAS  commenced  operations  in December  2002.  In 2003 and 2002 the company has                             
                       invested in NAS $1,399 and $135,  respectively,  and  recorded  losses on equity                             
                       in amount of $2,392 and $91, respectively.                                                                   

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NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                                                                            

             c.   Below is summarized financial data of Inksure, Ramasso and NAS:                                                   

Share in profits (losses) of associated companies included in the consolidated statements of operations                             
includes amortization of goodwill of $223 for 2001.                                                                                 

              Inksure:                                                                                                              
              Balance sheet data:                                                                                                   
                                                                      December 31,                                                  
                                                                    2003         2002                                               
                 Current assets                                     $2,194        $5,320                                            
                                                                   _______       _______                                            
                 Non-current assets                                   $745          $845                                            
                                                                   _______       _______                                            
                 Current liabilities                                  $613          $860                                            
                                                                   _______       _______                                            
                 Capital deficiency                                 $2,207        $5,230                                            
                                                                   _______       _______                                            

              Operating results data:                                                                                               
                                                                Year ended December 31,                                             
                                                                  2003          2002                                                
                Revenues                                              $608       $2,693                                             
                                                                   _______      _______                                             
                Gross profit                                          $474       $2,291                                             
                                                                   _______      _______                                             
                Net loss                                            $2,965         $821                                             
                                                                   _______      _______                                             

              Ramasso:                                                                                                              
              Balance sheet data:                                                                                                   
                                                                    December 31,                                                    
                                                                 2003         2002                                                  
              Current assets                                         $81          $16                                               
                                                                 _______      _______                                               
              Non-current assets                                               $1,272                                               
                                                                              _______                                               
              Current liabilities                                   $543         $341                                               
                                                                 _______      _______                                               
              Capital deficiency                                  $4,588       $3,705                                               
                                                                 _______      _______                                               

              Operating results data:                                                                                               
                                                                       Year ended December 31,                                      
                                                                   2003         2002         2001                                   
                 Net loss                                           $2,365       $2,247         $949                                
                                                                    _______      _______      _______                               

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NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                                                                            

                NAS:                                                                                                                
              Balance sheet data:                                                                                                   
                                                                    December 31,                                                    
                                                                 2003         2002                                                  
               Current assets                                     $2,330         $228                                               
                                                                 _______      _______                                               
               Non-current assets                                   $277          $73                                               
                                                                 _______      _______                                               
               Current liabilities                                $4,690         $221                                               
                                                                 _______      _______                                               
               Shareholders' equity (capital deficiency)         $(1,986)         $88                                               
                                                                 _______      _______                                               

              Operating results data:                                                                                               
                                                             Year ended December 31,                                                
                                                                2003         2002                                                   

              Revenues                                          $13,759           $6                                                
                                                                 _______      _______                                               
              Gross loss                                         $2,852          $63                                                
                                                                 _______      _______                                               
              Net loss                                           $4,784         $182                                                
                                                                 _______      _______                                               

NOTE 6 - OTHER INVESTMENTS                                                                                                          
                                                                                                December 31                         
                                                                                             2003          2002                     
              Long term deposits (a)                                                        $10,107        $5,052                   
                                                                                            _______       _______                   
              Restricted deposits (e)                                                         2,515                                 
                                                                                            _______                                 
              Marketable securities:                                                                                                
                   Investment in 6.1% interest in VCON Ltd.(b(1))                               686           364                   
                   Investment in 17.63% interest in PlanGraphics, Inc. (c)                    1,028           514                   
                                                                                            _______       _______                   
                                                                                            * 1,714         * 878                   
                                                                                            _______       _______                   
              Non-marketable securities:                                                                                            
                   Investments in Start-up companies (d)                                                      400                   
                   Investment in a 7% interest in Bilu Investments Ltd. (e)                     228           228                   
                   Investment in a 8% interest in Power Plant LLC                                           1,000                   
                   Investment in a convertible debenture of VCON Ltd. (b(2))                  1,520         2,000                   
                                                                                            _______       _______                   
                                                                                              1,748         3,628                   
                                                                                            _______       _______                   
              Long term loan to an employee (f)                                                 150                                 
              Other                                                                              53                                 
                                                                                             _______       _______                  
                   Total                                                                    $16,287        $9,558                   
                                                                                            _______       _______                   

                       *Includes:                                                                                                   
                            Gross unrealized gains                                             $804          $54                    
                                                                                            _______       _______                   
                                                                                            _______       _______                   
                            Gross unrealized losses                                                           $86                   
                                                                                                          _______                   
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                                                                                                          _______                   

NOTE 6 - OTHER INVESTMENTS (continued)                                                                                              

             (a)  Long term deposits:                                                                                               
                  During 2002 and 2003, ICTS invested in long term bank deposits.  The amounts invested                             
                  bear minimum annual  interests plus interests based on performance of several indices                             
                  as follows:                                                                                                       
                                                                       December 31                                                  
                                            Interest                2003                  2002                                      
                                                rate             Index      Amount                                                  
                                                   %                %                                                               
                   Nasdaq                          1.5%        106.00       $3,180        $3,015                                    
                   Himalaya                        2.0%         98.68        1,974         2,037                                    
                   China Dragon                    1.1%         99.06        4,953                                                  
                                                                           _______       _______                                    
                                                                           $10,107        $5,052                                    
                                                                           _______       _______                                    

                  Both the  Nasdaq  and  Himalaya  deposits  were sold in April 2004 at 106% and                                    
                  99%, respectively.                                                                                                

(b) Investment in VCON Ltd. ("VCON"):                                                                                               

(1) In January 2002, ICTS purchased  909,091 shares of VCON for $1.10 per share                                                     
and invested in a convertible note with a fare value of $2 million.  See 92) below.                                                 
VCON is a publicly held company,  the  shares of which are traded on Nouveau                                                        
March.  The share price as of December  31, 2003 was $0.75.  In  addition,  ICTS                                                    
received 3 year  warrants  to purchase  1,402,597  shares of VCON at a price per                                                    
share of $1.40.  The fair value of the warrants as of December 31, 2003 is $348.                                                    
The fair value of the warrants was  calculated  using Black & Scholes  Valuation                                                    
model.                                                                                                                              

(2) The note, secured by a second degree floating charge to all existing debt of                                                    
VCON,  is  convertible  into shares of VCON at a  conversion  price of $1.00 per                                                    
share,  bears  annual  interest at the rate of 2% and is  repayable in quarterly                                                    
installments  of $160  starting  May  2004.  The note is  presented  net of a                                                       
current maturity of $480, which is presented among other current assets.                                                            

The value of the conversion feature amounted to $262, is accumulating as                                                            
additional interest over the terms of the note.                                                                                     

(c) Investment in PlanGraphics, Inc. ("PlanGraphics")-                                                                              

In January 2002,  ICTS  purchased  17,142,857  shares (17.6%) of common stock of                                                    
PlanGraphics  (formerly "Integrated Spatial Information  Solutions, Inc.") for                                                      
$0.035 per share.  PlanGraphics  is a publicly held company,  the  securities of                                                    
which are traded on the NASD Electronic  Bulletin  Board.  The price share as of                                                    
December 31, 2003 was $0.06.  Unrealized  gain as of December 31, 2003 amount to                                                    
$428 (2002 - unrealized loss of $86).                                                                                               

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NOTE 6 - OTHER INVESTMENTS (continued)                                                                                              

(e) Investment in Bilu Investments Ltd.                                                                                             

Bilu Investments Ltd. ("Bilu") is a privately held company based in Israel. ICTS                                                    
acquired the shares in that company  from Rogosin  Development  and Holding Ltd.                                                    
("Rogosin"), which was an affiliated company of Leedan. At the time. Rogosin and                                                    
Leedan hold another 18% interest in Bilu.  ICTS has granted bank  guarantees  of                                                    
$2,515 in respect of Bilu's obligations,  of which $1,400 is on behalf of Leedan                                                    
and Rogosin. To secure the bank guarantees ICTS has pledged bank deposits at the                                                    
same amounts.                                                                                                                       

(f) Long term loan to an employee                                                                                                   

In December 2003 ICTS granted a loan of $150 to one of its  employees.  The loan                                                    
bears an interest of 2% per annum and is repayable in four equal payments, every                                                    
six months, starting January 2005.                                                                                                  

NOTE 7 - PROPERTY AND EQUIPMENT                                                                                                     

             a.   Property and equipment are composed as follows:                                                                   
                                                                                         December 31,                               
                                                                                      2003          2002                            
                  Cost:                                                                                                             
                     Equipment and facilities (d,e)                                  *$27,794       $29,374                         
                     Buildings (f)                                                                    1,100                         
                     Vehicles                                                             627           454                         
                     Leasehold improvements                                               847           636                         
                     Office furniture and equipment                                     1,361           844                         
                                                                                      _______       _______                         
                                                                                       30,629        32,408                         
                  L e s s -  accumulated depreciation and amortization                 (6,666)       (2,991)                        
                                                                                      _______       _______                         
                                                                                      $23,963       $29,417                         
                                                                                      _______       _______                         

                    *  Net of an impairment provisions of $13,555, see (d,e) below.                                                 

             b.     Depreciation expense totaled $3,169, $1,449 and $1,285 in 2003, 2002 and 2001, respectively.                    

             c.       A portion of the Company's equipment is pledged as collateral for bank loans.                                 

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NOTE 7 - PROPERTY AND EQUIPMENT (continued)                                                                                         

d. In June 2002  equipment  in the amount of $23.5 - million was  purchased  and                                                    
leased back to the seller an unaffiliated  private Dutch company, for 7 years in                                                    
an operating  lease  agreement  (with respect to equipment in an amount of $12.5                                                    
million, the company entered into a purchase and lease agreement that replaced a                                                    
predecessor  acquirer,  see below).  Annual rental fees are denominated in euros                                                    
and amount to Euro 2,650 (at  December  31,  2003 - $2,995).  The seller has the                                                    
option to buy back the assets  after 5 or 7 years,  at their fair  value,  which                                                    
will be  determined  by an  appraiser.  In case the seller does not exercise its                                                    
option to purchase the assets upon termination of the lease , ICTS was granted a                                                    
license to manufacture by the above assets and to use the intellectual  property                                                    
and technical  information  in which case it will have to pay royalties up to 5%                                                    
of the revenues derived from those assets to the seller. The term of the license                                                    
will be equal to the  remaining  economic  life of the  assets.  The company has                                                    
undertaken to repay the predecessor acquirer's liability to a bank, in an amount                                                    
of $8.7 million,  and issued him a promissory  note. As to the balance and terms                                                    
of the note - see note 12. The loan is  non-recourse.  In 2003,  ICTS determined                                                    
that the future cash flows from the leased  equipment  (including  the estimated                                                    
proceeds from exercise of the option) will not recover its investment,  and as a                                                    
result recorded an impairment loss of $6,042.  The value of the equipment at the                                                    
option exercise date was based on an external assessment.                                                                           

e. Equipment and facilities  include an amount of $10,700 (cost) relating to the                                                    
construction  and development of entertainment  projects in Maryland,  Baltimore                                                    
and in Atlantic City, New Jersey. The construction was supervised and managed by                                                    
ITA, see also note 19g. The Baltimore facility was opened and started operations                                                    
in June 2003. The facility in Atlantic City was still under  construction  as of                                                    
December 31, 2003 (commenced running-in in June 2004).                                                                              

Shortly after the Baltimore  facility was opened and based on its  performances,                                                    
the company's management revaluated these two facilities and determined that the                                                    
forecasted  cash  flows  from  them  will not  cover  the  investments  thereof,                                                    
including  amounts  required  to complete  the  development  of the  facility in                                                    
Atlantic  City  estimated  as of  December  31, 2003 in an amount of $5 million.                                                    
Based on their fair  value  which was  calculated  using  discounted  cash flows                                                    
model, the company had recognized an impairment loss of $2,002 in respect of its                                                    
investment  in  Baltimore, and wrote off of its investment in Atlantic City in                                                      
amount of $5,511.                                                                                                                   

f. In 2002  the  Company  invested  in a  building  in  Philadelphia,  with  the                                                    
intention  to use  it for  one of  its  entertainment  projects.  Subsequent  to                                                    
December 31, 2003,  the  building was sold and  therefore it is presented  among                                                    
other current assets.                                                                                                               

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NOTE 8 - GOODWILL:                                                                                                                  

a. The changes in the carrying  value of goodwill,  as assigned to the Company's                                                    
reportable segments, for the year ended December 31, 2003, are as follows:                                                          

                                                                           Aviation                                                 
                                                                           Security    ----------     Total                         
                                                                                         Other                                      
                 Balance as of January 1, 2002                                 $8,484                    $8,484                     
                 Goodwill arising from previous investments in                                                                      
                    companies consolidated for the first time                     314          $427         741                     
                 Goodwill arising on acquisition during the year                                440         440                     
                 Translation adjustments and differences                                        (14)        (14)                    
                 Impairment of Goodwill                                        (8,484)                   (8,484)                    
                                                                              _______       _______     _______                     
                 Balance as of December 31, 2002                                  314           853       1,167                     
                 Adjustment resulting from exercising                                                                               
                    option (see note 4b)                                                        (56)        (56)                    
                 Impairment of Goodwill (see note 4b)                                          (797)       (797)                    
                                                                              _______       _______     _______                     
                 Balance as of December 31, 2003                                 $314          $-          $314                     
                                                                              _______       _______     _______                     

b. As explained  in note 2g,  commencing  January 1, 2002  goodwill is no longer                                                    
amortized.  The following table  illustrates the Company's  results  adjusted to                                                    
eliminate the effect of goodwill amortization  expense,  including goodwill with                                                    
respect to an associated company accounted for by the equity method:                                                                

                                                                                 Year ended December                                
                                                                                         31                                         
                                                                                        2001                                        
                  Net income as reported                                              $26,198                                       
                  Add back:  Goodwill amortization                                        820                                       
                          Goodwill amortization included in share                                                                   
                            in losses of an associated company                            223                                       
                                                                                      _______                                       
                  Net income -adjusted                                                $27,241                                       
                                                                                      _______                                       

                  Earning per share:                                                                                                
                     Basic - as reported                                                 4.18                                       
                     Add back: Goodwill amortization                                     0.13                                       
                                 Goodwill amortization included in share                                                            
                                    in losses of an associated company                   0.04                                       
                                                                                      _______                                       
                     Basic - adjusted                                                    4.35                                       
                                                                                      _______                                       

                     Diluted - as reported                                               4.09                                       
                     Add back: Goodwill amortization                                     0.13                                       
                                       Goodwill amortization included in                                                            
                   share                                                                                                            
                                    in losses of an associated company                   0.03                                       
                                                                                      _______                                       
                     Diluted - adjusted                                                 $4.25                                       
                                                                                      _______                                       

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NOTE 9 - OTHER ASSETS:                                                                                                              

a.       As of  December 31, 2003, comprised of the following:                                                                      

                                                                                               December 31,                         
                                                             December 31, 2003                     2002                             
                                                   Gross                                                                            
                                                 carrying   -------------------   Amortized      Amortized                          
                                                  amount        Accumulated        balance        balance                           
                                                               amortization                                                         

                  Know-how(1)                         $5,266                        $5,266                                          
                  Customer relationship(2)*            1,879         $188           $1,691         $1,879                           
                  Technology(3)**                        277          147              130            172                           
                  Other                                  645                           645             69                           
                                                     _______      _______          _______        _______                           
                                                      $8,067       $  335           $7,732         $2,120                           
                                                     _______      _______          _______          _____                           
                                                     _______      _______          _______          _____                           

                  (1)    Relating to the acquisition of the entertainment business, see note 5a(3).                                 
                         Subsequent to December 31, 2003 this asset was written off.                                                
                  *(2)   Relating to contract with Schiphol Airport, see note 4a.                                                   
                  **(3)  Relating to technology acquired by a subsidiary.                                                           

                  Amortization expense in 2003 totaled $248. In addition,  the Company recorded as of                               
                  December 31, 2002 an impairment  loss of the technology in the amount of $672. This                               
                  impairment  was  determined by  management,  under the provision of FAS 144, due to                               
                  management's  evaluation of  significant  decrease in forecasted  revenues  derived                               
                  from services using the technology.                                                                               

b. Estimated  amortization  expense for each of the following five years amounts                                                    
to: $245; $245; $198 and $188 afterwards.                                                                                           

NOTE 10 - SHORT-TERM BANK CREDIT                                                                                                    

             Short-term bank credit, classified by currency and interest rates, is comprised of                                     
             the following:                                                                                                         

                                                         Weighted average                                                           
                                                          interest rates                                                            
                                                               as of                                                                
                                                           December 31,            December 31,                                     
                                                               2003              2003         2002                                  
                                                                 %                                                                  
               ICTS -                                                                                                               
                In dollars (a)                                 2.31               $2,560        $2,513                              
              Subsidiaries:                                                                                                         
                 In dollars (b)                                  4                   500         6,068                              
                 In other currencies (mainly in Euros)(c)                          1,327            70                              
                                                                                 _______       _______                              
              Total short-term bank credit                                        $4,387        $8,651                              
                                                                                 _______       _______                              
                                                                                 _______       _______                              

(a)      These loans were  received as part of an  arrangement  with a bank,  following  which the money  received and              
                   additional amounts were deposited with the bank, (see note 6(a)).                                                
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NOTE 10 - SHORT-TERM BANK CREDIT (continued)                                                                                        

(b)      In 2002, a subsidiary  entered into a Revolving  Line of Credit (RLC).  The RLC provides a borrowing  base of              
                    (i) an amount up to 85% of  Eligible  Accounts  receivable  of the  subsidiary                                  
                    and (ii) an amount up to $2.5  million  under some  conditions  stipulated  in                                  
                    the RLC. In May 2003, the RLC was extended to May 2004.                                                         
                     As of December 31, 2003, the revolving  credit facility is  collateralized  by                                 
                     the restricted cash held by the Company.  Interest accrues at the bank's prime                                 
                     rate  (4.00   percent  and  4.25  percent  at  December  31,  2003  and  2002,                                 
                     respectively).At  December 31, 2003, $0.5 million was outstanding and $4.8 was                                 
                     available under the revolving credit facility for additional  borrowings.  The                                 
                     borrowing  agreement also provides for an additional  commitment  guarantee of                                 
                     up to a maximum of $3 million for  letters of credit and  requires a per annum                                 
                     fee equal to 1.25 percent.                                                                                     
                     The Company had letters of credit  outstanding of approximately  $2.7 and $1.9                                 
                     at December 31, 2003 and 2002, respectively.                                                                   

                (c)  An amount of $1,309  relates to a long term loan  granted to a  subsidiary  in                                 
                     2003.  The  subsidiary  did not  comply  with the  covenants  included  in the                                 
                     credit  agreement  with the bank and  therefore,  the loan has to be repaid by                                 
                     June  2004.  The loan  bears ABN AMRO euro  base  rate plus  1.75-2.5  percent                                 
                     points.                                                                                                        

NOTE 11 - ACCRUED EXPENSES AND OTHER LIABILITIES                                                                                    

                                                                                         December 31,                               
                                                                                      2003          2002                            
              Payroll and related liabilities                                          $3,603        $6,469                         
              Severance pay and employees' claims (see note 1b)                         9,389        24,560                         
              Liabilities for future development costs (see note 7e)                    1,595                                       
              Taxes to government institutions, including taxes payable                 1,199         5,452                         
              Related parties                                                              21         1,074                         
              Accrued expenses and other                                                3,653         9,030                         
                                                                                      _______       _______                         
                                                                                      $17,865       $46,585                         
                                                                                      _______       _______                         
                                                                                      _______       _______                         
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NOTE 12 - LONG-TERM LIABILITIES:                                                                                                    

                  a. Composition:                                                                                                   
                                                              Interest rate as of                                                   
                                                                  December 31,            December 31,                              
                                                                      2003              2003         2002                           
                   In dollars:                                                                                                      
                     Banks (1)                                mainly - 1.93%              $4,103                                    
                     Promissory Note (2)                               3.12%                 631                                    
                                                                                         _______                                    
                                                                                           4,734                                    
                   In euros - Promissory Note  (3)             Libor + 2.05%               6,804       $7,777                       
                   Other - Deferred note (4)                      See (4)                    546                                    
                                                                                         _______      _______                       
                                                                                          12,084        7,777                       
                   Less - current maturities                                              (2,752)      (2,097)                      
                                                                                         _______      _______                       
                                                                                          $9,332       $5,680                       
                                                                                         _______      _______                       
                                                                                         _______      _______                       

(1) This loan was  received as part of the  arrangement  with a bank,  following                                                    
which the money received and an additional  amount were deposited with the bank,                                                    
the deposit amount as of December 31, 2003 is $4,953 (see note 6(a)).                                                               

(2) The promissory note was issued in connection with the purchase  agreement of                                                    
the  operations  of ITA (see note  5a(3)).  The note is payable in 13  quarterly                                                    
installments of which the first was paid in December 2003.                                                                          

(3) The  Promissory  Note  was  granted  to the  seller  of  part of the  leased                                                    
equipment (as explained in note 7d). The Promissory  Note bears annual  interest                                                    
of Euro Libor+2.05% (4.947% as of December 31, 2003) and is repaid over 5 years.                                                    
The Company paid to the seller annual guarantee fees of $94 and $113 in 2003 and                                                    
2002, respectively.  The Promissory Note is secured by a first priority security                                                    
interest  to a bank on part of the leased  assets  ($12.3  million)  and all the                                                    
rights under the equipment leases.                                                                                                  

(4) The deferred  note was issued in connection  with the purchase  agreement of                                                    
ITA (see note  5a(3))  .The note is payable in three  equal  payments  every six                                                    
months commencing December 2004. The interest will be 7% or The Israeli Consumer                                                    
Price Index  (CPI) plus 4%, the higher of. A guarantee  granted to IMA (see note                                                    
5a(4)) is secured by this note.                                                                                                     

b. The long term liabilities (net of current maturities) mature in the following                                                    
years after the balance sheet date:                                                                                                 

                                                December 31,                                                                        
                                                     2003                                                                           
                                              ------------------                                                                    
                              2005                   $2,928                                                                         
                              2006                    6,364                                                                         
                              2007                       21                                                                         
                              2008                       19                                                                         
                                                   ________                                                                         
                                                     $9,332                                                                         
                                                   ________                                                                         

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                                                   ________                                                                         
NOTE 13 - ACCRUED SEVERANCE PAY                                                                                                     

The accrued severance pay in the consolidated  financial  statements  relates to                                                    
the Israeli subsidiaries.                                                                                                           

Israeli law generally  requires  payment of severance  pay upon  dismissal of an                                                    
employee or upon termination of employment in certain other  circumstances.  The                                                    
following  principal  plans  relate  to  employee  rights  upon  retirement,  as                                                    
applicable to Israeli subsidiaries.                                                                                                 

a) Insurance  policies for  employees in managerial  positions - these  policies                                                    
provide  coverage  for  severance  pay and  pension  liabilities  of  managerial                                                    
personnel.                                                                                                                          

b) Severance pay liabilities not covered by the pension funds are fully provided                                                    
for in these  consolidated  financial  statements,  as if it was payable at each                                                    
balance sheet date on an undiscounted  basis,  based upon the number of years of                                                    
service and the most recent  monthly  salary (one  month's  salary for each year                                                    
worked) of the company's employees in Israel.                                                                                       

The amount of  severance  pay charged to income in the years ended  December 31,                                                    
2003,  2002 and 2001 were  approximately  $98, $100 and $100  respectively.  The                                                    
amounts do not include  expenses for severance pay in 2002 in an amount of $18.9                                                    
million and reversal of $17.8 million in 2003 (see note 1b). The Company expects                                                    
to contribute in 2004 $80 to the insurance companies in respect of its severance                                                    
pay obligation.                                                                                                                     

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES:                                                                                   

a.       Operating leases                                                                                                           

1) The Company leases premises under long-term  operating  leases, in most cases                                                    
with renewal options. Lease expenses for the years ended December 31, 2003, 2002                                                    
and 2001 were $1,166 $928 and $1,739, respectively.                                                                                 

Future minimum lease payments under long-term leases are as follows:                                                                

                                                        December 31,                                                                
                                                            2003                                                                    
                        2004                               $1,208                                                                   
                        2005                                1,110                                                                   
                        2006                                1,012                                                                   
                        2007                                  946                                                                   
                        2008 and afterwards                10,027                                                                   
                                                          _______                                                                   
                                                          $14,303                                                                   
                                                          _______                                                                   
                                                          _______                                                                   

                  2)  As to income from leasing of equipment, see note 7d.                                                          

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                  NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):                                                     

             b.   Operations in the U.S.:                                                                                           

1) As a result of the  September 11 terrorist  attacks,  numerous  lawsuits have                                                    
commenced against the Company.  Huntleigh has been named in 27 lawsuits and ICTS                                                    
in 25  lawsuits.  All of the cases  were filed in the  United  States  Districts                                                    
Court,  Southern District of New York. The cases are in their early stages.  The                                                    
Company reviewed its security services provided at Boston's Logan  International                                                    
Airport,  from  which  one  of the  airplanes  commandeered  by  the  terrorists                                                    
departed,  subsequent to September 11, 2001 for evidence of non-compliance  with                                                    
the policies of the Federal Aviation Administration. Based on the contracts with                                                    
the airlines,  the Company may be  indemnified by the airlines if the Company is                                                    
found  to have  followed  the  procedures  enumerated  by the  Federal  Aviation                                                    
Administration.  However,  if the  Company  is  found  to  have  violated  these                                                    
screening  regulations,  it could be liable for damages.  Based on the Company's                                                    
review,  no evidence of  non-compliance  has been identified with respect to the                                                    
services provided at Boston's Logan International Airport on September 11, 2001.                                                    
The Company maintains an aviation  insurance  policy,  which may provide limited                                                    
coverage for liabilities that may be assessed against the Company as a result of                                                    
the events of September 11, 2001.                                                                                                   

Management  is unable to  estimate  the impact of the  litigation  or fines,  as                                                    
described above. Accordingly,  no provision in respect of these matters has been                                                    
made.                                                                                                                               

2) As a provider of security  services,  the Company faces  potential  liability                                                    
claims  in the  event  of any  successful  terrorist  attempt  in  circumstances                                                    
associated  with the Company.  After the September 11th terrorist  attacks,  the                                                    
Company's  insurance  carriers  canceled  all war risk  insurance  policies  the                                                    
Company carried.                                                                                                                    

3) On February 17, 2002,  the Company was awarded a security  services  contract                                                    
(the "TSA Contract") by the TSA to continue to provide security  services in all                                                    
of its  current  airport  locations  until the  earlier of either the  completed                                                    
transition of these  security  services on an airport basis to the U.S.  Federal                                                    
Government or November 19, 2002.  In accordance  with the terms of the Contract,                                                    
the U.S.  Federal  Government  provided the Company with a non-interest  bearing                                                    
partial  payment  of $26  million  to be paid  back on a  monthly  basis of $1.3                                                    
million at the  beginning of every month  commencing  April 1, 2002. At December                                                    
31, 2002,  approximately  $11.7 million of the $26 million had been paid back to                                                    
the TSA (in 2003 no  additional  payments have been paid back to the TSA). As of                                                    
December  31, 2003 the amount due from the TSA in respect of  services  provided                                                    
under  the  contract  aggregates  $17.2  million;  this  amount,  net  of  $14.3                                                    
million-the balance of the prepayment, is presented among trade receivables.                                                        

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NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):                                                                       

                       The TSA in accordance with standard practices, is in the process of                                          
                       auditing ICTS's billings to the TSA pursuant to the TSA Contract for                                         
                       the provision of aviation security services. This process requires the                                       
                       Company to provide pricing data to the U.S. Federal government to                                            
                       support its pricing structure under the TSA Contract and eventually                                          
                       will result in final negotiations on the price of the Company's                                              
                       services from February 17, 2002 through the end of the Contract term.                                        

                       In  connection  with  payments  made by the TSA to the Company for  aviation                                 
                       security services  provided in 2002, the Defense Contract  Management Agency                                 
                       has indicated  that it believes  that the Company  should not have been paid                                 
                       on a fixed  cost  basis as  believed  by the  Company,  but on the  basis of                                 
                       actual  costs plus what the TSA would  consider a reasonable  profit.  Under                                 
                       the last basis the Company  may be required to repay the TSA the  difference                                 
                       between such amount and the actual  amounts paid to it. The Company  however                                 
                       has various  claims for  additional  amounts it considers  due to it for the                                 
                       services provided to the TSA.                                                                                
                       The  Company's  management  estimates  that  if  the  TSA  will  claim  such                                 
                       difference  and  will  prevail  in all  of  its  contentions,  and  none  of                                 
                       Company's claims will be recognized,  then the Company may suffer a net loss                                 
                       in an amount of about $27 Million.  The Company's  above  estimate  assumes,                                 
                       that under USA tax rules it will be able to  carry-back  the losses (if any)                                 
                       that will result from the above claims of the TSA.  Management and its legal                                 
                       counsel are unable to estimate at this stage the final  outcome of the above                                 
                       mentioned dispute.  Accordingly,  no provision in respect of this matter has                                 
                       been made.                                                                                                   

                       The Company had also filed a claim  against the US Federal  Government,  for                                 
                       what it alleges to be a taking of its US aviation  security  business by the                                 
                       TSA in 2002.                                                                                                 

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NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):                                                                       

             c.   Restrictions on operations                                                                                        

                  As part of the sale of its European  operations,  the Company is restricted  from                                 
                  conducting  in Europe  (except for The  Netherlands  and the former  Soviet Union                                 
                  republics,  including  Russia,  Georgia and  Kazakhstan) any of the activities in                                 
                  which ICTS Europe was engaged prior to such sale.  This  restriction is effective                                 
                  through February 2005.                                                                                            

                  Pursuant  to an  agreement  dated July 1, 1995 with ICTS Global  Security  (1995)                                 
                  Ltd. ("ICTS Global Security"),  the Company may not provide non-aviation security                                 
                  services  in  Latin  America,  Turkey  or  the  former  Soviet  Union  republics,                                 
                  including Russia, Georgia and Kazakhstan.                                                                         

             d.   Following the sale of the European  operations,  ICTS has undertaken to indemnify                                 
                  ICTS Europe and its  subsidiaries  in respect of any liability or loss originated                                 
                  prior to December 31,  2001 and not known at that date. As of December 31,  2003,                                 
                  management has not received any notification for any such liability or loss.                                      

             e.   On December 28, 1995, the Company  entered into an employment  contract with Lior                                 
                  Zouker,  its Chief  Executive  Officer  and a member  of its board of  directors,                                 
                  pursuant to which the  Company  agreed to employ Mr.  Zouker in those  capacities                                 
                  for a 30 month term.  The contract was extended for an additional  three years on                                 
                  November 25, 1997 and again on December 12,  2000. Pursuant to such contract, Mr.                                 
                  Zouker is entitled  to a bonus,  which is  calculated  at 3% of the net income of                                 
                  ICTS and was provided in the accounts.  On April 2004, Mr. Zouker resigned as the                                 
                  Chief Executive Officer of the Company.                                                                           

             f.   On December 16, 2003,  the Company  entered into an agreement with Mr. Boaz Harel                                 
                  the  chairman  of the  Supervisory  Board of Directors, on which  basis he  receives                              
                  for his services to the Company a compensation of $245 on an annual basis.                                        

             g.   In 2002 the Company,  and one of its  subsidiaries,  entered  into a  consultancy                                 
                  services  agreement with a company,  owned by a former member of the  Supervisory                                 
                  Board of the Company.  The agreement provided for annual fees of $75 for a period                                 
                  of 2 years and shall be  automatically  renewed for an  additional  period of one                                 
                  year.  In May 2004 the  consultancy  company's  owner was  appointed  CEO and the                                 
                  agreement was amended.  In January 2004 the agreement has been amended by two new                                 
                  agreements.  In May 2004 the consultancy company's owner was appointed CEO and the                                
                  agreement was amended. The agreement shall be valid for 5 years with an automatic                                 
                  extension of an undefined period, with a notice period of 12 months. The compensation is                          
                  settled on approximately US$ 300.                                                                                 

             h.   As mentioned in note 5a(4) ICTS guaranteed certain bank loans of IMA which has                                    
                  commenced bankruptcy proceedings in Italy.  As explained in this note the company                                 
                  provided for the full exposure relating to the balance of such loans as of                                        
                  December 31, 2003.  Under the Italian law and in certain defined cirucumstances the                               
                  liquidator of IMA may reclaim a refund of amount paid by IMA to the bank, in which                                
                  case the company might be required to repay such amounts under the above guarantee up                             
                  to the amount of original guarantee. The maximum contingent liability of the company is                           
                  $1,000,000. The company is currently not in a position to assess the likelihood that this                         
                  contingency will materialze.                                                                                      

             i.   As to the guarantee given to Bilu Investment Ltd., see note 6e.                                                   

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NOTE 15 - OTHER INCOME (EXPENSES)                                                                                                   

                                                                                Year ended December 31,                             
                                                                                 2003        2002        2001                       
             Sale of ICTS Europe, see note 1c                                              $42,797     $34,260                      
             Write off of Investments in start-up companies                      $(400)                 (4,489)                     
             Capital gain from sale of other companies, net                                     43       1,182                      
             Write-down of investment in Ramasso                                              (932)                                 
             Loss realized on marketable securities                                           (690)       (780)                     
             Write off of loans *                                                                         (334)                     
             Other                                                                  47          11        (319)                     
                                                                               _______     _______     _______                      
                                                                                 $(353)    $41,229     $29,520                      
                                                                               _______     _______     _______                      
                                                                               _______     _______     _______                      

              *   In 2001, ICTS wrote off a non-recourse loan to a former  shareholder of a subsidiary,                             
                  since the former shareholder pledged his shares in another company.                                               

NOTE 16 - INCOME TAXES:                                                                                                             

             a.   Each  subsidiary of ICTS is subject to tax according to the tax rules applying with                               
                  respect to its place of incorporation or residency.  ICTS is incorporated under the                               
                  laws  of The  Netherlands  and  is,  therefore,  subject  to the  tax  laws  of The                               
                  Netherlands.  Intercompany  payments  are subject to  withholding  taxes at varying                               
                  rates  according  to their  nature  and the  payer's  country of  incorporation  or                               
                  residency.                                                                                                        

             b.   Deferred taxes:                                                                                                   

                  1)   Deferred tax assets have been computed in respect of the following:                                          

                                                                                     December 31,                                   
                                                                                    2003          2002                              

                       Carryforward losses                                          9,660       $3,004                              
                       Fixed assets and intangible assets                           2,554                                           
                       Provision for Shut down costs                                             3,528                              
                       Accruals and other reserves                                   (367)       1,046                              
                       Provision for bad debts                                        735          812                              
                       Other                                                           31           51                              
                                                                                  _______      _______                              
                                                                                   12,613       $8,441                              
                       Less - valuation allowance                                  12,214        3,004                              
                                                                                  _______      _______                              
                                                                                      399       $5,437                              
                                                                                  _______      _______                              

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NOTE 16 - INCOME TAXES (continued):                                                                                                 

2)       Deferred taxes are presented in the balance sheets as follows:                                                             

                                                                                  December 31,                                      
                                                                                   2003        2002                                 

                    Among other current assets                                     $385      $5,409                                 
                       Among investments and long-term receivables                   33          28                                 
                       Among long term liabilities                                  (19)                                            
                                                                                _______     _______                                 
                                                                                   $399      $5,437                                 
                                                                                _______     _______                                 

             c.   Income (loss) before taxes on income is comprised of the following:                                               

                                                                                  Year ended December 31,                           
                                                                               2003         2002         2001                       
                        ICTS and subsidiaries in The Netherlands               $(7,820)      $54,603     $28,112                    
                        Subsidiaries outside The Netherlands                    (1,308)       20,461       6,136                    
                                                                               _______       _______     _______                    
                                                                              $( 9,128)      $75,064     $34,248                    
                                                                               _______       _______     _______                    
                                                                               _______       _______     _______                    

             d.   Taxes on income included in the income statements:                                                                

                                                                                  Year ended December 31,                           
                                                                               2003         2002         2001                       
                        Current:                                                                                                    
                           In The Netherlands                                     $(85)        $(223)     $1,314                    
                           Outside The Netherlands                              (1,847)       20,938       3,689                    
                                                                               _______       _______     _______                    
                                                                                (1,932)       20,715       5,003                    
                                                                               _______       _______     _______                    
                        Deferred:                                                                                                   
                           In The Netherlands                                                    187         268                    
                           Outside The Netherlands                               5,047        (4,460)       (352)                   
                                                                               _______       _______     _______                    
                                                                                 5,047        (4,273)        (84)                   
                                                                               _______       _______     _______                    

                                                                                $3,115       $16,442      $4,919                    
                                                                               _______       _______     _______                    
                                                                               _______       _______     _______                    

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NOTE 16 - INCOME TAXES (continued):                                                                                                 

             e.   The Company's  effective income tax rate differs from The Netherlands'  statutory                                 
                  rate of 34.5% with respect to the following:                                                                      
                                                                                    Year ended December 31,                         
                                                                                 2003         2002         2001                     
                   Income (loss) before taxes and equity in                                                                         
                      results of associated companies                           $( 9,128)      $75,064      $34,248                 
                                                                                 _______       _______      _______                 
                   Statutory tax rate                                              34.5%         34.5%        35%                   
                                                                                 _______       _______      _______                 

                   Expected tax at statutory rate                                $(3,149)      $25,897      $11,987                 
                   Reconciliation for earnings taxed at different rates               18            86          296                 
                   Disallowable expenses                                             460         8,124          740                 
                   Non-taxable expense (income)*                                     275       (14,248)     (10,365)                
                   Changes in valuation allowance                                  6,513        (3,330)       2,091                 
                   Provision to return matters                                      (812)                                           
                   Other                                                            (190)          (87)         170                 
                                                                                 _______       _______      _______                 
                   Income taxes                                                   $3,115       $16,442       $4,919                 
                                                                                 _______       _______      _______                 

                       *  In 2002 and 2001  including  a tax  exempted  capital  gain (from sale of                                 
                          the European operations).                                                                                 

             f.   Carryforward tax losses                                                                                           

                  As of  December 31,  2003,  the  Company  has  carryforward  tax  losses  in  the                                 
                  Netherlands,  in the amount of approximately  $28 million.  As a result of change                                 
                  in the  Netherlands  tax law,  commencing  January 1, 2004,  utilization  of such                                 
                  losses is limited in certain circumstances.                                                                       

NOTE 17- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:                                                                                 

             a.   Fair market value of financial instruments                                                                        

                  Based on borrowing rates  currently  available to the Company for bank loans with                                 
                  similar terms and maturities,  the fair market value of the Company's  short-term                                 
                  and long-term debt  approximates  the carrying value.  Furthermore,  the carrying                                 
                  value  of  other  financial  instruments   potentially  subject  to  credit  risk                                 
                  (principally  consisting  of  cash  and  cash  equivalents,   time  deposits  and                                 
                  marketable   securities,   accounts   receivable   and  accounts   payable)  also                                 
                  approximates fair market value. Certain financial instruments,  included in other                                 
                  investments  (including  inter alia the  investment  in Bilu,  which was acquired                                 
                  from  related  party),  do not have  quoted  market  prices and,  accordingly,  a                                 
                  reasonable  estimate of fair market  value  could not be made  without  incurring                                 
                  excessive costs.                                                                                                  

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NOTE 17 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):                                                                    

             b.   Risk management:                                                                                                  

                  1)   The Company  operates in the USA,  Europe and other  countries,  which gives                                 
                       rise to  exposure  to market  risks in  respect  of  foreign  exchange  rate                                 
                       fluctuations.  The Company did not utilize derivative financial  instruments                                 
                       to reduce these risks.  Since January 1, 2002,  the  functional  currency is                                 
                       the dollar and the exposure to foreign currency fluctuations is reduced.                                     

                       Credit risk  represents  the  accounting  loss that would be incurred if any                                 
                       party failed to perform according to the terms of the financial  instrument.                                 
                       Credit risk may arise from  financial  instruments  that have a  significant                                 
                       exposure  to  individual  debtors  or groups of  debtors,  or when they have                                 
                       similar  economic  characteristics  that would cause  their  ability to meet                                 
                       contractual  obligations to be similarly affected by changes in economic and                                 
                       other conditions.                                                                                            

                  2)   At December  31, 2003,  two major  customers  accounted  for 32% of accounts                                 
                       receivable (at December 31,  2002, four major customers accounted for 48% of                                 
                       accounts receivable).                                                                                        
                       For the  years  ended  December  31,  2003,  2002 and  2001,  sales to major                                 
                       customers  (constituting 10% or more of the Company's consolidated revenues)                                 
                       amounted to 36%, 73% and 21% of revenues, respectively, as set forth below:                                  

                                                                          Year ended December 31,                                   
                                                                      2003          2002          2001                              
                                                                        (% of consolidated revenues)                                
                       Customer A                                     14%                                                           
                       Customer B                                     11%                         11%                               
                       Customer C                                     11%                         10%                               
                       Customer D                                                   73%                                             

                  3)   The Company's  financial  instruments that are exposed to  concentrations of                                 
                       credit  risks,  consist  primarily  of  cash  and  cash  equivalents,  trade                                 
                       accounts  receivable,  short-term  investments,  (see note 3), and long-term                                 
                       investments  (see note 6). The Company places its cash and cash  equivalents                                 
                       and time  deposits  with  high  quality  credit  institutions.  The  Company                                 
                       provides  normal trade credit,  in the ordinary  course of business,  to its                                 
                       customers.  Based  on  past  experience  and  the  identity  of its  current                                 
                       customers,  the Company  believes that its accounts  receivable  exposure is                                 
                       limited.                                                                                                     

                  4)   Except for  guarantees  provided  for (see note 5), the  Company  guarantees                                 
                       debts of third  parties,  as  discussed in notes 6 and 14.  Regarding  these                                 
                       guarantees, the Company does not believe exposure to loss is likely.                                         

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NOTE 17 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):                                                                    

                  5)   The Company is currently engaged in direct operations in numerous  countries                                 
                       and is therefore subject to risks associated with  international  operations                                 
                       (including economic or political  instability and trade  restrictions),  any                                 
                       of which could have a significant  negative impact on the Company's  ability                                 
                       to  deliver  its  services  on a  competitive  and  timely  basis and on the                                 
                       results  of  the  Company's   operations.   Although  the  Company  has  not                                 
                       encountered  significant   difficulties  in  connection  with  the  sale  or                                 
                       provision of its services in international  markets,  future  imposition of,                                 
                       or significant  increases in, the level of trade restrictions or economic or                                 
                       political  instability in the areas where the Company  operates,  could have                                 
                       an  adverse  effect on the  Company.  For  example,  the  Company  currently                                 
                       provides  services  at several  airports  in the former  Soviet  Union.  The                                 
                       Company's  ability to continue  operations in the former Soviet Union may be                                 
                       adversely  affected by future  changes in  legislation  or by changes in the                                 
                       political environment.                                                                                       

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NOTE 18 - SEGMENT INFORMATION:                                                                                                      

             The Company adopted FAS 131,  which establishes  disclosure and reporting requirements                                 
             in respect of segments.                                                                                                

             a. Business segment data:                                                                                              

1)       Financial data relating to reportable operating segments:                                                                  

                  Year ended December 31, 2003:                                                                                     

                                                   Aviation                                                                         
                                                   Security    -----------    Entertainment        Other          Total             
                                                                 Leasing                                                            
       Revenues:                                                                                                                    
         Unaffiliated customers                      $66,454        $2,995         $643              $1,479       $71,571           
         Intersegment                                    418                                          3,884         4,302           
                                                     _______      _______        _______            _______       ________          
       Total revenues                                $66,872        $2,995         $643              $5,363       $75,873           
                                                     _______      _______        _______            _______       ________          
                                                     _______      _______        _______            _______       ________          
       Operating income (loss)                       $12,215       $(5,476)     $(10,114)           $(3,603)     $( 6,978)          
                                                     _______      _______        _______            _______       ________          
                                                     _______      _______        _______            _______       ________          
       Assets (at end of year)                       $36,087       $36,340      $ 10,401            $51,594      $134,422           
                                                     _______      _______        _______            _______       ________          
                                                     _______      _______        _______            _______       ________          
       Goodwill (at end of year)                        $314                                                         $314           
                                                     _______                                                      ________          
                                                     _______                                                      ________          
       Expenditures for segment assets                  $259                      $7,451               $299        $8,009           
                                                     _______                     _______            _______       ________          
                                                     _______                     _______            _______       ________          
       Depreciation and amortization                    $493    $2,427              $265               $184        $3,369           
                                                     _______      _______        _______            _______       ________          
                                                     _______      _______        _______            _______       ________          
       Non cash expenditures other                                                                                                  
          than depreciation and amortization                    $6,042            $7,513               $797       $14,352           
                                                                  _______        _______            _______                         
                                                                                                                   _______          
                                                                  _______        _______             ______        _______          

                  Year ended December 31, 2002:                                                                                     

                                                   Aviation                                                                         
                                                   Security    -----------    Entertainment        Other          Total             
                                                                 Leasing                                                            
       Revenues:                                                                                                                    
         Unaffiliated customers                     $277,636        $1,370                             $925      $279,931           
         Intersegment                                 12,263                                         12,926        25,189           
                                                     _______      _______                           _______       ________          
       Total revenues                               $289,899        $1,370                          $13,851      $305,120           
                                                     _______      _______                           _______       ________          
                                                     _______      _______                           _______       ________          
       Operating income (loss)                      $37,731          $271        $(517)             $1,963       $39,448            
                                                     _______      _______         _____             _______       ________          
                                                     _______      _______         _____             _______       ________          
       Assets (at end of year)                       $52,809       $36,605       $7,259             $54,840      $153,513           
                                                     _______      _______         _____             _______       ________          
                                                     _______      _______         _____             _______       ________          
       Goodwill (at end of year)                        $314                                           $853        $1,167           
                                                     _______                                        _______       ________          
                                                     _______                                        _______       ________          
       Expenditures for segment assets                  $320    $23,384          $3,618              $2,088       $29,410           
                                                     _______      _______         _____             _______       ________          
                                                     _______      _______         _____             _______       ________          
       Depreciation and amortization                    $206    $1,158                                  $79        $1,443           
                                                     _______      _______                           _______       ________          
                                                     _______      _______                           _______       ________          
       Non cash expenditures other                                                                                                  
        Than depreciation and amortization            $9,156                                           $932       $10,778           
                                                     _______                                        _______       ________          
                                                     _______                                        _______       ________          

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NOTE 18 - SEGMENT INFORMATION (continued):                                                                                          

       Year ended December 31, 2001:                                                                                                

                                                   Aviation                                                                         
                                                   Security    ------------------      Other         Total                          
                                                                 Entertainment                                                      
       Revenues:                                                                                                                    
         Unaffiliated customers                     $211,707                              $430       $212,137                       
         Intersegment                                  1,186                               679          1,865                       
                                                     _______                            _______      ________                       
       Total revenues                               $212,893                            $1,109       $214,002                       
                                                     _______                            _______      ________                       
                                                     _______                            _______      ________                       
       Operating income (loss)                       $13,723                           $(1,145)       $12,578                       
                                                     _______                            _______      ________                       
                                                     _______                            _______      ________                       
       Assets (at end of year)                       $39,261        $3,480              $5,126        $47,867                       
                                                     _______         _____              _______      ________                       
                                                     _______         _____              _______      ________                       
       Goodwill (at end of year)                      $8,484                                           $8,484                       
                                                     _______                                         ________                       
                                                     _______                                         ________                       
       Expenditures for segment assets                $1,496            $2                             $1,498                       
                                                     _______         _____                           ________                       
                                                     _______         _____                           ________                       
       Depreciation and amortization                  $2,061                               $29         $2,090                       
                                                     _______                            _______      ________                       
                                                     _______                            _______      ________                       

2)       Following is a reconciliation of net revenues, operating income and assets of the reportable segments to                   
                the data included in the consolidated financial statements:                                                         

                                                                            Year ended December 31                                  
                                                                       2003           2002           2001                           
     Revenues:                                                                                                                      
         Total revenues of reportable segments                        $70,510        $291,269       $212,893                        
         Other revenues                                                 5,363          13,851          1,109                        
         Elimination of intersegment revenues                          (4,302)        (25,189)        (1,865)                       
                                                                        _______       ________      ________                        
         Total consolidated revenues                                  $71,571        $279,931       $212,137                        
                                                                        _______       ________      ________                        
                                                                        _______       ________      ________                        

     Operating Income:                                                                                                              
         Total operating income (loss) of reportable segments        $( 3,375)        $37,485        $13,723                        
         Other                                                         (3,603)          1,963         (1,145)                       
         Amounts not allocated to segments:                                                                                         
           General and administrative expenses                         (2,581)         (8,363)        (9,827)                       
           Interest income                                              2,248           2,072          1,649                        
           Interest expense                                            (1,222)         (1,678)        (1,637)                       
           Exchange defferences                                          (242)          2,356          1,965                        
           Other income (expenses)                                       (353)         41,229         29,520                        
                                                                        _______       ________      ________                        
         Consolidated income (loss) before taxes on income           $( 9,128)        $75,064        $34,248                        
                                                                        _______       ________      ________                        
                                                                        _______       ________      ________                        

     Assets (at end of year):                                                                                                       
         Total assets of reportable segments                          $82,828         $98,673        $42,741                        
         Total goodwill of reportable segments                            314             314          8,484                        
         Other assets                                                  51,594          55,693          5,126                        
         Elimination of intersegment balances                         (71,108)        (41,774)       (13,378)                       
         Assets not allocated to segments                              20,872          10,174         30,990                        
                                                                        _______       ________      ________                        
         Total consolidated assets (at end of year)                   $84,500         $12,538        $73,963                        
                                                                        _______       ________      ________                        
                                                                        _______       ________      ________                        

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NOTE 18 - SEGMENT INFORMATION (continued):                                                                                          

             b.   Geographical information                                                                                          

                  Following is a summary of revenues and long-lived assets by geographical areas:                                   

                  1)   Revenues - classified by country in which the services were rendered:                                        

                                                                    Year ended December 31,                                         
                                                              2003          2002            2001                                    
                        Germany                                                               $26,574                               
                        France                                                                 25,756                               
                        United Kingdom                                                         30,938                               
                        Italy                                                                   7,005                               
                        USA                                    $59,146       $274,082          96,748                               
                        The Netherlands                         10,034          4,834           2,274                               
                        Other                                    2,390          1,015          22,842                               
                                                               _______        _______         _______                               
                        Total                                  $71,571       $279,931        $212,137                               
                                                               _______        _______         _______                               
                                                               _______        _______         _______                               

2)       The Company's long-lived assets, net of accumulated  depreciation,  are located in the following geographical              
                       areas:                                                                                                       

                                                                         December 31,                                               
                                                              2003          2002            2001                                    
                        The Netherlands                       $19,569       $23,543         $9,107                                  
                         USA                                    9,098         5,393            621                                  
                        Other                                     562           480             68                                  
                                                              _______       _______        _______                                  
                        Total                                 $29,229       $29,417         $9,796                                  
                                                              _______       _______        _______                                  
                                                              _______       _______        _______                                  

             c.   As to the Company's major customers, see note 17b(2).                                                             

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NOTE 19 - RELATED PARTIES - TRANSACTIONS AND BALANCES:                                                                              

             a.   Revenues from, and expenses to, related parties:                                                                  

                                                                                    Year ended December 31,                         
                                                                                  2003        2002        2001                      

                  Revenues                                                                        $27        $571                   
                                                                                              _______     _______                   
                                                                                              _______     _______                   
                  Cost of revenues                                                                             $7                   
                                                                                                          _______                   
                                                                                                          _______                   
                  Selling, general and administrative expenses                     $1,618      $4,453        $153                   
                                                                                  _______     _______     _______                   
                                                                                  _______     _______     _______                   
                  Interest income                                                    $517        $660        $123                   
                                                                                  _______     _______     _______                   
                                                                                  _______     _______     _______                   
                  Contract settlement expenses (note 5a(3))                        $5,266                                           
                                                                                  _______                                           
                                                                                  _______                                           
                  Bonuses related to the sale of the European                                                                       
                      operation *                                                              $4,704      $3,212                   
                                                                                              _______     _______                   
                                                                                              _______     _______                   
                  *  Include bonuses to Leedan, see c2) below.                                                                      

a.       Balances with related parties:                                                                                             

                                                                                    December 31,                                    
                                                                                  2003        2002                                  
                  Other current assets                                                $382      $5,417                              
                                                                                   _______     _______                              
                                                                                   _______     _______                              
                  Long term loans to associated companies                           $2,988      $5,464                              
                                                                                   _______     _______                              
                                                                                   _______     _______                              
                  Subordinated debentures including accrued interest                $1,369      $1,269                              
                                                                                   _______     _______                              
                                                                                   _______     _______                              
                  Accrued expenses and other liabilities                               $21      $1,074                              
                                                                                   _______     _______                              
                                                                                   _______     _______                              

             c.   1)   In 2001 and 2002,  the Company lent Leedan $2,200 and $1,500,  respectively.                                 
                       The loans bear  interest  at the rate of  Libor for  3 months +3% per annum.                                 
                       The loans were repaid in February 2003 and April 2003, respectively.                                         

                  2)   Leedan  provided  the  Company  with  certain  management,   administrative,                                 
                       consulting  and advisory  services,  as well as advice and  assistance  with                                 
                       respect to potential acquisitions and investor relations.  Such services are                                 
                       provided on an ad-hoc basis as authorized by the ICTS Supervisory  Board. In                                 
                       2003 the Company  recorded no expenses  for such  services (in 2002 and 2001                                 
                       the Company recorded $1.2 million and $1 million, respectively).                                             

             d.   In  2001  30,000  options  were  granted  to Mr Lior  Zouker,  the  former  Chief                                 
                  Executive  Officer,  for an exercise price of $4.5 per share.  The exercise price                                 
                  reflected the share price at the grant dates.                                                                     
                  As to the employment contract with him, see note 14e.                                                             

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NOTE 19 - RELATED PARTIES - TRANSACTIONS AND BALANCES (continued):                                                                  

             e.   In 2002,  ICTS  bought  vested  and non vested  options  from its  employees  and                                 
                  directors.  The difference  between the price paid and the exercise price for the                                 
                  options bought back,  aggregating  $1,618,  was recorded as selling,  general and                                 
                  administrative expenses.                                                                                          
                  In 2003 ICTS did not buy any options from its employees and directors.                                            

             f.   On July 24, 2001 Noaz Management  Company  assigned to ICTS an investment of $400                                 
                  (out of its total  investment of $1 million) in ArtLink Inc.,  representing  4.1%                                 
                  of  the  class  A  preferred  shares.  A  major  shareholder  and  member  of the                                 
                  Supervisory  Board  of the  Company  is a major  shareholder  in Noaz  Management                                 
                  Company. This investment was written off in 2003.                                                                 

             g.   As part of the  investment  in ITA   (a company controlled by a                                                   
                  significant shareholders of ICTS, see Note 5a(3), ITA provided  to the  Company                                   
                  supervision and management  services on establishment  of Entertainment  project for                              
                  a fee equal to 20% of the project  costs.  In addition,  the Company was granted the                              
                  right of first  refusal to  establish  its own ITA  Entertainment  project in Europe                              
                  and in the USA.  The  Company  also had an option to  acquire  from ITA 20% of ITA's                              
                  stake in each  project  and ITA had the option to acquire  from the  Company  20% of                              
                  its  stake in each  such  project  for a  period  of 2 years  from the  start of the                              
                  project.  As a result of the  transaction  with ITA in December 2003, (see Note 5a(3)                             
                  ICTS acquired the entertainment business of ITA and therefore this arrangement expired.                           

h.       As to guarantees issued in favor of related parties - see note 6(e).                                                       

NOTE 20 - EARNINGS (LOSSES) PER SHARE                                                                                               

              The  following  table  presents  the data used for  computation  of basic and diluted                                 
              earnings (losses) per share:                                                                                          
                                                                                         Year ended December 31,                    
                                                                                     2003          2002         2001                
       Basic:                                                                                                                       
           Net income (loss)                                                         $(18,904)      $56,815       $26,198           
                                                                                     ________      ________      ________           
                                                                                     ________      ________      ________           
           Weighted average shares of common stock outstanding                      6,513,100     6,419,575     6,263,909           
                                                                                     ________      ________      ________           
                                                                                     ________      ________      ________           
       Diluted:                                                                                                                     
           Net income (loss)                                                         $(18,904)      $56,815       $26,198           
                                                                                     ________      ________      ________           
                                                                                     ________      ________      ________           
           Weighted average number of shares of common stock                                                                        
             outstanding                                                            6,513,100     6,419,575     6,263,909           
           Incremental shares of common stock from stock options -                                                                  
             Calculated under the treasury stock method                                              33,872       148,626           
                                                                                     ________      ________      ________           
           Adjusted weighted average number of shares of common stock               6,513,100     6,453,447     6,412,535           
                                                                                     ________      ________      ________           
                                                                                     ________      ________      ________           

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                                               ICTS INTERNATIONAL N.V.                                                              
                                      NOTES TO FINANCIAL STATEMENTS (continued)                                                     
                                                 (US $ in thousands)                                                                

NOTE 21 - STOCK OPTIONS                                                                                                             

             In 1995 and 1999,  ICTS adopted share option plans  pursuant to which  600,000  common                                 
             shares were  reserved  under each plan for issuance upon the exercise of options to be                                 
             granted to employees, consultants and members of the Supervisory Board of the Company.                                 

             As of December 31, 2003, ICTS has granted  options to purchase  253,500 common shares,                                 
             all of which have been granted to directors,  consultants  and  executive  officers of                                 
             the Company as a group, at exercise prices ranging from                                                                
             $4.50 to 8.50 per share under the Plan,  which were the fair market value at the dates                                 
             of grant.  These options vest over various  terms,  ranging from  immediately  to five                                 
             years. Outstanding options expire at various times, but not later than January 2007.                                   

             In 2002,  ICTS bought vested and non vested  options from its employees and directors.                                 
             The  difference  between the price paid and the exercise  price for the options bought                                 
             back,  aggregating  $1,618,  was  recorded  as  selling,  general  and  administrative                                 
             expenses in 2002.                                                                                                      
             In 2003 ICTS did not buy any options from its employees and directors.                                                 

             The options  granted under the  Company's  plans are  exercisable  for the purchase of                                 
             shares as follows:                                                                                                     
                                                                               December 31,                                         
                                                                           2003            2002                                     
              At balance sheet date                                         224,000        195,832                                  
              During the first year thereafter                               16,500         40,668                                  
              During the second year thereafter                              13,000         29,000                                  
              During the third year thereafter                                    0         13,000                                  
                                                                            _______        _______                                  
                                                                            253,500        278,500                                  
                                                                            _______        _______                                  
                                                                            _______        _______                                  

             ICTS  accounts for the options  granted to a director and other  service  providers in                                 
             exchange  for  services   received  using  the  fair  market  value  based  method  of                                 
             accounting,  as  prescribed  by FAS 123,  based on the fair market value of the equity                                 
             instruments  issued,  which is more reliably measurable than the value of the services                                 
             received.                                                                                                              

             The fair value of each  option  granted is  estimated  on the date of grant  using the                                 
             Black & Scholes option-pricing model with the following weighted average assumptions:                                  

                                                                           For options granted in                                   
                                                                            2002            2001                                    
               Expected life of options (years)                                3              3                                     
               Expected volatility                                           100%            46%                                    
               Risk free interest rate                                       3.5%            3.5%                                   
               Expected dividend yield                                        0%              0%                                    

---------------------------------------------------------------------------------------------------                                 
             The weighted  average fair value of options granted during the year, using the Black &                                 
             Scholes option-pricing model was $2.03 and $1.67 for 2002 and 2001, respectively.                                      
             During 2003 no options were granted.                                                                                   

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NOTE 21 - STOCK OPTIONS (continued)                                                                                                 

             Information regarding options for 2003, 2002 and 2001 is as follows:                                                   

             1)   Options to employees:                                                                                             
                                                2003                          2002                         2001                     
                                                      Weighted                      Weighted                     Weighted           
                                         Shares        average        Shares        average        Shares        average            
                                          (in         exercise         (in          exercise         (in         exercise           
                                       thousands)       price       thousands)       price       thousands)       price             
  Options outstanding                                                                                                               
      at beginning of year                   236          7.12            578          6.64             484         7.15            
  Options granted                                                          70          5.3              203         4.73            
  Options exercised and bought                                                                                                      
      back  by the Company                                               (412)         6.07            (109)        5.07            
                                           _____         ______         _____           ______       ______        ______           
  Options outstanding at                                                                                                            
      end of year                            236          7.12            236          7.12             578         6.64            
                                           _____         ______         _____           ______       ______        ______           
                                           _____         ______         _____           ______       ______        ______           
  Options exercisable at                                                                                                            
      end of year                            218                          196                           439                         
                                           _____                       ______                        ______                         
                                           _____                       ______                        ______                         

             2)   Options to non-employees:                                                                                         
                                                2003                          2002                         2001                     
                                                      Weighted                      Weighted                     Weighted           
                                         Shares        average        Shares        average        Shares        average            
                                          (in         exercise         (in          exercise         (in         exercise           
                                       thousands)       price       thousands)       price       thousands)       price             
Options outstanding                                                                                                                 
    at beginning of year                      42          5.32            380          6.10             228         7.27            
Options granted                                                            42          5.3              211         4.50            
Options exercised and bought                                                                                                        
    back by the Company                                                  (355)         6.14             (59)        6.85            
Expired options (2003- cancelled)            (25)                         (25)         5.49                                         
                                           _____                        _____                         _____                         
                                                           _____                        _____                        _____          
Options outstanding at                                                                                                              
    end of year                               17          5.32             42          5.32             380         6.10            
                                           _____                        _____                         _____                         
                                                           _____                        _____                        _____          
                                           _____                        _____                         _____                         
                                                           _____                        _____                        _____          
Options exercisable at                                                                                                              
    end of year                                6                            -                           380                         
                                           _____                        _____                         _____                         
                                           _____                        _____                         _____                         

             3)   Total number of options:                                                                                          
  Total options outstanding                                                                                                         
      At end of year                         253                          278                           958                         
                                           _____                        _____                         _____                         
                                           _____                        _____                         _____                         
  Total options exercisable                                                                                                         
      At end of year                         224                          196                           819                         
                                           _____                        _____                         _____                         
                                           _____                        _____                         _____                         

F-49                                                                                                                                
NOTE 22 - SUBSEQUENT EVENT                                                                                                          


F-50                                                                            

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SIGNATURES

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

                               ICTS INTERNATIONAL N.V.

                             By:/s/ Michael Barnea
                            Name: Michael Barnea
                                      Title: Chief Executive Officer

Date:    July 13, 2004                                        

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                          CERTIFICATIONS

I, Michael Barnea, certify that:            

               1.       I have reviewed this annual report on Form 20-F of
ICTS International N.V.;  

               2.       Based on my knowledge, this annual report does not
                        contain any untrue statement of a material fact or
                         omit to state a material fact necessary to make the
                          statements made, in light of the circumstances under
                          which such statements were made, not misleading with
                          respect to the period covered by this annual report;

                 3.       Based on my knowledge, the financial statements, and
                         other financial information included in this annual
                         report, fairly present in all material respects the
                         financial condition, results of operations and cash
                         flows of the registrant as of, and for, the periods
      presented in this annual report;

                 4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining
                       disclosure controls and procedures (as defined in
                   Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:      

                                a. designed such disclosure controls and
                    procedures to ensure that material information
               relating to the registrant, including its
                       consolidated subsidiaries, is made known to us by
                           others within those entities, particularly during the
                           period in which this annual report is being prepared;

                             b. evaluated the effectiveness of the
                           registrant's disclosure controls and procedures as of
                       a date within 90 days prior to the filing date of
                     this annual report (the "Evaluation Date"); and

                              c. presented in this annual report our
                           conclusions about the effectiveness of the disclosure
                           controls and procedures based on our evaluation as of
the Evaluation Date;      

                  5.       The registrant's other certifying officers and I have
                        disclosed, based on our most recent evaluation, to
                          the registrant's auditors and the audit committee of
                 registrant's board of directors (or persons
          performing the equivalent function):

                              a. all significant deficiencies in the
                          design or operation of internal controls which could
                          adversely affect the registrant's ability to record,
                           process, summarize and report financial data and have
                           identified for the registrant's auditors any material
          weaknesses in internal controls; and

                                   b. any fraud, whether or not material, that
                       involves management or other employees who have a
                   significant role in the registrant's internal
controls; and             

                  6.       The registrant's other certifying officers and I have
                          indicated in this annual report whether or not there
                         were significant changes in internal controls or in
                   other factors that could significantly affect
                          internal controls subsequent to the date of our most
                         recent evaluation, including any corrective actions
                          with regard to significant deficiencies and material
weaknesses.               

Date:   July 13, 2004                                         
By: /s/ Michael Barnea                                        

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CERTIFICATIONS                              
I, Stefan Vermuelen, certify that:          

               1.       I have reviewed this annual report on Form 20-F of
ICTS International N.V.;  

               2.       Based on my knowledge, this annual report does not
                        contain any untrue statement of a material fact or
                         omit to state a material fact necessary to make the
                          statements made, in light of the circumstances under
                          which such statements were made, not misleading with
                          respect to the period covered by this annual report;

                 3.       Based on my knowledge, the financial statements, and
                         other financial information included in this annual
                         report, fairly present in all material respects the
                         financial condition, results of operations and cash
                         flows of the registrant as of, and for, the periods
      presented in this annual report;

                 4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining
                       disclosure controls and procedures (as defined in
                   Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:      

                                a. designed such disclosure controls and
                    procedures to ensure that material information
               relating to the registrant, including its
                       consolidated subsidiaries, is made known to us by
                           others within those entities, particularly during the
                           period in which this annual report is being prepared;

                             b. evaluated the effectiveness of the
                           registrant's disclosure controls and procedures as of
                       a date within 90 days prior to the filing date of
                     this annual report (the "Evaluation Date"); and

                              c. presented in this annual report our
                           conclusions about the effectiveness of the disclosure
                           controls and procedures based on our evaluation as of
the Evaluation Date;      

                  5.       The registrant's other certifying officers and I have
                        disclosed, based on our most recent evaluation, to
                          the registrant's auditors and the audit committee of
                 registrant's board of directors (or persons
          performing the equivalent function):

                              a. all significant deficiencies in the
                          design or operation of internal controls which could
                          adversely affect the registrant's ability to record,
                           process, summarize and report financial data and have
                           identified for the registrant's auditors any material
          weaknesses in internal controls; and

                                   b. any fraud, whether or not material, that
                       involves management or other employees who have a
                   significant role in the registrant's internal
controls; and             

                  6.       The registrant's other certifying officers and I have
                          indicated in this annual report whether or not there
                         were significant changes in internal controls or in
                   other factors that could significantly affect
                          internal controls subsequent to the date of our most
                         recent evaluation, including any corrective actions
                          with regard to significant deficiencies and material
weaknesses.               

Date: July 13, 2003                                           

By: /s/ Stefan Vermuelen                                      

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 20-F/A Filing		Date		First		Last			Other Filings
		10/9/92		38
		1/1/94		11
		7/1/95		18		84
		12/28/95		84
		1/1/96		11
		1/1/97		44
		11/25/97		84
		12/31/97		29
		1/1/99		12					6-K
		6/22/99		32
		10/5/00		58
		12/12/00		84
		12/31/00		25		26			20-F
		1/1/01		44		45
		1/10/01		68
		4/27/01		44
		6/26/01		10
		7/23/01		37					4
		7/24/01		36		94
		9/11/01		7		82
		10/10/01		36
		10/14/01		35
		11/12/01		34
		11/19/01		57
		12/31/01		6		91			20-F
		1/1/02		21		88
		2/1/02		36					8-K
		2/17/02		27		83
		4/1/02		82
		5/13/02		37
		7/1/02		67
		9/30/02		21		67			6-K
		11/2/02		27
		11/19/02		82					SC 13D
		12/10/02		37					4
		12/31/02		5		90			20-F, NT 20-F
		1/31/03		66
		2/1/03		65
		2/20/03		69
		5/31/03		32		65
		6/15/03		65
		7/1/03		65		67			20-F, DEF 14A
		7/13/03		99
		11/21/03		20
		12/15/03		66
		12/16/03		84
		12/23/03		12		35
For The Period Ended		12/31/03		1		95			20-F, NT 20-F
		1/1/04		30		87
		3/15/04		66
		5/31/04		33		35
		7/13/04		50		98
Filed On / Filed As Of		7/22/04
		11/26/04		35
		6/30/06		39					6-K
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