Icts International NV – ‘20-F’ for 12/31/03

On:  Wednesday, 7/14/04, at 3:52pm ET   ·   For:  12/31/03   ·   Accession #:  1012118-4-18   ·   File #:  0-28542

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Annual Report of a Foreign Private Issuer   —   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer            102    685K 

Document Table of Contents

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

 FORM 20-F

[ ]      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                                             one        

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.           

                                                        [Enlarge/Download Table]

                                                                                                                                    

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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                                                                                     

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Item 3.  Key information.                                                                                                           

         Selected Financial Data. Selected Consolidated Statements of Income                                                        
Data set forth below have been derived from ICTS Consolidated Financial                                                             
Statements which were prepared in accordance with US GAAP. The Selected                                                             
Consolidated Financial Data set forth below should be read in conjunction wth                                                       
Item 5 Operating and Financial Review and ICTS Consolidated Financial Statements                                                    
and the Notes to those financial statements included in Item 18 in this Annual                                                      
Report.                                                                                                                             

                                              2003             2002            2001           2000         1999                     

    Cash and cash equivalents                7,660           32,465          17,414          6,306        6,795                     
    Current Assets                          30,863           73,504          47,774         48,852       43,227                     
    Total Assets                            84,500          125,444          73,963         77,775       69,522                     
    Current Liabilities                     28,099           58,308          36,519         35,625       24,267                     
    Shareholders  equity                    46,961           61,378          37,260         27,475       28,286                     

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Selected Financial Data Statement of Operations                                                                                     

The following table summarizes certain statement of operations data for ICTS for                                                    
the years ended December 31, 2001,  2002 and 2003:                                      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            
                                                                                      14,352         9,156                          
IMPAIRMENT OF ASSETS AND GOODWILL                                                                                                   
                                                                                     -------       -------       -------            
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            

Weighted average shares of common stock outstanding                               6,513,100      6,419,575      6,263,909           
Adjusted Diluted weighted average shares of common stock outstanding              6,513,100      6,453,447      6,412,535           

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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                                                    
that our competitors will develop and market alternative systems and                                                                

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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                                                            
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.                                                                      

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         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.                                                                                                              

          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.                                                                            

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          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.                                                                                                     

          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.                                                                                        

          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.                                                                                                                             

          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                                                              
activities consist of non-security aviation security services, operation of                                                         

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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.                                                                                         

                  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.                                                                                                                           

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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.                                                                                                                               

                  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.                                                           

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                  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.                                                                                                                        

                  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                                                                  

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$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.                                                                                          

                  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.                                                                  

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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                                                                    
                                                         =======                                                                    
                  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.                                                                          

                  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.                                                                           

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          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, $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                                                                    
                                                          ======                                                                    

          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                                                           

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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                                                           
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.                                                                                                   

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         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 be able to carry-back the losses (if any) that will result from                                                       
the above claims of the TSA. In view of the nature of the above potential claims                                                    
and counter-claims management could not determine if, or to what extent, the TSA                                                    
may be successful in any claim it may assert. Therefore, 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.                                                          

          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.                                                                                                                               

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         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 $7,513,000 and leased equipment of                                                       
$6,042,000. (see Notes 7(d) and (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:                                                                      
                                                              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                                  (9,128)         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                      237          (771)            368                                
income                                                          -----            ---             ---                                
                                                                 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:                                                                   

                                                            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%           9.2%                                        
          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 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. 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 in the amount                                                      
of $17.8 million of Warn Act related accrual made in 2002. This was partly                                                          
offset by an accrual concerning a dispute with the US Department of Labor                                                           
totaling $7.2 million.                                                                                                              

          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 an amount of $6,042 related                                                    
to lease equipment in The Netherlands and goodwill impairment related to Demco,                                                     
an Israeli subsidiary.                                                                                                              

          Selling, General and Administrative Expenses. Selling, general and                                                        
administrative expenses were $9.2 million for the year ended December 31, 2003,                                                     

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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 $9.6 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.                                                            

Notes as to specific segments                                                                                                       
Amounts in thousands                                                                                                                

    Aviation Security Segment       2003           2002                                                                             

    Revenues                      66,872          289,899                                                                           
    Operating Income              12,215           37,731                                                                           

Revenues for the Aviation  Security segment for the year ended December 31, 2003                                                    
were $66.9  million  (2002:  $289.9  million).Operating  income for the Aviation                                                    
segment totaled $12.2 compared to an operating income for 2002 of $37.7 million.                                                    
The reason for the decline is the loss of the TSA related contracts as described                                                    
above.                                                                                                                              

    Leasing Segment                                                                                                                 
                                2003        2002                                                                                    

    Revenues                   2,995       1,370                                                                                    
    Operating Income (loss)   (5,476)        271                                                                                    

Revenues  for the  Leasing  segment  were up from $1.4  million  in 2002 to $3.0                                                    
million in 2003. The reason for the increase being that the contract started mid                                                    
2002 only and therefore 2003 was the first full year. , The Company  recorded an                                                    
impairment  loss in an amount of $6,0 million  related to lease equipment in The                                                    
Netherlands which caused the operating loss in this segment.                                                                        

    Entertainment Segment                                                                                                           
                                    2003           2002                                                                             

    Revenues                         643            0                                                                               
    Operating Income (loss)      (10,114)       (517)                                                                               

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Entertainment  segment  related  revenues  are  derived in 2003 only  ($643,000)                                                    
whereas   revenues  in  2002  were  still  zero.   The  reason  being  that  the                                                    
entertainment  operations  opened  during  2003 only.  The  Company  recorded an                                                    
impairment loss of $7.5 million which caused the loss in this segment.                                                              

As to the geographical segments please see note 18b in the financial statements.                                                    
Revenues  in the USA  were  negatively  impacted  by  loss of the TSA  contract.                                                    
Revenues in the  Netherlands  increased due to a favorable  exchange rate of the                                                    
euro to the dollar and first full year of operation leasing segment.                                                                

         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                                                    
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.                                                                                                                               

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         Other Income (Expense), Net. Other income for the year ended December                                                      
31, 2002 was $41.2 million as compared to $29.5 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).                                                            

     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                                                    

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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 of                                                       
$61.6 million for the year ended December 31, 2002 and net cash used in                                                             
operating 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                                                    

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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, $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                                                                                
                                              ======                                                                                

            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.                                                                           

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              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.                                               

                                      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                                                      

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.                                                          

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                                                    

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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 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                                                    
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. He became                                                    
Managing Director and CEO of the Company in 2004. 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.  Mr. Barnea was appointed CEO                                                       
effective May 1, 2004.                                                                                                              

           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.                                                                                                        

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         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                                                    
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.                                                                                                                    

                                                       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:                                                                              

           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 parties a  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.                                                                 
The balance at the end of 2003 at $1.4 million is the highest during 2003.                                                          
from unaffiliated 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.                                                                    

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         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(a)4 to the financial                                                             
statements).The highest amount outstanding was $3.5 million at end of October                                                       
2003.                                                                                                                               

         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 December 31, 2003, ICTS                                                       
has invested $5,500,000 in the Atlantic City project and $4,400,000 in the                                                          
Baltimore, Maryland project.ITA was entitled to receive a management fee of 20%                                                     
for the services they provide in the development and construction of each of                                                        
these projects. In 2003 the Company impaired a total of $7.5 million related to                                                     
its investments in Atlantic City and Baltimore.                                                                                     

            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 out of which $5.2 million was allocated to goodwill. 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. Subsequent to December 31, 2003, as a result of the poor results                                                       
of the entertainment projects (see note 7e financial statements) and their                                                          
impairment, management resolved to cease the development of this business and                                                       
not to start the new projects in the foreseeable future.  As a result, the                                                          
company has written off the entire amount of the goodwill as above, and                                                             
carried the loss from the impairment to results from operations in 2004.                                                            

            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.This was the highest outstanding balance                                                           
during 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                                                     
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.                                                                         

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     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                                                             

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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.                                                                                                            

           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                                                      
affiliates or for European Community subsidiaries or affiliates in which ICTS                                                       

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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                                                      
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                                                        

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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                                                             
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                                                         

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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,                                                        
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                                                                                                             

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Item 11. Quantitative and Qualitative Disclosure About Market Risk                                                                  

Foreign Currency Exchange Risk -  Only applies to companies operations                                                              
outside the USA.  In 2003 about 90 percent of the Companies revenues were                                                           
derived in the USA.                                                                                                                 

See financial statements Note 17.                                                                                                   

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.                                                                                                       

Item 16A.  Audit Committee Financial Experts                                                                                        

The  financial  expert and  Chairman  of the Audit  Committee  is Mr.  Philip M.                                                    
Getter.  Mr.  Getter is an  independent  Director and has no  relationship  with                                                    
management.                                                                                                                         

Item 16B.  Code of Ethics                                                                                                           

The Company has adopted a Code of Ethics for principals executive officers and                                                      
senior financial officers.                                                                                                          

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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                                                                        
Audit related fees                                    $  685                                                                        
Sub total                                           $453,229                                                                        
Non-Audit services:                                                                                                                 
Tax fees                                            $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.*                                                                          

         3.       Code of Ethics for Principal Executive Officers and                                                               
                  Senior Financial Officers                                                                                         

     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                                                                       


                                                                                                                                    

                                                                                                     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-50                        

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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.                                                                                 

F-2                                                                                                                                 

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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 14, 2004                                                             Certified Public Accountants (Isr.)                   
F-3                                                                                                                                 

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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)                                                                5,580         1,167                       
                                                                                        _______       _______                       
          OTHER ASSETS , net of                                                                                                     
             accumulated amortization (note 9)                                            2,466         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.                      
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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.                                               
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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.                                               

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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                                                               2,701                                 
           Accrued severance pay                                                                 (3)                                
                                                                             _______          _______                               
                                                                                  163         3,291                                 
       Goodwill                                                                 5,266         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). As to                                 
                  goodwill in an amount of $5,266 written-off subsequent to December 31, 2003 see                                   
                  Note 5a3).                                                                                                        

                  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.                                                                                  

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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                                   
                                                                             ______        ______                                   

(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 (see c.                                                    
below), the warrant expired. The investment in ITA as of December 2003 is valued                                                    
at zero.                                                                                                                            

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

(c) In December 2003 the Company  signed an agreement to buy the  activities and                                                    
certain  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                                                    
identifiable assets acquired - $5,266, was recorded as goodwill.                                                                    

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NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (CONTINUED)                                                                            

Subsequent  to  December  31,  2003,  as a  result  of the poor  results  of the                                                    
entertainment  projects  (see  also 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,  management has  determined  that the                                                    
goodwill is impaired, and will recognize an impairment of $5,266 in 2004.                                                           

(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)                                                                            

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

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 face 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.                                                            

(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 and 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     Entertainment  Other    Total               

                 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           
                 Goodwill arising on acquisition during the year (see note 5a3)              $5,266                 5,266           
                 Adjustment resulting from exercising                                                                               
                    option (see note 4b)                                                                 (56)        (56)           
                 Impairment of Goodwill (see note 4b)                                                    (79)       (797)           
                                                                              _______       _______     _______    _______          
                 Balance as of December 31, 2003                                 $314        $5,266     $-          $5,580          
                                                                              _______       _______     _______     _______         

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                                       
                                                                                      _______                                       

c.   As discussed in note 22 and note 5a3 the goodwill relating to entertainment                                                    
     business will be written-off in 2004.                                                                                          

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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                                                         

                  Customer relationship(1)           $ 1,879         $188           $1,691         $1,879                           
                  Technology(2)                          277          147              130            172                           
                  Other                                  645                           645             69                           
                                                     _______      _______          _______        _______                           
                                                      $2,801       $  335           $2,466         $2,120                           
                                                     _______      _______          _______          _____                           
                                                     _______      _______          _______          _____                           

                  (1)   Relating to contract with Schiphol Airport, see note 4a.                                                    
                  (2)   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 an amount of $1,137 in respect of 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 certain amounts 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 in                           
                  this respect is $1,000. The company is currently not in a position to assess the likelihood that this             
                  contingency will materialzed.                                                                                     

             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                                                 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)                       $36,401       $36,340      $ 10,401            $ 51,594     $134,736           
                                                     _______      _______        _______            _______       ________          
                                                     _______      _______        _______            _______       ________          
       Goodwill (at end of year)                        $314                      $5,266                          $ 5,580           
                                                     _______                                                      ________          
                                                     _______                                                      ________          
       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)                       $53,123       $38,605       $7,259             $55,693      $154,680           
                                                     _______      _______         _____             _______       ________          
                                                     _______      _______         _____             _______       ________          
       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       $10,088           
                                                     _______                                        _______       ________          
                                                     _______                                        _______       ________          

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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)                       $47,745        $3,480              $5,126        $56,351                       
                                                     _______         _____              _______      ________                       
                                                     _______         _____              _______      ________                       
       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                          $83,142         $98,987        $51,225                        
         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          12,538         30,990                        
                                                                        _______       ________      ________                        
         Total consolidated assets (at end of year)                   $84,500         $125,444       $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                                    3,832         5,393            621                                  
                        Other                                     562           480             68                                  
                                                              _______       _______        _______                                  
                        Total                                 $23,963       $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.                                                                                   

F-48                                                                                                                                

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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                                                                                                                                

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NOTE 22 - SUBSEQUENT EVENT                                                                                                          

As described in note 5a(3), during March 2004, as a result of the poor results of the entertaiment                                  
projects and their impairment, management resolved to cease the development of the entertainment                                    
business and not to start new projects in the foreseeable future. As a result, management has determined                            
that the goodwill is impaired, and will recognize an impairment loss of $5,266 in 2004.                                             

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 14, 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 14, 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 14, 2003                                                                                                        

         By: /s/ Stefan Vermuelen                                                                                                   

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            EXHIBIT 3                                                                                                               

         ICTS INTERNATIONAL N.V.                                                                                                    

 CODE OF ETHICS FOR PRINCIPAL EXECUTIVE OFFICERS AND SENIOR FINANCIAL OFFICERS                                                      

         I. INTRODUCTION                                                                                                            

         This code of Ethics is applicable to the chief executive officer, chief                                                    
operating officer, chief financial officer, principal accounting officer,                                                           
controller and any person performing similar functions of ICTS International N.                                                     
V. References in this Code of Ethics to ICTS mean ICTS or any of its                                                                
subsidiaries.                                                                                                                       

         While ICTS and its stockholders expect honest and ethical conduct in                                                       
all aspects of our business from all employees, ICTS and its stockholders expect                                                    
the highest possible standards of honest and ethical conduct from you. You are                                                      
setting an example for other employees and are expected to foster a culture of                                                      
transparency, integrity and honesty. Compliance with this Code and all other                                                        
applicable codes of business conduct or ethics adopted by the Supervisory Board                                                     
of ICTS is a condition to your employment and any violations will be dealt with                                                     
severely.                                                                                                                           

         II. CONFLICTS OF INTEREST                                                                                                  

         Conflicts of interest are strictly prohibited as a matter of ICTS                                                          
policy. You must be scrupulous in avoiding any action or interest that conflicts                                                    
with, or gives the appearance of a conflict with, ICTS's interests. A "conflict                                                     
of interest" exists whenever an individual's private interests in any way                                                           
interfere or conflict with, or appear to interfere or conflict with, the                                                            
interests of ICTS or make, or appear to make, it difficult for the individual to                                                    
perform his or her work for ICTS objectively and effectively. Conflicts of                                                          
interest arise when:                                                                                                                

         -your personal interests interfere, or appear to interfere, in any way,                                                    
with the interests of ICTS (for example, you compete with ICTS);                                                                    

         -you take action for your direct or indirect benefit or the direct or                                                      
indirect benefit of a third party that is inconsistent with the interests of                                                        
ICTS (for example, you cause ICTS to engage in business transactions with a                                                         
company you control or with friends or relatives);                                                                                  

         -you, or a member of your family, receive improper personal benefits as                                                    
a result of your position in ICTS (for example, you receive a loan or other                                                         
benefit from a third party to direct ICTS business to a third-party).                                                               

         There are other situations in which conflicts of interest may arise.                                                       
Conflicts of interests may not always be clear-cut. If you have questions or                                                        
concerns regarding a situation, please contact our Corporate Counsel.                                                               

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         III. ACCURATE PERIODIC REPORTS                                                                                             

         As you are aware, full, fair, accurate, timely and understandable                                                          
disclosure in the reports and other documents that we file with, or submit to,                                                      
the SEC and in our other public communications is critical for us to maintain                                                       
our good reputation, to comply with our obligations under the securities laws                                                       
and to meet the expectations of our stockholders and other members of the                                                           
investment community. You are to exercise the highest standard of care in                                                           
preparing such reports and documents and other public communications, in                                                            
accordance with the following guidelines:                                                                                           

-all accounting records, and the reports produced from such records,  must be in                                                    
accordance with all applicable laws and regulations;                                                                                

-all accounting  records must fairly and accurately  reflect the transactions or                                                    
occurrences to which they relate;                                                                                                   

-all accounting  records must fairly and accurately reflect in reasonable detail                                                    
ICTS's assets, liabilities, revenues and expenses;                                                                                  

-no  accounting  records  may  contain  any  false or  intentionally  misleading                                                    
entries;                                                                                                                            

-no  transactions   should  be  intentionally   misclassified  as  to  accounts,                                                    
departments or accounting periods;                                                                                                  

-all  transactions  must be supported by accurate  documentation  in  reasonable                                                    
detail and recorded in the proper account and in the proper accounting period;                                                      

-no relevant  information  should be concealed from the internal auditors or the                                                    
independent auditors; and                                                                                                           

-compliance with ICTS's system of internal controls is required.                                                                    

IV. COMPLIANCE WITH LAWS                                                                                                            

You are expected to understand and comply with both the letter and spirit of all                                                    
applicable laws and governmental rules and regulations.  V. REPORTING VIOLATIONS                                                    
You are expected to report any violations of this Code of Ethics promptly to the                                                    
Chairman of the Audit Committee of the Supervisory Board.                                                                           

         VI. CONSEQUENCES OF NON-COMPLIANCE WITH THIS CODE                                                                          

         Violations of this Code will be reported to the Audit Committee. If you                                                    
fail to comply with this Code of Ethics or applicable laws, rules or regulations                                                    
(including without limitation all rules and regulations of the Securities and                                                       
Exchange Commission) you will be subject to disciplinary measures, up to and                                                        
including discharge from ICTS, and any appropriate legal action.                                                                    

         VII. AMENDMENT, MODIFICATION AND WAIVER                                                                                    

         This Code may be amended or modified by the Supervisory Board of ICTS.                                                     
Waivers of this Code may only be granted by the Board of Directors or a                                                             
committee of the Board of Directors with specific delegated authority. Waivers                                                      
will be disclosed to stockholders as required by the Securities Exchange Act of                                                     
1934 and the rules thereunder and the applicable rules of NASDAQ.                                                                   

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘20-F’ Filing		Date		First		Last			Other Filings
		6/30/06		39					6-K
		11/26/04		34
Filed on:		7/14/04		50		99
		5/31/04		33
		5/1/04		30
		3/15/04		66
		1/1/04		30		87
For Period End:		12/31/03		1		95			20-F/A,  NT 20-F
		12/23/03		12		35
		12/16/03		84
		12/15/03		66
		11/21/03		20
		7/14/03		100
		7/1/03		65		67			20-F,  DEF 14A
		6/15/03		65
		5/31/03		32		65
		2/20/03		69
		2/1/03		65
		1/31/03		66
		12/31/02		6		90			20-F,  NT 20-F
		12/10/02		37					4
		11/19/02		82					SC 13D
		11/2/02		27
		9/30/02		20		67			6-K
		7/1/02		67
		5/13/02		37
		4/1/02		82
		2/17/02		27		83
		2/1/02		36					8-K
		1/1/02		20		88
		12/31/01		6		91			20-F
		11/19/01		57
		11/12/01		34
		10/14/01		35
		10/10/01		36
		9/11/01		7		82
		7/24/01		36		94
		7/23/01		37					4
		6/26/01		10
		4/27/01		44
		1/10/01		68
		1/1/01		44		45
		12/31/00		26		27			20-F
		12/12/00		84
		10/5/00		58
		6/22/99		32
		1/1/99		11					6-K
		12/31/97		29
		11/25/97		84
		1/1/97		44
		1/1/96		11
		12/28/95		84
		7/1/95		17		84
		1/1/94		11
		10/9/92		38
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