Icts International NV · 20-F · For 12/31/02

Filed On 7/1/03 3:04pm ET   ·   SEC File 0-28542   ·   Accession Number 1012118-3-36

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            116    673K 

Document Table of Contents

20-F
1st Page of 116
TOC
Top
Previous
Next
Bottom
Just 1st

 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, 2002                                     

OR

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

COMMISSION FILE NUMBER 0-28542                                                  

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

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

 The Netherlands
 (Jurisdiction of incorporation or organization)
Biesbosch 225, 1181 JC Amstelveen, The Netherlands
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act: 
Title of each Class:  Name of each exchange on which registered:                

None                                          None          

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

                                   Common Shares, par value .45 Euro per share
                                  Title of Class

20-F
2nd Page of 116
TOC
1st
Previous
Next
Bottom
Just 2nd

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act:                                                                     

                                  None
                                  Title of Class

Indicate the number of  outstanding  shares of each of the  issuer's classes of 
capital or common stock as of December 31, 2002: 6,513,100                      

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]                                                   

2 When used in this Form 20-F, the words Amay@, Awill@, Aexpect@,  Aanticipate@,
Acontinue@,   Aestimates@,  Aproject@,  Aintend@  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]

                                                                                                                                    

20-F
3rd Page of 116
TOC
1st
Previous
Next
Bottom
Just 3rd

                                                 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)                                                                               

                                                         4                                                                          

20-F
4th Page of 116
TOC
1st
Previous
Next
Bottom
Just 4th

                                                       PART I                                                                       

Item 1.           Identity of Directors, Senior Management and Advisers                                                             

                                                  Not Applicable                                                                    

Item 2.           Offer Statistics and Expected Timetable                                                                           

                                                  Not Applicable                                                                    

Item 3.           Key information.                                                                                                  

                                                         5                                                                          

20-F
5th Page of 116
TOC
1st
Previous
Next
Bottom
Just 5th

Selected Financial Data                                                                                                             

The following table summarizes certain statement of operations data for ICTS for the years ended                                    
December 31, 2000, 2001 and 2002:                                                                                                   

                                                              Year ended December 31,                                               
                                                                2002                  2001               2000                       

REVENUES                                                       $279,931              $212,137               $147,364                

---------------------------------------------------  ------------------ ---------------------  ---------------------                
COST OF REVENUES                                                214,054               189,925                131,540                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
GROSS PROFIT                                                     65,877                22,212                 15,824                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
AMORTIZATION OF GOODWILL                                                                  820                    759                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
IMPAIRMENT OF INTANGIBLE ASSETS                                   9,156                                          392                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
SELLING, GENERAL AND ADMINISTRATIVE                              25,636                18,641                 11,631                
EXPENSES                                                                                                                            
---------------------------------------------------  ------------------ ---------------------  ---------------------                
OPERATING INCOME                                                 31,085                 2,751                  3,042                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
INTEREST EXPENSE                                                (2,463)               (1,637)                (1,927)                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
EXCHANGE DIFFERENCES                                              2,356                 1,965                    851                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
OTHER INCOME (EXPENSES)                                          41,229                29,520                (1,145)                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
INCOME BEFORE TAXES ON INCOME                                    75,064                34,248                  1,554                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
TAXES ON INCOME                                                  16,442                 4,919                    737                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
INCOME FROM OPERATIONS OF THE                                                                                                       
COMPANY AND ITS SUBSIDIAIRIES                                    58,622                29,329                    817                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
SHARE IN PROFITS (LOSSES) OF ASSOCIATED                                                                                             
COMPANIES                                                       (1,807)                 (395)                     25                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
MINORITY INTERESTS IN LOSSES (PROFITS)                                                                                              
OF SUBSIDIARIES                                                 _______               (2,736)                     28                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
NET INCOME FOR THE YEAR                                         $56,815               $26,198                   $870                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
OTHER COMPREHENSIVE INCOME (LOSS):                                                                                                  
---------------------------------------------------  ------------------ ---------------------  ---------------------                
Translation adjustments                                             710               (1,811)                (2,516)                
Unrealized gains (losses) on marketable securities                  731                 (345)                (7,747)                
Reclassification adjustment for losses for available for                                                                            
sale securities included in net income                            (771)                   368                  7,627                
                                                                    670               (1,788)                (2,637)                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
TOTAL COMPREHENSIVE INCOME (LOSS) FOR                           $57,485               $24,410               $(1,767)                
THE YEAR                                                         ======                ======                 ======                
---------------------------------------------------  ------------------ ---------------------  ---------------------                
EARNINGS PER SHARE:                                                                                                                 
          Basic                                                   $8.85                 $4.18                  $0.14                
                                                                  =====                  ====                   ====                
                                                                  $8.80                 $4.09                  $0.14                
          Diluted                                                  ====                  ====                  =====                

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

         Risk Factors.                                                                                                              

                                                         6                                                                          

20-F
6th Page of 116
TOC
1st
Previous
Next
Bottom
Just 6th

         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.                                                                                                              

         Recent developments 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 the process of definitizing the                                           
Contract, the TSA has expressed its view, that the definitization process should be on a Acost                                      
plus basis@.  Accordingly, with respect  to the TSA=s interpretation of the Contract as well as its                                 
calculation of payments made to Huntleigh for services provided under the Contract, the TSA                                         
has made to Huntleigh an overpayment of approximately US$ 32,000,000 in the aggregate. The                                          
TSA derives this amount from various items, consisting primarily actual costs incurred in the                                       
contract plus allowing a ten (10%) percent profit.                                                                                  

Since the contract clearly states that it is a firm fixed price contract the Company has taken the                                  
position that the definitization can not be calculated on a cost plus basis and that the only issue                                 
for validation is the number of hours worked.  In addition, the Company claims unpaid invoices                                      
of $11.5 million, corporate bonus of 5% equaling $10.5 million and claims in the amount of $21                                      
million due to notice not being given on time, as specified in the contract. On primary billings,                                   
the Company has been paid by the TSA $14.3 million more than initial invoices.  When this is                                        
taken into account, according to the Company=s calculations, the balance due it from the TSA is                                     
$28.7 million.  These claims have been challenged by the TSA.                                                                       

We have not recorded our claim against the TSA on our financial  statements.  In                                                    
the event that we are not successful in resolving our disagreement with the TSA,                                                    
then there may be a material  adverse effect on our financial  condition,  by an                                                    
expense of up t approximately $32 million.                                                                                          

                                                      7                                                                             

20-F
7th Page of 116
TOC
1st
Previous
Next
Bottom
Just 7th

Claim for Loss of 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 is currently exploring the legal effect                                                    
of  this  ATaking@  and  its  rights  under  the  Fifth  Amendment  of the  U.S.                                                    
Constitution.  Huntleigh=s  present plans are to pursue its claim for a ATaking@                                                    
to  recover  the goin  concern  value of the lost  business  but 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.                                                                                                   

         Our operations in the United States will be dependent on our ability to do business                                        
with the TSA.                                                                                                                       

         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. 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.                                                  

         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.                                                                                   

                                                        8                                                                           

20-F
8th Page of 116
TOC
1st
Previous
Next
Bottom
Just 8th

         In light of recent developments, customers that were not considered our major customers                                    
in 2002 are anticipated to become our 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 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 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                                     

                                                      9                                                                             

20-F
9th Page of 116
TOC
1st
Previous
Next
Bottom
Just 9th

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.                                                                                                          

                                                       10                                                                           

20-F
10th Page of 116
TOC
1st
Previous
Next
Bottom
Just 10th

         Management beneficially owns approximately 65% 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.                                                                                                          

         Ezra Harel and Menachem Atzmon collectively beneficially own 65% of our issued and                                         
outstanding common stock.  Mr. Harel is the Chairman of our Supervisory Board and Mr.                                               
Atzmon is a member of the Supervisory Board. As a result of  their ownership and position, Mr.                                      
Harel  and Mr. Atzmon are able to significantly influence all matters requiring shareholder                                         
approval, including the election of directors and approval of significant corporate transactions.                                   
Such concentration of ownership may also have the effect of delaying or preventing a change in                                      
control.  In addition, sales of significant amounts of shares held by Mr. Harel or Mr. Atzmon 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.                                                                      

                                                      11                                                                            

20-F
11th Page of 116
TOC
1st
Previous
Next
Bottom
Just 11th

          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.                                    

         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.                                                                                                    

                                                       12                                                                           

20-F
12th Page of 116
TOC
1st
Previous
Next
Bottom
Just 12th

                  We may be a passive foreign investment company under U.S. Federal income                                          
tax law.                                                                                                                            

          Under certain circumstances, we may be a passive foreign investment company                                               
("PFIC") for the calendar year 2002, depending on events for calendar 2003 and 2004.  The                                           
determination as to whether or not we are depends on part on two mechanical tests relating to                                       
passive income and passive assets and are dependent upon IRS proposed regulations which are                                         
not yet in effect.  If we are a PFIC U.S. shareholders on the sale or receipt of distributions on                                   
their stock would have adverse tax consequences as the distributions would be treated as                                            
ordinary income and maybe subject to an interest charge.  See Taxation-United States Income                                         
Tax Consequences -  Passive Foreign Investment Companies.                                                                           

          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.  In connection with the acquisition of the Company by Leedan 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") which became an indirect wholly-                                      
owned subsidiary of Leedan.  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.                                                             

                  In August 1997, the Company acquired 37% of the outstanding shares of Demco                                       
for approximately $1.2 million.  As of December 31, 2002 the Company owned 67% of Demco.                                            
In addition, there are put and call agreements in effect which enable the Company to acquire the                                    
balance of the shares.  Demco, a privately-held firm based in Israel, is engaged in design,                                         
planning and implementation of emergency systems and contingency procedures for government                                          
agencies and large organizations.                                                                                                   

                                                      13                                                                            

20-F
13th Page of 116
TOC
1st
Previous
Next
Bottom
Just 13th

          As a result of a series of transactions in 1997 and 1998, the Company acquired a 51%                                      
interest in Advanced Maintenance Systems Ltd. ("AMS").    From 1997 through 2001, the                                               
Company through its affiliate, PI, acquired all the outstanding shares of APS Data Screening                                        
Systems B.V. ("APS"). In 2001, the Company sold its interest in AMS in exchange for shares of                                       
APS and Trainsoft Ltd.                                                                                                              

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

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

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

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

          Business Overview                                                                                                         

                  General                                                                                                           

                  ICTS specializes primarily in the provision of aviation security 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 plans to focus on developing security systems and technology for the                                        

                                                       14                                                                           

20-F
14th Page of 116
TOC
1st
Previous
Next
Bottom
Just 14th

aviation security and  non-aviation security markets. ICTS intends to use 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 plans to develop entertainment projects. During 2002 ICTS began the                                          
construction and development of its "Time Elevator" project in Atlantic City, New Jersey and                                        
Baltimore, Maryland.  Time Elevators are educational tourist attractions which combine motion                                       
based platforms with synchronized movies and sound effects.                                                                         

                  Expanding Aviation Security Operations in The Netherlands.                                                        

                  ICTS intends to expand its 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 intends to continue to provide non-security aviation services in the U.S. and                                
intends to offer security technology to the U.S. government for the aviation industry.                                              

                  Other Investments.                                                                                                

                  ICTS intends to make 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.                                                                             

                                                      15                                                                            

20-F
15th Page of 116
TOC
1st
Previous
Next
Bottom
Just 15th

                  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: Priority Passenger, Service Representative, Baggage                                       
Service, Priority Parcel, and Cargo. Although an agent is a Huntleigh employee, the employee is                                     
considered  a representative of specific airlines.                                                                                  

                  Guard Services.                                                                                                   

                  Guard services involve guarding secured areas, including aircraft.                                                

                  Janitorial Services.                                                                                              

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

                  Maintenance.                                                                                                      

                  Huntleigh provides workers to maintain equipment in one airport.                                                  

                  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 FAA 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.                                            

                                                       16                                                                           

20-F
16th Page of 116
TOC
1st
Previous
Next
Bottom
Just 16th

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-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 exclusively to the TSA.                                                         

                  Technological Systems and Solutions                                                                               

                  Advanced Passenger Screening.   A principal service that ICTS had provided to                                     
its clients prior to the sale of its European operations, had been the Risk Analysis through                                        
Profiling System ("RAPS"). RAPS is a set of sophisticated procedures which seek to identify a                                       
potential threat before it materializes, through a methodology of risk evaluation and                                               
classification of passengers. The risk evaluation and classification techniques include comparing                                   
characteristics of a specific passenger to a preset standard of characteristics of a potential                                      
aggressor through interviewing, document verification and behavior analysis. The vast majority                                      
of passengers fall into the low risk category.  Therefore more scrutiny can be focused on higher                                    
risk passengers. Since RAPS entails the identification of potential threats through recognizable                                    
patterns, ICTS believes that it provides a better response to such threats than other alternatives.                                 
Other methods include, simple guard positioning or a complete body and baggage search of each                                       
passenger. In addition, by focusing on the primary risks, ICTS considers RAPS to be more cost-                                      
effective and passenger-friendly than other alternatives available or in development.                                               

                  The concept of risk analysis through passenger screening utilizing a set of criteria                              
has been in use in various forms by certain U.S. carriers since 1986. In 1995, the FAA mandated                                     
that all U.S. carriers adopt a uniform methodology of risk analysis through advanced passenger                                      
screening at all of the "high-risk" airports in Europe. Previously, security authorities in the                                     
Netherlands had adopted such methodology as the standard for enhanced flight-related security                                       
for airlines.  In April 1996, the United States enacted an anti-terrorism law which mandates that                                   
foreign airlines flying to and from airports in the United States adhere to security measures                                       
identical to those required of U.S. airlines serving the same airports. In July 1996, as an initial                                 
response to the explosion of TWA Flight 800, the FAA issued a "security directive," applicable                                      
to all International flights originating in the United States, which requires the implementation of                                 

                                                      17                                                                            

20-F
17th Page of 116
TOC
1st
Previous
Next
Bottom
Just 17th

certain passenger and cargo classification and verification procedures similar to some of the                                       
RAPS procedures.                                                                                                                    

                  The accumulated know-how and expertise of ICTS in the implementation of                                           
RAPS 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.                                                                                                                      

                  Computer Based Training.  ICTS provides computer-based software utilized to                                       
train X-ray operators to better perform security-related luggage screening.                                                         

                  New Technology Initiatives.                                                                                       

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

                  The project is being developed by ICTS and is performed in cooperation with                                       
various partners. The pilot program is being tested at Schiphol Airport in Amsterdam, The                                           
Netherlands, Buenos Aires Airport, Argentina 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.                                                                                  

                  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                                           

                                                       18                                                                           

20-F
18th Page of 116
TOC
1st
Previous
Next
Bottom
Just 18th

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 2002 ICTS  had                                   
over 400 clients of which eight clients accounted for over 75% 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").                                                                           

                  ICTS owns a 10% interest in ICTS International Tourist Attractions, Ltd. ("ITA").                                 
ITA is an Israeli based private company established in 1994 which has developed the technology                                      
and know how associated with the Time Elevator concept.  Ezra Harel and Menachem Atzmon,                                            
principal shareholders and the Chairman and a  member of the Supervisory Board of  ICTS were                                        
principal shareholders of ITA until May 2003.  See "Related Party Transactions."                                                    

                  In connection with its investment in ITA, ICTS was granted the right of first                                     
refusal to market and develop the Time Elevator concept in the U.S. and Europe.  ICTS is                                            
constructing and developing Time Elevator sites in Atlantic City, New Jersey,  Baltimore and                                        
Maryland and intends to develop on a site in Niagara Falls, New York.                                                               

                  ICTS has a 40% interest in Ramasso Holdings BV ("Ramasso").  Ramasso owns                                         
and operates a Time Elevator site in Rome, Italy.  The other shareholders in Ramasso are ITA                                        
(40%) and Ortan (20%) (a company owned and controlled by Mr. Harel and Mr. Atzmon).                                                 

                  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.                                                                                 

                                                      19                                                                            

20-F
19th Page of 116
TOC
1st
Previous
Next
Bottom
Just 19th

                  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 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 $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.                                                                    

                  The Company leases premises under long-term operating leases, in most cases                                       
with renewal options. Lease expenses for the years ended December 31, 2002, 2001 and 2000                                           
were $928, $1,739 and $1,177 respectively.                                                                                          

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

                                            December 31,                                                                            
                                                   2002                                                                             

                           2003                      603                                                                            
                           2004                      285                                                                            
                           2005                      205                                                                            
                           2006                      157                                                                            
                           2007                       93                                                                            
                                                   1,343                                                                            
                                                     ====                                                                           

                                                       20                                                                           

20-F
20th Page of 116
TOC
1st
Previous
Next
Bottom
Just 20th

                  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 Ezra Harel, the Chief                                            
Executive Officer and the 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.                                                                                              

                                                      21                                                                            

20-F
21st Page of 116
TOC
1st
Previous
Next
Bottom
Just 21st

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

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

          Organizational Structure.                                                                                                 

                  The following are the significant subsidiaries of ICTS:                                                           

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

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

                 ICTS Investment B.V. (The Netherlands - 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, 2002, 2001 and 2000                                           
were $928, $1,739 and $1,177 respectively.                                                                                          

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

                                            December 31,                                                                            
                                                   2002                                                                             

                           2003                      603                                                                            
                           2004                      285                                                                            
                           2005                      205                                                                            
                           2006                      157                                                                            
                           2007                       93                                                                            
                                                   1,343                                                                            
                                                   ====                                                                             

                                                       22                                                                           

20-F
22nd Page of 116
TOC
1st
Previous
Next
Bottom
Just 22nd

          Item 5. Operating and Financial Review and Prospects                                                                      

           Operating Results                                                                                                        

                  General                                                                                                           

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

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

                  ICTS specializes primarily in the provision of aviation security 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.                                                    

                                                      23                                                                            

20-F
23rd Page of