Icts International NV – ‘DEF 14A’ for 12/23/09

On:  Wednesday, 11/18/09, at 6:26am ET   ·   Effective:  11/18/09   ·   For:  12/23/09   ·   Accession #:  891092-9-4337   ·   File #:  0-28542

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Definitive Proxy Solicitation Material   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Definitive Proxy Solicitation Material               134    603K 

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DEF 14A
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NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

Notice is hereby given of the Annual General Meeting of Shareholders (the       
"Annual Meeting") of ICTS International N.V. (the "Company") which will be held 
on Wednesday, December 23, 2009, at 10:00 A.M. local time, at the offices of the
Company, located at Biesbosch 225, 1181 JC Amstelveen, The Netherlands.         

The agenda for the Annual Meeting, including proposals made by the Supervisory  
Board and the Management Board, is as follows:                                  

1.    Opening of the meeting by the Chairman of the Supervisory Board.          

2.    Report by the Management Board on the course of business of the Company   
     during the financial year 2008 with respect to the annual accounts of the
financial year 2008.                                                

3.    Report by the Supervisory Board with respect to the annual accounts of the
financial year 2008.                                                

4.    Report of the Audit Committee with respect to the annual accounts of the  
financial year 2008.                                                

5.    Adoption of the English language to be used for the annual accounts and   
annual reports of the Company.                                      

6.    Adoption of the annual accounts of the financial year 2008.               

7.    Election of three Managing Directors.                                     

8.    Election of six Supervisory Directors.                                    

9.    Ratification of appointment of independent auditors for the Company.      

10.   Discharge from liability of the Management and Supervisory Boards.        

11.   Questions.                                                                

12.   Adjournment.                                                              

Pursuant to the Articles of Association of the Company and Netherlands law,     
copies of the annual accounts for the financial year 2008, the annual report    
which includes the information required pursuant to Section 2:392 of the Dutch  
Civil Code and the report of the Supervisory Board are open for inspection by   
the shareholders of the Company and other persons entitled to attend meetings of
shareholders at the offices of the Company at Biesbosch 225, 1181 JC,           
Amstelveen, The Netherlands, from the date hereof until the close of the Annual 
Meeting.                                                                        

Shareholders may only exercise their shareholder rights for the shares          
registered in their name on November 17, 2009 the record date for the           
determination of shareholders entitled to vote at the Annual Meeting.           

The Management Board                                                            
Avraham Dan                                                                     
Ran Langer                                                                      
Ranaan Nir                                                                      
Managing Directors                                                              

November 17, 2009                                                               

SHAREHOLDERS ARE URGED TO MARK, SIGN AND RETURN PROMPTLY THE ACCOMPANYING PROXY 
CARD OR POWER OF ATTORNEY, AS APPLICABLE, IN THE ENCLOSED RETURN ENVELOPE.      

ICTS INTERNATIONAL N.V.                                                         
Biesbosch 225                                                                   
1181 JC Amstelveen,                                                             
The Netherlands                                                                 

(Registered with the Chamber of Commerce at                                     
Amsterdam/Haarlem, The Netherlands under No. 33.279.300)                        

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 PROXY STATEMENT
ANNUAL GENERAL MEETING OF SHAREHOLDERS
 To be held on December 23, 2009

This Proxy Statement is being  furnished to holders of common shares,  par value
..45  Euro per  share  (the  "Common  Shares"),  of ICTS  International  N.V., a
Netherlands corporation (the "Company"),  in connection with the solicitation by
the  Management  Board of proxies in the form  enclosed  herewith for use at the
Annual General Meeting of shareholders of the Company to be held at 10:00,  A.M.
local time,  on  Wednesday,  December 23,  2009,  at the offices of the Company,
located at  Biesbosch  225,  1181 JC,  Amstelveen,  The  Netherlands,  or at any
adjournment or adjournments thereof (the "Annual Meeting"). A copy of the Notice
of Annual General  Meeting of Shareholders  (the  "Notice"),  which contains the
agenda for the Annual Meeting (the "Agenda"), accompanies this Proxy Statement. 

The Company's  audited  consolidated  and simple  financial  statements  for the
financial year ended December 31, 2008,  expressed in U.S.  Dollars and prepared
in  accordance  with United  States  generally  accepted  accounting  principles
(hereinafter,  the "Annual Accounts"), and the Company's 2008 annual report (the
"Annual Report"), is being mailed with this Proxy Statement.                    

It is  proposed  at the  Annual  Meeting  to  adopt  resolutions  approving  the
following proposals (the "Proposals"):                                          

1.    Adoption of the English  language to be used for the annual  accounts  and
annual reports of the Company (Item 5 of the Agenda).               

2.    Adoption of the Annual Accounts (Item 6 of the Agenda).                   

3.    Election of three Managing Directors (Item 7 of the Agenda).              

4.    Election of six Supervisory Directors (Item 8 of the Agenda).             

5.    Ratification of appointment of independent  auditors for the Company (Item
9 of the Agenda).                                                   

6.    Discharge from liability the Management and Supervisory  Boards.  (Item 10
of the Agenda).                                                     

Pursuant to the  Articles of  Association  of the Company and  Netherlands  law,
copies of the Annual  Accounts,  the Annual Report and the information  required
under  Section  2:392 of the Dutch Civil Code and the report of the  Supervisory
Board,  written in accordance  with the Articles of  Association of the Company,
are open for inspection by the shareholders and other persons entitled to attend
meetings of shareholders at the office of the Company at Biesbosch 225, 1181 JC,
Amstelveen, The Netherlands,  from the date hereof until the close of the Annual
Meeting.                                                                        

Since the Company is a "foreign  private issuer" under United States  securities
laws, the  solicitation  of proxies for use at the Annual Meeting is not subject
to the proxy rules  contained in  Regulation  14A  promulgated  under the United
States Securities Exchange Act of 1934, as amended.                             

This  solicitation  is  made  by  the  Management  Board  and  the  cost  of the
solicitation will be borne by the Company.  The Company will reimburse brokerage
firms,  fiduciaries and custodians for their  reasonable  expenses in forwarding
solicitation  materials to beneficial  owners. The Company is mailing this Proxy
Statement,  the Notice,  the Annual Report, and the form of Power of Attorney to
the shareholders on or about November 16, 2009.                                 

Voting Securities and Voting Rights                                             

At the close of business on November 16, 2009, the issued and outstanding voting
securities of the Company  consisted of 7,491,190  Common  Shares.  The class of
Common Shares is the only class of voting stock of the Company. Shareholders may
exercise their                                                                  

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shareholder  rights to vote only the Common  Shares  registered in their name on
November 16, 2009, the record date for the Annual Meeting.                      

Shareholders owning and holding  approximately 60% of the issued and outstanding
Common Shares of the Company have  indicated that they will vote FOR items 5, 6,
7, 8, 9 and 10 of the Agenda.                                                   

The  Agenda set forth in the Notice was  proposed  by the  Management  Board and
approved by the Supervisory Board.                                              

A registered  holder of Common  Shares may cast one vote per share at the Annual
Meeting.  In accordance  with Article 18 of the Articles of  Association  of the
Company,  resolutions  may be adopted only when a quorum of at least 50% percent
of the  outstanding  shares  entitled to vote is present or  represented  at the
Annual Meeting,  and adoption of a resolution  requires an absolute  majority of
the votes cast at the Annual Meeting.                                           

Common Shares cannot be voted at the Annual Meeting unless the registered holder
is  present  in person or is  represented  by a written  proxy.  The  Company is
incorporated in The Netherlands  and, as required by the laws of The Netherlands
and the Company's  Articles of  Association,  the Annual Meeting must be held in
the  Netherlands.  Shareholders  who are unable to attend the Annual  Meeting in
person  may  authorize  the  voting of Common  Shares at the  Annual  Meeting by
completing  and returning  the enclosed  power of attorney and proxy card naming
Avraham  Dan,  Ranaan  Nir and Ran  Langer  as proxy  holders.  If the  power of
attorney and proxy in the enclosed form is duly  executed and returned  prior to
the Annual Meeting,  all Common Shares  represented  thereby will be voted, and,
where  specifications  are made by the  holder of  Common  Shares on the form of
proxy,  such proxy will be voted by the proxy  holders in  accordance  with such
specifications.                                                                 

If no  specification  is made in the power of attorney  and proxy,  the power of
attorney  and proxy will be voted by the proxy  holders  FOR items 5, 6, 7, 8, 9
and 10 of the Agenda.                                                           

In the event a shareholder wishes to use any other form of power of attorney and
proxy,  such power of attorney and proxy shall be voted in  accordance  with the
specification given therein,  provided that (i) such power of attorney and proxy
states the number of registered Common Shares held by such shareholder, (ii) the
Common Shares for which the power of attorney and proxy is given are  registered
in the name of the  shareholder  on  November  16,  2009,  and (iii)  such proxy
enables the person named therein to vote the Common Shares  represented  thereby
either in favor of or against  the  Proposals,  or to abstain  from  voting,  as
applicable. The proxy holder shall present the duly executed proxy together with
the  enclosed  form of Power of  Attorney  and Proxy  signed  by the  registered
shareholder.                                                                    

Right of Revocation                                                             

Any  shareholder who has executed and delivered a power of attorney and proxy to
the Company  and who  subsequently  wishes to revoke such power of attorney  and
proxy may do so by  delivering a written  notice of revocation to the Company at
its address set forth above,  Attention:  Chief Executive  Officer,  at any time
prior to the Annual Meeting.                                                    

Beneficial Ownership of Securities Owners                                       

The  following  table sets forth  below  information  regarding  the  beneficial
ownership (as determined under U.S. securities laws) of the Common Shares of the
Company,  as of November 16, 2009, by each person who is known by the Company to
own beneficially more than 5% of the outstanding Common Shares:                 

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------------------------------------------------------------------------------- 
                                                              Percent of
                                                          Amount
                                               Beneficially      Common Shares
Name of Five Percent Shareholders               Owned (a)         Outstanding   
------------------------------------------------------------------------------- 
Atzmon Family Trust (1)                         4,497,226           60%         
------------------------------------------------------------------------------- 
Everest Special Situations Fund &                 837,604           11%         
Affiliates                                                                      
------------------------------------------------------------------------------- 
Nicholas P. Monteban, Xalladio Holding B.V.                                     
and Galladio Capital Management B.V.              665,000            9%         
------------------------------------------------------------------------------- 
All officers and directors as a group                                           
(12 persons)                                    4,560,316           61%         
------------------------------------------------------------------------------- 

      (a) The amount includes common shares owned by each of the above, directly
or indirectly.                                                                  

      1.  Aragata   Holdings  Co.,   Limited,   owns  directly  and   indirectly
approximately  60% of the issued and outstanding  Common Shares.  A family trust
for the benefit of the family of Mr.  Menachem  J.  Atzmon  (the  Atzmon  Family
Trusts) owns Aragata Holdings Co., Limited.  Mr. Atzmon disclaims any beneficial
interest in the Atzmon  Family  Trust.  Aragata  Holdings  Co.,  Limited and the
Atzmon Family Trust may be able to appoint all the directors of ICTS and control
the affairs of ICTS.                                                            

ITEM FOUR OF THE AGENDA:
 REPORT OF THE AUDIT COMMITTEE

The Audit Committee consists of Mr. Philip M. Getter (Chairman), Eytan Barak and
Gordon Hausmann.  The Audit Committee and the Supervisory  Board have adopted an
Audit Committee Charter and Code of Ethics which are attached hereto as Exhibits
A and B. The Charter  outlines the duties of the Audit  Committee in relation to
its  responsibilities  of  overseeing  management's  conduct  of  the  Company's
financial  reporting  process,  including the selection of the Company's outside
auditors and the review of the financial reports and other financial information
provided by the Company to any  governmental  or regulatory  body, the public or
other users thereof,  the Company's systems of internal accounting and financial
controls and the annual independent audit of the Company's financial  statements
and the Company's  legal  compliance  and ethics  programs as established by the
Management Board and the Supervisory Board. The Audit Committee has met with the
independent auditors.  The Code of Ethics sets forth the conduct required of all
directors, officers and employees, including whistle blowing procedures.        

The Audit  Committee  after such  review  and  discussion  with the  independent
auditors have recommended that the audited  financial  statements be included in
the Company's annual report on Form 20-F.                                       

The Audit  Committee  held five meetings  during the last  financial  year.  All
members  of the  Audit  Committee  are  "independent"  under  the  rules  of the
Securities  and Exchange  Commission  currently  applicable to the Company.  Mr.
Getter and Mr. Barak have financial expertise.                                  

The Committee has discussed with the Company's independent auditors, the matters
required  to be  discussed  by SAS 61  (Communications  with  Audit  Committees)
regarding the auditor's judgments about the quality of the Company's  accounting
principles as applied in its financial reporting.                               

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The  Committee  has also received  written  disclosures  and the letter from the
independent  auditors  required by  Independence  Standards Board Standard No. 1
(Independence  Discussions  with Audit  Committees)  and has discussed with such
firm their independence.                                                        

Conclusion                                                                      

Based on the review and discussions referred to above, the Committee recommended
to the  Company's  Supervisory  Board that its audited  financial  statements be
included in the  Company's  Annual Report on Form 20-F for the fiscal year ended
December 31, 2008 for filing with the Securities and Exchange Commission.       

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

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their most recent evaluation. Notwithstanding the foregoing, the audit committee
is of the belief that the Companies  internal  controls and procedures  could be
strengthened in certain aspects to improve its effectiveness.                   

Submitted by the Audit Committee of the Supervisory Board                       

Philip M. Getter, Chairman of the Audit Committee.                              

ITEM FIVE OF THE AGENDA:
 ADOPTION OF THE ENGLISH LANGUAGE TO BE USED FOR THE ANNUAL ACCOUNTS AND
 ANNUAL REPORTS OF THE COMPANY

Pursuant to Section  2:362,  Paragraph  7 of the Dutch  Civil  Code,  the annual
accounts of a  Netherlands  company  such as the Company must be prepared in the
Dutch  language,  unless the  General  Meeting of  Shareholders  resolves to use
another  language.  Due to the  international  structure  of  the  Company,  the
Management Board proposes that the annual accounts and the annual reports of the
Company  be  prepared  in the  English  language  until the  General  Meeting of
Shareholders has resolved otherwise.                                            

A majority  of the votes cast is required  for this  proposal,  provided  that a
quorum of at least 50%  percent of the  outstanding  shares  entitled to vote is
present or represented at the Annual Meeting.                                   

THE SUPERVISORY  BOARD AND MANAGEMENT BOARD RECOMMEND THAT THE SHAREHOLDERS VOTE
"FOR" THE ADOPTION OF THE ENGLISH  LANGUAGE (ITEM 1 ON THE POWER OF ATTORNEY AND
PROXY).                                                                         

 ITEM SIX OF THE AGENDA: ADOPTION OF ANNUAL ACCOUNTS

The Annual  Accounts are submitted to the Company's  shareholders in the English
language.                                                                       

Copies of the Annual Accounts, the Annual Report, which contains the information
required  under  Section  2:392 of the Dutch Civil  Code,  and the report of the
Supervisory Board are available for inspection by the Company's shareholders and
other persons  entitled to attend  meetings of shareholders at the office of the
Company at Biesbosch 225, 1181 JC,  Amstelveen,  The Netherlands,  from the date
hereof until the close of the Annual Meeting.                                   

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In accordance with Article 20 of the Articles of Association of the Company, the
Supervisory  Board has determined to retain all net profit of the financial year
2008.                                                                           

Adoption of the Annual Accounts also includes the adoption of the Dutch accounts
through December 31, 2008.                                                      

Adoption of the Annual Accounts also implies the approval by the shareholders of
the  Company for the  extension  of the period  prescribed  by Dutch law for the
preparation of the Annual  Accounts  within five months after the financial year
ended on December 31, 2008.                                                     

A  majority  of the  votes  cast is  required  for the  adoption  of the  Annual
Accounts,  provided  that a quorum of at least 50%  percent  of the  outstanding
shares entitled to vote is present or represented at the Annual Meeting.        

THE SUPERVISORY  BOARD AND MANAGEMENT BOARD RECOMMEND THAT THE SHAREHOLDERS VOTE
"FOR" THE  ADOPTION  OF ANNUAL  ACCOUNTS  (ITEM 2 ON THE POWER OF  ATTORNEY  AND
PROXY).                                                                         

 ITEM SEVEN OF THE AGENDA:
ELECTION OF MANAGING DIRECTORS

At the Annual Meeting,  Mr. Raanan Nir, Mr. Avraham Dan and Ran Langer are to be
elected to serve as Managing Directors until their successors have been elected.

Messrs.  Nir, Dan and Langer have consented to be named and have indicated their
intent to serve if  elected.  The  Company  has no reason to believe  that these
nominees are unavailable for election. However, if a nominee becomes unavailable
for any reason,  the persons  named as proxies may vote for the election of such
person or persons  for such office as the  Supervisory  Board of the Company may
recommend in the place of such nominee. It is intended that the proxies,  unless
marked to the contrary,  will be voted in favor of the election of Messrs.  Dan,
Nir and Langer.                                                                 

Avraham  Dan is a CPA  (Israel)  joined  ICTS in June  2004 as  Chief  Financial
Officer.  In September 2004 to the present he became a Managing  Director.  From
1995 to 2001 he was Chief Executive Office and a Director of Pazchem Limited, an
Israeli chemical company. Mr. Dan holds an MBA degree from Pace University, NY. 

Ran Langer  joined ICTS in 1988  through  1998 as General  Manager of the German
subsidiaries of ICTS. From 1998 to the present,  he serves as General Manager of
Seehafen  Rostock  Umschlagsgesellschaft  mbH,  the  operator  of the Seaport in
Rostock,  Germany.  Mr. Langer  became a Managing  Director of ICTS in September
2004.                                                                           

Raanan Nir, since 2002, has been managing director of his own company, Red Flag,
B.V.,  which  is a  trust  company  established  in The  Netherlands,  providing
financial and general management services. From 2000 to 2002 he was in charge of
finance  for an IT  start-up  company.  From  1998  to  2000  he was CFO of ICTS
International, N.V.                                                             

THE SUPERVISORY  BOARD AND MANAGEMENT BOARD RECOMMEND THAT THE SHAREHOLDERS VOTE
"FOR" THE ELECTION OF THE  FOLLOWING  NOMINEES  (ITEM 3 ON THE POWER OF ATTORNEY
AND PROXY).                                                                     

 ITEM EIGHT OF THE AGENDA:
 ELECTION OF SUPERVISORY DIRECTORS

At the Annual Meeting, six members of the Supervisory are to be elected to serve
until their successors have been elected and qualified. The nominees to be voted
on by  Shareholders  are Messrs.  Menachem  Atzmon,  Eytan Barak,  Elie Housman,
Gordon Hausmann, David W. Sass and Philip M. Getter.                            

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All nominees have consented to be named and have indicated their intent to serve
if elected.  The Company has no reason to believe that any of these nominees are
unavailable for election. However, if any of the nominees become unavailable for
any  reason,  the  persons  named as proxies  may vote for the  election of such
person or persons  for such office as the  Supervisory  Board of the Company may
recommend  in the place of such  nominee or  nominees.  It is intended  that the
proxies,  unless marked to the contrary,  will be voted in favor of the election
of Messrs. Menachem Atzmon, Eytan Barak, Elie Housman, Gordon Hausmann, David W.
Sass and Philip M. Getter.                                                      

      Menachem  J.  Atzmon is a CPA (Isr).  Since  1996 Mr.  Atzmon has been the
managing director of Albermale Investment Ltd. and Kent Investment Holding Ltd.,
both investment  companies.  Since January 1998 he has served as CEO of Seehafen
Rostock. He has been a member of the Supervisory Board of ICTS since 1999.      

      Eytan Barak is a CPA (Isr).  From the year 2001 to the present,  Mr. Barak
is a partner in  Dovrat-Barak  Investment  in High-Tech  Companies  Ltd.,  He is
currently,  and has been since 2004,  a member of the Board of  Directors of two
companies  owned by the Tel-Aviv  Municipality.  In addition,  he is currently a
member of the board of directors  since the year 2006 in Mer  Telecommunications
Solution  (MTS),  a public  company.  He is since the year 2000 to the present a
member  of the  executive  board and a member of the  finance  committee  of the
Olympic  Committee of Israel.  Since 2008 to the present,  he is a member of the
board of directors of Menora  Mivtachim Mutual Funds Ltd. Since January 2009, he
is a  member  of the  board  of  directors  in Eltek  Ltd,  Meshulam  Levinstrin
Contracting & Engineering Ltd, and Elgo irrigation Ltd, public companies.       

      Elie Housman served as Chairman of Inksure Technologies,  Inc. until 2008.
Mr. Housman was a principal at  Charterhouse  Group  International,  a privately
held merchant bank, from 1989 until June 2001. At Charterhouse,  Mr. Housman was
involved in the acquisition of a number of companies with total sales of several
hundred million dollars.  Mr. Housman was the Chairman of Novo Plc. in London, a
leading company in the broadcast storage and services industry. He is a director
of Top Image System,  Ltd. At present,  Mr. Housman is a director of a number of
privately  held  companies  in the  United  States.  He  became a member  of the
Supervisory Board of ICTS in 2002.                                              

      Gordon Hausmann is the senior partner of his own law firm which he founded
in London 28 years ago. He specializes  in business  finance and banking law. He
holds  office  as a  Board  Member  of the UK  subsidiaries  of  various  quoted
companies,  Company Secretary of Superstar Holidays Ltd., (a subsidiary of El Al
Airlines  Ltd.)  Director of Dominion  Trust Co.  (UK) Ltd.,  associated  with a
private Swiss banking group, and a Governor of the Hebrew University.           

      David W. Sass for the past 48 years has been a practicing  attorney in New
York City and is  currently  a senior  partner in the law firm of  McLaughlin  &
Stern,  LLP.  He has been a  director  of ICTS since  2002.  Mr.  Sass  became a
director of Inksure  Technologies,  Inc., a company which develops,  markets and
sells  customized  authentication  systems  designed to enhance the  security of
documents  and branded  products and to meet the growing  demand for  protection
from  counterfeiting  and diversion.  He is also a director of several privately
held corporations. He is an Honorary Trustee of Ithaca College.                 

      Philip M. Getter is  currently  the managing  member of GEMPH  Development
LLC. From 2000 to 2005 he was president of DAMG Capital, LLC Investment Bankers.
Prior thereto he was most  recently  head of Investment  Banking and a member of
the board of directors of Prime  Charter,  Ltd. He has more than thirty years of
corporate finance experience.                                                   

THE SUPERVISORY  BOARD AND MANAGEMENT BOARD RECOMMEND THAT THE SHAREHOLDERS VOTE
"FOR" THE ELECTION OF SUPERVISORY DIRECTORS (ITEM 4 ON THE POWER OF ATTORNEY AND
PROXY).                                                                         

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 ITEM NINE OF THE AGENDA
RATIFICATION OF THE APPOINTMENT OF
MHM MAHONEY COHEN, CPA's. (the New York Practice
of Mayer Hoffman McCown, P.C.)
 AND
 HLB VAN DAAL & PARTNERS

At the annual meeting the shareholders are being asked to ratify the appointment
of MHM Mahoney  Cohen,  CPA's,  and HLB Van Daal & Partners  as the  independent
auditors of the Company for the fiscal year ended December 31, 2009.  Such firms
were the auditors for the year ended December 31, 2008. The appointment was made
by the  Company's  Audit  Committee  and approved by the  Supervisory  Board and
Management Board of the Company.                                                

THE SUPERVISORY  BOARD AND MANAGEMENT BOARD RECOMMEND THAT THE SHAREHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APOINTMENT OF THE AUDITORS FOR THE COMPANY (ITEM 5
OF THE POWER OF ATTORNEY AND PROXY)                                             

ITEM TEN OF THE AGENDA
DISCHARGE FROM LIABILITY OF THE MANAGEMENT
AND SUPERVISORY BOARDS

At the  annual  meeting  the  shareholders  are being  asked to  discharge  from
liability the members of the Management Board in respect to their management and
the members of the Supervisory  Board in respect of their  supervision up to and
including the 2008 financial year.                                              

THE SUPERVISORY  BOARD AND MANAGEMENT BOARD RECOMMEND THAT THE SHAREHOLDERS VOTE
"FOR" THE DISCHARGE FROM LIABILITY (ITEM 6 OF THE POWER OF ATTORNEY AND PROXY)  

Corporate Governance                                                            

The Supervisory  Board,  Management  Board and  Shareholders of the Company have
adopted a Corporate  Governance  Policy that meets the requirements of the Dutch
Civil  Code  and the  requirements  of the  United  States  of  America  Federal
Securities Laws.                                                                

The policy  includes among others,  the management  description of the corporate
governance structure of the Company, the strategy and the financial  objectives,
the risk profile of the  activities  and the group risk  management  and control
systems in place and their assessment by the management.                        

The  Management  and  Supervisory  Boards  are  responsible  for  the  corporate
governance  structure  of the  Company and for  compliance  with the Dutch Civil
Code.  They will give an account of their  actions in this regard to the General
Meeting of Shareholders.                                                        

The  information  contained  in the  foregoing  report shall not be deemed to be
"soliciting  material"  or  to be  "filed"  with  the  Securities  and  Exchange
Commission,  nor shall such  information be  incorporated  by reference into any
future filing under the  Securities  Act of 1933, as amended,  or the Securities
Exchange  Act of 1934,  as  amended,  except  to the  extent  that  the  Company
specifically incorporates it by reference in such filing.                       

Please sign, date and return the accompanying  proxy card or other form of proxy
with Power of Attorney, as applicable, in the enclosed envelope at your earliest
convenience.                                                                    

The Management Board                                                            

Ranaan Nir                                                                      
Avraham Dan                                                                     
Ran Langer                                                                      
Managing Directors                                                              

November 16, 2009                                                               

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 EXHIBIT A

CHARTER OF THE AUDIT COMMITTEE

This  Charter of the Audit  Committee  (this  NASDAQ  Rule  "Charter")  has been
adopted  by  the  Supervisory  (the  4350(d)(1)  Board  (the  "Board")  of  ICTS
International,   N.V.  requires  that  "Company").   The  Audit  Committee  (the
Committee")  that the Committee shall review and reassess this Charter  annually
conduct an annual and recommend any proposed  changes to the Board evaluation of
its Charter for approval.                                                       

A. Purpose                                                                      

The purpose of the Committee is to assist NASDAQ Rule 4350(d)(1)(C)the  Board in
its oversight of the Company's the accounting and financial  reporting processes
and audits of the Company's financial statements,  including (i) the quality and
integrity of the Company's financial  statements,  (ii) the Company's compliance
with  legal  and  regulatory  requirements,   (iii)  the  independent  auditors'
qualifications  and  independence  and (iv)  the  performance  of the  Company's
internal audit  functions and independent  auditors.  In fulfilling its purpose,
the  Committee  shall  maintain free and open  communication  with the Company's
independent auditors, internal auditors and management.                         

B. Duties and  Responsibilities  In  furtherance  of its purpose,  the Committee
shall have the following duties and responsibilities:                           

1. To review major issues regarding accounting principles,  policies,  practices
and  judgments  and  financial  statement   presentations,   including  (i)  any
significant  changes to the  Company's  selection or  application  of accounting
principles,  (ii) the  adequacy  and  effectiveness  of the  Company's  internal
controls and (iii) any special audit steps adopted in light of material  control
deficiencies.                                                                   

2. To review analyses  prepared by management,  the independent  auditors and/or
others setting forth significant  financial  reporting issues and judgments made
in  connection  with the  preparation  of the  financial  statements,  including
analyses of the effects of alternative GAAP methods on the financial statements.

3. To review the effect of regulatory and accounting initiatives and off-balance
sheet structures on the Company's financial statements.                         

4. To review the type and  presentation  of  information  to be  included in the
Company's  earnings press releases,  paying  particular  attention to any use of
"pro forma" or "adjusted"  non-GAAP  information,  as well as review and discuss
earnings  press  releases and any financial  information  and earnings  guidance
provided to analysts and rating agencies.                                       

5. To review, or oversee the review of, internal audit functions that ensure the
appropriate  control  process  is in  place  for  reviewing  and  approving  the
Company's internal transactions and accounting.                                 

6. To periodically  discuss with the Board the adequacy and effectiveness of the
Company's internal controls.                                                    

7. To discuss with management and the independent  auditors the integrity of the
Company's  financial  reporting  processes and controls,  including policies and
guidelines with respect to risk assessment and risk management and the Company's
major financial risk exposures and the steps management has taken to monitor and
control such exposures.                                                         

8. To discuss with management and the independent  auditors the Company's annual
audited financial statements and quarterly financial  statements,  including the
Company's  disclosures under "Management's  Discussion and Analysis of Financial
Conditions  and  Results  of  Operations,"  together  with  the  results  of the
independent auditors' review prior to filing or distribution.                   

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9. To prepare the report  required to be included in the Company's  annual proxy
statements  pursuant  to  the  proxy  rules  promulgated  by the  United  States
Securities and Exchange  Commission (the "SEC") or, if the Company does not file
a proxy statement, in the Company's annual report.                              

10. To discuss with  management  and the  independent  auditors the  independent
auditors'  judgments  about the quality  and  appropriateness  of the  Company's
accounting principles and underlying estimates in its financial statements.     

11. To review and discuss  with  management  and the  independent  auditors  any
correspondence  with  regulators  or  governmental  agencies  and any  published
reports  and  employee  complaints  concerning  financial  matters  which  raise
material  issues  regarding  the  Company's  financial  statements or accounting
policies.                                                                       

12. To discuss with the independent auditors and management, as appropriate, any
items required to be communicated by the independent auditors in accordance with
Statement on Auditing Standards No. 61 not otherwise addressed in this Charter. 

13. To discuss with the independent  auditors,  prior to the filing of the Final
audit  report  with  the  SEC,  reports  from  management  and  the  independent
Commission's  auditors  regarding  (i)  all  critical  accounting  policies  and
practices used by the Company,  (ii) all material  accounting  treatments within
GAAP that have been discussed with  management,  including the  ramifications of
the use of  such  alternative  treatments  and the  treatment  preferred  by the
accounting  firm and (iii) other  material  written  communications  between the
accounting firm and management.                                                 

14. To discuss  periodically  with the Company's CEO and CFO (i) all significant
deficiencies in the disclosure in the Companies'  operation of internal controls
which could adversely  affect the Reports  summarize and report  financial data,
(ii) any significant changes in internal controls,  including internal Financial
Reporting  and control  over  financial  reporting,  or  certification  of other
factors that could  significantly  affect such internal controls,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses and (iii) any fraud involving  management or other employees who have
a significant role in the Company's internal controls.                          

15. To review the internal  control reports of management  prepared  pursuant to
rules and  regulations  of the SEC on  Internal  Control  promulgated  under the
Sarbanes-Oxley  Financial  Reporting  and Act of 2002  prior to filing  with the
Certification of SEC.                                                           

16. To directly appoint,  retain,  evaluate and oversee the independent auditors
engaged for the purpose of  preparing or issuing an audit report or related work
or performing  other audit,  review or attest  services for the Company,  and to
resolve any disagreements  between management and the independent  auditors.  To
approve in advance, or, in the alternative, to establish and periodically review
pre-approval  policies and procedures for all audit  engagement  fees and terms,
including  the  retention  of  the  independent  auditors  for  any  significant
permissible non-audit engagement or relationship.  To have direct responsibility
for the oversight of the independent  auditors.  The Committee shall inform each
registered public accounting firm performing work for the Company that such firm
shall  report  directly  to the  Committee.  The  Committee  may  terminate  the
independent auditors in its sole discretion. The Committee should also take into
account  the  opinions  of  management  in its  dealings  with  the  independent
auditors.                                                                       

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17.  To  annually  evaluate  the  experience,  qualifications,  performance  and
independence of the  independent  auditors,  including  their lead partners.  To
assure  the  regular  rotation  of the audit  partners,  including  the lead and
concurring   Audit  partners,   as  required  by  applicable   laws,  rules  and
regulations.  To  consider  whether  there  should be  regular  rotation  of the
independent  auditors.  The  Committee  should take into account the opinions of
management  and the  internal  auditors  in its  evaluation  of the  independent
auditors.  The  Committee  should  present its  conclusions  with respect to the
independent auditors to the full Board.                                         

18. To obtain and review,  on an annual basis,  a formal written report from the
independent auditors describing (i) the auditing firm's internal quality control
procedures;  (ii) any material issues raised within the preceding five (5) years
by the auditing firm's internal  quality-control  reviews,  peer reviews, or any
governmental or other inquiry or investigation relating to any independent audit
conducted  by the auditing  firm,  and the steps taken to deal with such issues;
and (iii) all relationships between the independent auditors and the Company.   

19. To discuss with the independent auditors any disclosed relationships between
the  auditors  and the  Company or any other  relationships  that may  adversely
affect the objectivity or independence  of the independent  auditor.  To discuss
with the independent  auditors any services provided to the Company or any other
services that may  adversely  affect the  objectivity  and  independence  of the
independent  auditor.  To  take,  or to  recommend  that the  full  board  take,
appropriate   action  to  oversee  the  objectivity  and   independence  of  the
independent auditor.                                                            

20. To review with the independent  auditors any audit problems or difficulties,
together with management's responses, including any restrictions on the scope of
the independent auditors' activities or on access to requested information,  and
any significant disagreements with management.                                  

21. To review  the  independent  auditors'  audit  plan,  including  its  scope,
staffing, locations, reliance upon management and general audit approach.       

22. To review and approve all related party  transactions for potential conflict
of interest situations on an ongoing basis.                                     

23. To establish clear  guidelines for the hiring of current or former employees
of the Company's independent auditors.                                          

24. To review and  discuss  with the  independent  auditors  the  quality of the
Company's financial and auditing personnel and the responsibilities,  budget and
staffing of the Company's internal audit functions.                             

25. To review with the  Company's  legal counsel on a quarterly  basis,  or more
frequently  as  circumstances  dictate,  any legal  matters  that  could  have a
significant  impact  on the  Company's  financial  statements  or the  Company's
compliance  with  applicable  laws,  rules  and  regulations,  any  breaches  of
fiduciary  duties  and  inquiries   received  from  regulators  or  governmental
agencies.                                                                       

26.  To  establish  and  maintain  procedures  for the  receipt,  retention  and
treatment of complaints  regarding  accounting,  internal accounting controls or
auditing  matters,  including  procedures  for the  confidential  and  anonymous
submission  by  the  Company's  employees  of  concerns  regarding  questionable
accounting or auditing matters.                                                 

27. To conduct any  investigation  appropriate  to fulfill its  responsibilities
with the authority to direct access to the  independent  committees,  as well as
anyone in the Company.                                                          

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28. To ensure that no improper influence on the independent directors is exerted
by any officers or directors of the Company or any person  acting on  committees
under their direction.                                                          

29. To keep abreast of new accounting and reporting standards promulgated by the
FASB, the SEC and other relevant standard setting bodies.                       

30.  To  approve  ordinary  expenses  of the  Committee  that are  necessary  or
appropriate in carrying out its duties.                                         

31. To perform any other activities  consistent with this Charter, the Company's
by-laws and  governing  law, as the  Committee  or the Board deems  necessary or
appropriate.                                                                    

C. Outside Advisors                                                             

The Committee,  acting by majority vote, shall have the authority to retain,  at
the Company's expense, outside legal,  accounting,  or other advisors or experts
it deems  necessary  to perform its duties.  The  Committee  shall  retain these
advisors without seeking Board approval and shall have sole authority to approve
related fees and retention terms.                                               

D. Annual Performance Evaluation                                                

The Committee shall conduct an annual self performance evaluation,  including an
evaluation of its compliance  with this Charter.  The Committee  shall report on
its annual self performance evaluation to the Board.                            

E. Membership                                                                   

The Committee shall consist of no fewer than three (3) directors,  as determined
by  the  Board.   Each  Committee  member  shall  meet  the  independence   rule
requirements  of The NASDAQ  Stock Market and of the SEC, as  determined  by the
Board, and any other requirements set forth in applicable laws, and regulations.
All Committee members shall have/a basic understanding of finance and accounting
and be able to read and understand  fundamental financial statements,  including
the Company's balance sheet, income statement and cash flow statement.  At least
one  Committee  member  shall  have past  employment  experience  in  finance or
accounting,  requisite  professional  certification  in  accounting or any other
comparable experience. At least one Committee member shall meet the requirements
of an "audit committee financial expert" as such term is defined by the SEC.    

Committee members shall be appointed annually by a majority vote of the Board on
the  recommendation  of the Corporate  Governance & Nominating  Committee.  Each
Prospective  Committee  member shall  carefully  evaluate  existing time demands
before  accepting  Committee  membership.  No director  may serve as a Committee
member if such director serves on the audit committee of more than two (2) other
public companies,  unless the Board expressly determines that such service would
not  impair  that  director's  ability  to  serve  on  the  Committee  and  such
determination  is  disclosed  in  the  Company's  annual  proxy  statement.  The
Committee  members may be removed,  with or without cause, by a majority vote of
the Board.                                                                      

No member of the Committee shall receive  compensation other than (i) director's
fees for service as a director of the Company, including reasonable compensation
for  serving  on the  Committees.  Committee  and  regular  benefits  that other
directors  receive  and  (ii)  a  pension  or  similar   compensation  for  past
performance,  provided that such compensation is not conditioned on continued or
future service to the Company.                                                  

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F. Chairman                                                                     

The Committee shall include a Committee  Determined by the Board  chairman.  The
Committee  chairman  shall be  appointed  by a majority  vote of the Board.  The
Committee  chairman  shall be  entitled  to chair all  regular  sessions  of the
Committee, add topics to the agenda and cast a vote to resolve any ties.        

G. Meetings                                                                     

The Committee  shall meet at least one (1) time per quarter,  or more frequently
as circumstances  dictate,  and all Committee members shall strive to attend all
Committee  meetings.  At least one  Committee  meetings  each  year  shall be in
person.  Directors  physically present outside the United States may participate
in all other Committee  meetings by telephone or by any other similar technology
that  permits  instantaneous  and  simultaneous  communication.   The  Committee
meetings shall follow a set agenda established by the Committee.                

The  chairman may call a Committee  meeting upon notice to each other  Committee
member at least  forty-eight (48) hours prior to the meeting.  A majority of the
Committee members,  acting in person or by proxy, shall constitute a quorum. The
Committee  shall be responsible  for  maintaining  minutes and other  applicable
records of each Committee  meeting.  The Committee  shall report its actions and
recommendations  to the Board at the next Board  meeting  after  each  Committee
meeting.                                                                        

The Committee shall meet separately in executive  sessions with management,  the
independent auditors and those responsible for the internal audit functions,  on
a periodic  basis,  to discuss  any matter  that the  Committee  or any of these
groups believes may warrant Committee attention.                                

H. Related Party  Transactions With respect to related party  transactions,  the
following controls:                                                             

A. For  Securities  and Exchange  Commission  purposes on  disclosure of related
party  transactions a related party  transaction is defined as "any transaction,
or series of similar  transactions,  since the beginning of the  Company's  last
fiscal  year,  or any  currently  proposed  transaction,  or series  of  similar
transactions,  to which the Company or any of its subsidiaries was or is to be a
party,  in which the amount  involved  exceeds  $60,000  and in which any of the
following  persons  had, or will have, a direct or indirect  material  interest,
naming such person and indicating the person's  relationship to the Company, the
nature of such  person's  interest  in the  transaction(s),  the  amount of such
transaction(s)  and, where practicable,  the amount of such person's interest in
the transaction(s):                                                             

(i)   Any  director or executive  officer of the  Company;                      

(ii)  Any nominee for election as a director;                                   

(ii)  Any  security  holder  who is known to the  Company  to own of  record  or
      beneficially  more than five percent of any class of the Company's  voting
securities; and                                                     

(iv)  Any member of the immediate family of any of the foregoing persons.       

2. Management  shall conduct a full due diligence  investigation of the proposed
investment,  utilizing legal counsel,  auditors and advisors as management deems
necessary.                                                                      

3.  Prior to  Supervisory  Board  consideration  the group  responsible  for due
diligence and negotiation shall prepare a detailed memo on the transaction which
should be  disseminated  prior to the matter being  presented to the Supervisory
Board by way of the Committee for approval.                                     

4.  Management  shall  negotiate  the  proposed  terms  and  conditions  of  the
investment.  These negotiations shall not include the related parties interested
in the  transaction.  The  transaction  should  be  negotiated  on behalf of the
Company  by  management  who  is not  interested  in  the  transaction  or if no
management meets this criteria then by the independent  directors (assuming they
have no interest in the transaction). All members of                            

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the Audit  Committee  are to receive  continuous  updates of the progress of the
negotiations.  In the negotiation process the fairness and reasonableness of the
transaction  to  the  Company  and  its  shareholders  is  to be  the  paramount
consideration.                                                                  

5. Whether or not a fairness  opinion should be obtained should be determined by
the  Supervisory  Board  and  should be  decided  based  upon the  nature of the
transaction  and its size and its  proposed  effect on the  Company.  A fairness
opinion,  if obtained,  should be from an independent  investment  banking firm,
chosen  by the  Committee,  which  describes  the  transaction,  the  terms  and
concludes  that the  transaction  is fair and  reasonable to the Company and its
shareholders.  There is no "de minimis rule" as to when a fairness  opinion need
not be obtained.                                                                

6. All  related  party  transactions  must be  approved  by the  majority of the
independent directors of the company. Interested directors shall not vote.      

7. Whether or not a transaction should go before the shareholders  depends on   

A.    Local law requirements for the particular transaction such as a merger;   

or                                                                  

B.    At the discretion of the  Supervisory  Board in the event it is determined
that the transaction is material to the business of the company.    

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 EXHIBIT B

ICTS INTERNATIONAL, N.V.

And All Subsidiaries

 (collectively "ICTS")

 CODE OF BUSINESS CONDUCT AND ETHICS

INTRODUCTION                                                        

      We are committed to maintaining the highest  standards of business conduct
and ethics.  This ICTS Code of Business Conduct and Ethics (the "Code") reflects
the business  practices and principles of behavior that support this commitment.
This Code is intended to comply with the  provisions of the U.S.  Sarbanes-Oxley
Act of 2002 (the "Act"). We expect every employee, officer and Managing Director
and Supervisory  Director to read and understand the Code and its application to
the performance of his or her business responsibilities.  References in the Code
to  employees  are intended to cover  officers  and, as  applicable,  Management
Directors and  Supervisory  Directors as well as the Company's  chief  executive
officer  (principal  executive  officer),  chief  financial  officer  (principal
financial officer) and chief accounting officer (principal  accounting  officer)
(the management directors,  principal executive officer and principal accounting
officer collectively,  the "Section 406 Officers" as referred to in the Act) are
bound by these Business  Conduct  Guidelines,  including  those  provisions that
relate to ethical conduct,  conflicts of interest and compliance with applicable
laws.  The ss. 406  Officers  hold an important  and elevated  role in corporate
governance  in that they are uniquely  capable and  empowered to ensure that all
shareholders'  interests are  appropriately  balanced,  protected and preserved.
Therefore,  in addition to the broad and comprehensive  codes of ethical conduct
set forth in the ICTS Business Conduct Guidelines, the ss. 406 Officers shall be
subject to the additional conduct guidelines continued on Section 18 hereof.    

      Officers,  managers  and other  supervisors  are  expected  to  develop in
employees a sense of  commitment  to the spirit,  as well as the letter,  of the
Code.  Supervisors  are also expected to ensure that all agents and  contractors
conform to Code standards when working for or on behalf of ICTS.  Nothing in the
Code alters the terms of employment between an individual employee and ICTS.    

      The Code cannot possibly  describe every practice or principle  related to
honest and ethical  conduct.  The Code  addresses  conduct that is  particularly
important to proper dealings with the people and entities with whom we interact,
but reflects only a part of our commitment.                                     

      Action by members of your immediate  family,  significant  others or other
persons who live in your household also may potentially result in ethical issues
to the extent that they  involve  ICTS  business.  For  example,  acceptance  of
inappropriate  gifts by a family member from one of our suppliers could create a
conflict  of  interest  and  result  in a Code  violation  attributable  to you.
Consequently,  in complying with the Code, you should consider not only your own
conduct, but also that of your immediate family members,  significant others and
other persons who live in your household.                                       

      The integrity and reputation of ICTS depends on the honesty,  fairness and
integrity  brought  to the job by each  person  associated  with  us.  It is the
responsibility of each employee to apply common sense,  together with his or her
own highest personal ethical standards, in making business decisions where there
is no  stated  guideline  in the  Code.  Unyielding  personal  integrity  is the
foundation of corporate integrity.                                              

      YOU SHOULD NOT  HESITATE TO ASK  QUESTIONS  ABOUT  WHETHER ANY CONDUCT MAY
VIOLATE THE CODE, VOICE CONCERNS OR CLARIFY GRAY AREAS. SECTION 17 BELOW DETAILS

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THE COMPLIANCE  RESOURCES AVAILABLE TO YOU. IN ADDITION,  YOU SHOULD BE ALERT TO
POSSIBLE  VIOLATIONS  OF THE CODE BY OTHERS  AND  REPORT  SUSPECTED  VIOLATIONS,
WITHOUT FEAR OF ANY FORM OF RETALIATION, AS FURTHER DESCRIBED IN SECTION 17.    

      Violations  of the Code will not be  tolerated.  Any employee who violates
the  standards  in the Code may be subject  to  disciplinary  action,  up to and
including  termination of employment or summary  dismissal  ("ontslag op staande
voet") and, in  appropriate  cases,  civil legal action or referral for criminal
prosecution.                                                                    

LEGAL COMPLIANCE                                                    

      Obeying the law, both in letter and in spirit,  is the  foundation of this
Code. Our success depends upon each employee's operating within legal guidelines
and  cooperating  with local,  national  and  international  authorities.  It is
therefore  essential that you  understand the legal and regulatory  requirements
applicable  to your business  unit and area of  responsibility.  While we do not
expect you to memorize  every detail of these laws,  rules and  regulations,  we
want you to be able to determine when to seek advice from others. If you do have
a  question  in the  area of  legal  compliance,  it is  important  that you not
hesitate to seek answers from your supervisor,  a Managing Director, the General
Counsel or the Chairperson of the Audit Committee of the Supervisory  Board (the
"Audit Committee", as further described in Section 18).                         

      Disregard  of the law will not be  tolerated.  Violation  of  domestic  or
foreign laws, rules and regulations may subject an individual,  as well as ICTS,
to civil  and/or  criminal  penalties.  You  should be aware  that  conduct  and
records,  including emails,  are subject to internal and external audits, and to
inspection by third parties in the event of a government  investigation or civil
litigation. It is in everyone's best interests to know and comply with our legal
and ethical obligations.                                                        

1.    INSIDER TRADING                                                           

      Employees who have access to  confidential  (or "inside")  information are
not permitted to use or share that information for stock trading purposes or for
any other purpose  except to conduct our business.  All  non-public  information
about  ICTS  or  about  companies  with  which  we  do  business  is  considered
confidential  information.  To use material non-public information in connection
with buying or selling securities,  including "tipping" others who might make an
investment decision on the basis of this information,  is not only unethical, it
is illegal.  Employees  must  exercise  the utmost care when  handling  material
inside information.  We have adopted a separate Insider Trading Policy which you
should  consult for more  specific  information  on the  definition of "material
inside  information"  and on buying and selling our  securities or securities of
companies with which we do business.                                            

2.    DISCRIMINATION AND HARASSMENT                                             

      The  diversity of ICTS's  employees is a tremendous  asset.  We are firmly
committed to providing  equal  opportunity in all aspects of employment and will
not tolerate any illegal  discrimination or harassment of any kind. In addition,
retaliation   against  individuals  for  raising  claims  of  discrimination  or
harassment is prohibited.                                                       

3.    CONFLICTS OF INTEREST                                                     

      A "conflict of interest" occurs when an individual's personal interest may
interfere  in any way  with the  performance  of his or her  duties  or the best
interests  of  ICTS.  A  conflicting  personal  interest  could  result  from an
expectation  of  personal  gain now or in the future or from a need to satisfy a
prior or concurrent personal obligation. We expect our employees to be free from
influences that conflict with the best interests of ICTS. Even the appearance of
a conflict of interest where none actually exists can be damaging and should be 

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avoided.  Whether  or not a  conflict  of  interest  exists or will exist can be
unclear.  Conflicts of interest are prohibited unless specifically authorized as
described below.                                                                

      If you have any  questions  about a potential  conflict or  appearance  of
conflict or if you become aware of an actual or potential conflict or appearance
of a  conflict,  and you are not an  officer  or  director  of ICTS,  you should
discuss  the matter  with your  supervisor,  a Managing  Director,  the  General
Counsel or the Chairperson of the Audit Committee. Supervisors may not authorize
conflict of interest  matters  without  first seeking the approval of a Managing
Director,  the General  Counsel or the  Chairperson  of the Audit  Committee and
filing with a Managing  Director,  the General Counsel or the Chairperson of the
Audit  Committee  a  written  description  of the  authorized  activity.  If the
supervisor is involved in the potential or actual  conflict,  you should discuss
the  matter  directly  with a  Managing  Director,  the  General  Counsel or the
Chairperson of the Audit Committee. Factors that may be considered in evaluating
a potential conflict of interest are, among others:                             

            whether  it may  interfere  with  the  employee's  job  performance,
responsibilities or morale;                             

    whether the employee has access to confidential information;

            whether it may interfere with the job performance,  responsibilities
or morale of others within the organization;            

   any potential adverse or beneficial impact on our business;

            any potential adverse or beneficial impact on our relationships with
our customers or suppliers or other service providers;  

    whether it would enhance or support a competitor's position;

            the extent to which it would result in  financial  or other  benefit
(direct or indirect) to the employee;                   

            the extent to which it would result in  financial  or other  benefit
            (direct or  indirect)  to one of our  customers,  suppliers or other
service providers; and                                  

            the extent to which it would appear improper to an outside observer.

      Loans to, or  guarantees  of  obligations  of,  employees  or their Family
Members by ICTS could constitute an improper  personal benefit to the recipients
of these loans or  guarantees,  depending on the facts and  circumstances.  Some
loans are  expressly  prohibited  by law and  applicable  law requires  that our
Supervisory  Board approve all loans and  guarantees to employees.  As a result,
all loans  and  guarantees  by ICTS must be  approved  in  advance  by the Audit
Committee and the Supervisory Board of ICTS.                                    

4.    HEALTH AND SAFETY                                                         

      ICTS  strives to provide a safe and healthy work  environment.  Each of us
shares the  responsibility  for  maintaining  a safe and  healthy  workplace  by
following  safety  and  health  rules and  practices  and  reporting  accidents,
injuries,  unsafe  equipment  and any other unsafe  practices or  conditions  to
his/her  supervisor  or the  Managing  Director.  Further,  misusing  controlled
substances  or  selling,  manufacturing,   distributing,  possessing,  using  or
misusing controlled substances, or being under the influence of illegal drugs on
the job is absolutely prohibited.                                               

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5.    INTERNATIONAL BUSINESS LAWS                                               

      Our  employees  are  expected  to comply with the  applicable  laws in all
countries to which they travel,  in which they operate and where we otherwise do
business,  including  laws  prohibiting  bribery,  corruption  or the conduct of
business with specified individuals, companies or countries.                    

      The fact that in some  countries  certain  laws are not  enforced  or that
violation of those laws is not subject to public  criticism will not be accepted
as an excuse for noncompliance.  In addition, we expect employees to comply with
U.S.  laws,  rules and  regulations  governing  the  conduct of  business by its
citizens and corporations outside the U.S.                                      

      These U.S. laws, rules and regulations, which extend to all our activities
outside the U.S., include:                                                      

            The Foreign  Corrupt  Practices  Act,  which  prohibits  directly or
            indirectly  giving  anything  of value to a  government  official to
            obtain or retain business or favorable  treatment,  and requires the
            maintenance  of  accurate   books  of  account,   with  all  company
transactions being properly recorded;                   

            U.S.  Embargoes or Sanctions  Programs,  which  restrict or, in some
            cases, prohibit companies,  their subsidiaries and certain employees
            from trading  with,  investing in or traveling to certain  countries
            identified  on a list  that  changes  periodically  (including,  for
            example,  Angola (partial),  Burma (partial),  Cuba, Iran,  Liberia,
            North  Korea,  Sudan,  Syria and  Zimbabwe),  specific  companies or
            individuals,  or  being  involved  in  specific  activities  such as
certain diamond trading and proliferation activities;   

            Export  Controls,  which  prohibit or restrict  the export of goods,
            services and technology to designated  countries,  denied persons or
            denied  entities from the U.S.,  the re-export of U.S.  origin goods
            from  the  country  of  original   destination  to  such  designated
            countries,  and the  export of foreign  origin  goods made with U.S.
technology; and                                         

            Antiboycott  Compliance,  which prohibits U.S. companies from taking
            any  action  that has the  effect  of  furthering  or  supporting  a
            restrictive trade practice or boycott that is fostered or imposed by
            a foreign country against a country  friendly to the U.S. or against
            any U.S. person, and requires the reporting of any boycott receipts.

      If you  have a  question  as to  whether  an  activity  is  restricted  or
prohibited,  seek  assistance  before  taking any action,  including  giving any
verbal assurances that might be regulated by international laws.                

6.    CORPORATE OPPORTUNITIES                                                   

      You may not take personal advantage of opportunities that are presented to
you or  discovered  by you as a result of your  position with us or through your
use of corporate property or information,  unless authorized by your supervisor,
a  Managing  Director,  the  General  Counsel  or the  Chairperson  of the Audit
Committee.  Even  opportunities  that  are  acquired  privately  by  you  may be
questionable  if they are related to our existing or proposed lines of business.
Participation in an investment or outside  business  opportunity that is related
to our existing or proposed lines of business must be  pre-approved.  You cannot
use your  position  with us or corporate  property or  information  for improper
personal gain, nor can you compete with us in any way.                          

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7.    MISUSE OF COMPANY COMPUTER EQUIPMENT                                      

      You may not,  while acting on behalf of ICTS or while using our  computing
or communications equipment or facilities, either:                              

            access the internal  computer  system (also known as  "hacking")  or
            other   resource  of  another   entity   without   express   written
            authorization   from  the  entity  responsible  for  operating  that
resource; or                                            

            commit any unlawful or illegal  act,  including  harassment,  libel,
            fraud,  sending of unsolicited  bulk email (also known as "spam") in
            violation of applicable law,  trafficking in contraband of any kind,
or espionage.                                           

      If you receive  authorization to access another entity's internal computer
system or other resource, you must make a permanent record of that authorization
so that it may be  retrieved  for future  reference,  and you may not exceed the
scope of that authorization.                                                    

      Unsolicited  bulk email is regulated by law in a number of  jurisdictions.
If you intend to send unsolicited bulk email to persons outside of ICTS,  either
while acting on our behalf or using our computing or communications equipment or
facilities,  you should obtain prior approval from your  supervisor,  a Managing
Director, the General Counsel or the Chairperson of the Audit Committee.        

      All  data   residing  on  or   transmitted   through  our   computing  and
communications facilities, including email and word processing documents, is the
property  of ICTS and  subject to  inspection,  retention  and review by ICTS in
accordance with applicable law.                                                 

8.    ENVIRONMENT COMPLIANCE                                                    

      The laws of the  various  jurisdictions  where we do  business  can impose
criminal  liability on any person or company that  contaminates  the environment
with any  hazardous  substance  that  could  cause  injury to the  community  or
environment.  Violation of environmental  laws can be a criminal offense and can
involve monetary fines and imprisonment.  We expect employees to comply with all
applicable environmental laws.                                                  

      It is our policy to conduct our business in an environmentally responsible
way that minimizes environmental impacts. We are committed to minimizing and, if
possible,  eliminating  the use of any  substance  or  material  that may  cause
environmental  damage,  reducing  waste  generation  and  disposing of all waste
through  safe  and  responsible  methods,   minimizing  environmental  risks  by
employing  safe  technologies  and operating  procedures,  and being prepared to
respond appropriately to accidents and emergencies.                             

9.    MAINTENANCE OF CORPORATE BOOKS, RECORDS, DOCUMENTS AND ACCOUNTS; FINANCIAL
INTEGRITY; PUBLIC REPORTING                                         

      ICTS  is  committed  to  producing  full,  fair,   accurate,   timely  and
understandable  disclosure  in reports  and  documents  that it files  with,  or
submits to, the United States Securities and Exchange Commission (the "SEC") and
other regulators.  Accordingly,  ICTS requires honest and accurate recording and
reporting of information.  All of ICTS's books, records,  accounts and financial
statements must be maintained in reasonable detail,  must appropriately  reflect
ICTS's  transactions and must conform both to applicable legal  requirements and
to ICTS's system of internal controls. By way of example, unrecorded or "off the
books" funds or assets should not be                                            

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maintained,  only the true and actual  number of hours should be  reported,  and
business expense accounts must be documented and recorded accurately.           

      Business records and communications sometimes become public.  Accordingly,
we should avoid exaggeration,  derogatory remarks,  guesswork,  or inappropriate
characterizations  of  people  and  companies  that may be  misunderstood.  This
applies equally to e-mail,  internal memos,  and formal reports.  Records should
always be retained or destroyed  according to ICTS's record retention  policies.
Inappropriate  access or  modifications  to,  or  unauthorized  destruction  of,
accounting or other business records is prohibited.  These prohibitions apply to
all business  records and data,  regardless of whether such data and records are
in written form or electronically stored.                                       

10.   FAIR DEALING                                                              

      We seek  to  outperform  our  competition  fairly  and  honestly.  We seek
competitive  advantages though superior  performance and never through unethical
or illegal business  practices.  Stealing  proprietary  information,  possessing
trade secret  information  that was  obtained  without the owner's  consent,  or
inducing such  disclosures  by past or present  employees of other  companies is
prohibited.  Each director,  officer and employee should endeavor to respect the
rights of and deal fairly  with ICTS's  customers,  suppliers,  competitors  and
employees.  No unfair advantage should be taken of anyone through  manipulation,
concealment,  abuse of  privileged  information,  misrepresentation  of material
facts, or any other unfair dealing practice.                                    

11.   GIFTS AND ENTERTAINMENT                                                   

      Business  entertainment  and gifts are meant to create  goodwill and sound
working  relationships  and not to gain  improper  advantage  with  customers or
facilitate  approvals from government  officials.  Unless express  permission is
received  from a supervisor,  a Managing  Director,  the General  Counsel or the
Chairperson of the Audit Committee,  entertainment  and gifts cannot be offered,
provided or accepted by any employee unless)  consistent with customary business
practices and not (a) excessive in value,  (b) in cash, (c) susceptible of being
construed as a bribe or kickback or (d) in violation of any laws. This principle
applies to our transactions  everywhere in the world, even where the practice is
widely  considered "a way of doing business."  Under some statutes,  such as the
U.S.  Foreign  Corrupt  Practices  Act (further  described in Section 5), giving
anything  of value to a  government  official  to obtain or retain  business  or
favorable  treatment is a criminal act subject to  prosecution  and  conviction.
Discuss with your supervisor,  a Managing  Director,  the General Counsel or the
Chairperson of the Audit  Committee any proposed  entertainment  or gifts if you
are uncertain about their appropriateness.                                      

12.   COMPETITION LAW                                                           

      The European  competition  rules are  supplemented  in The  Netherlands by
national rules set out in the Competition Act  ("Mededingingswet").  This Act is
applicable in parallel with the European competition rules.                     

      The  Competition  Act  prohibits  all  agreements  between   undertakings,
decisions  by   associations  of   undertakings   and  concerted   practices  of
undertakings which have as their object or effect the prevention, restriction or
distortion of  competition  within the Dutch  market,  or a part of such market.
Such agreements may for instance  directly or indirectly fix purchase or selling
prices or any other trading conditions;  limit or control  production,  markets,
technical development,  or investment;  share markets or sources of supply. This
list is not limitative.                                                         

      Undertakings are also prohibited from abusing a dominant  position through
exclusionary, discriminatory or exploitative practices.                         

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      Antitrust   laws  in  the  United  States  are  designed  to  protect  the
competitive process. These laws generally prohibit:                             

            agreements,   formal  or  informal,   with   competitors  that  harm
            competition or customers,  including price fixing and allocations of
customers, territories or contracts;                    

            agreements,  formal or informal,  that establish or fix the price at
which a customer may resell a product; and              

            the  acquisition or maintenance of a monopoly or attempted  monopoly
through anti-competitive conduct.                       

      Certain kinds of information,  such as pricing,  production and inventory,
should not be exchanged with  competitors,  regardless of how innocent or casual
the exchange may be and regardless of the setting, whether business or social.  

      Certain  transactions  require prior approval from the Dutch (or European)
competition   authority.   They  include   transactions   whereby  two  or  more
undertakings  merge,  or set up a  joint  venture,  or an  undertaking  acquires
control over another, subject to a number of minimum turnover criteria.         

      Undertakings and their (de facto) managers can be fined for infringing the
competition  rules.  Undertakings  can be  fined up to 10% of the  annual  group
worldwide  turnover and (de facto)  managers can be fined up to (euro)  450,000.
Fines can also be imposed  when  undertakings  do not  cooperate  with the Dutch
competition authority.                                                          

      The above is merely a general outline of the competition  rules,  for more
information  and specific  guidelines  regarding  competition  law, please ask a
supervisor,  a Managing Director,  the General Counsel or the Chairperson of the
Audit Committee of the Supervisory Board.                                       

13.   PROTECTION AND PROPER USE OF COMPANY ASSETS                               

      All  employees  are  expected  to protect  our  assets  and  ensure  their
efficient  use.  Theft,  carelessness  and  waste  have a direct  impact  on our
profitability.  Our  property,  such as  office  supplies,  computer  equipment,
buildings,  and products,  are expected to be used only for legitimate  business
purposes, although incidental personal use may be permitted. Employees should be
mindful of the fact that we can retain the right to access,  review, monitor and
disclose any  information  transmitted,  received or stored using our electronic
equipment, with or without an employee's or third party's knowledge,  consent or
approval.  Any  misuse or  suspected  misuse of our assets  must be  immediately
reported to your  supervisor,  a Managing  Director,  the General Counsel or the
Chairperson of the Audit Committee.                                             

14.   CONFIDENTIALITY                                                           

      One  of  our  most  important  assets  is  our  confidential  information.
Employees who have received or have access to  confidential  information  should
take care to keep this information  confidential.  Confidential  information may
include   business,   technical,   marketing,   and  service  plans,   financial
information, product specifications or architecture,  source codes, engineering,
and manufacturing ideas, designs, databases, customer lists, pricing strategies,
personnel data, personally identifiable information pertaining to our employees,
customers  or other  individuals  (including,  for  example,  names,  addresses,
telephone numbers and social security numbers), and similar types of information
provided to us by our customers, suppliers and partners. This information may be
protected by privacy, patent, trademark, copyright and trade secret laws.       

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      You  should  also take  care not to  inadvertently  disclose  confidential
information.  Materials that contain  confidential  information,  such as memos,
notebooks,  computer  disks and  laptop  computers,  should be stored  securely.
Unauthorized  posting or discussion of any information  concerning our business,
information or prospects on the Internet is prohibited.  You may not discuss our
business, information or prospects in any "chat room," regardless of whether you
use  your  own  name or a  pseudonym.  Be  cautious  when  discussing  sensitive
information  in  public  places  like  elevators,   airports,   restaurants  and
"quasi-public"  areas  within  ICTS,  such  as  cafeterias].  All  ICTS  emails,
voicemails and other communications are presumed  confidential and should not be
forwarded or otherwise  disseminated  outside of ICTS, except where required for
legitimate business purposes.                                                   

      During the employment as well as after its  termination the employee shall
treat as  strictly  confidential  and not  disclose  to third  parties,  whether
directly or indirectly, in any form or manner whatsoever,  any information which
has come to his/her  knowledge  regarding  the  business  and  interests of ICTS
and/or  affiliated  companies  and  businesses  and/or its  customers  and other
business  relations,  all this in the broadest  sense,  unless the  discharge of
his/her duties under the employment  requires the disclosure of such information
to third parties on a need-to-know basis.                                       

      In the event  that the  employee  is  suspended  and upon  termination  of
his/her  employment  the employee  shall at ICTS's first  request to that effect
surrender  to ICTS all  property  of ICTS in his/her  possession  as well as all
documents which in any way whatever relate to ICTS and/or  affiliated  companies
and/or its  customers  and other  business  relations,  all this in the broadest
sense, as well as all copies of such documents  (whether or not recorded on data
carriers) and property.                                                         

      In addition to the above responsibilities, if you are handling information
protected by any privacy  policy  published  by us, such as our website  privacy
policy,  then you must handle that  information  solely in  accordance  with the
applicable policy.                                                              

15.   MEDIA/PUBLIC DISCUSSIONS                                                  

      It is our policy to disclose material  information  concerning ICTS to the
public only through specific limited channels to avoid  inappropriate  publicity
and to ensure that all those with an  interest  in the company  will have equal.
access to  information.  All  inquiries  or calls  from the press and  financial
analysts should be referred to a Managing Director.                             

16.   WAIVERS                                                                   

      There  will be no  waivers  of this Code  unless an  exception  is made in
accordance with Section 18 of this Code.                                        

17.   COMPLIANCE STANDARDS AND PROCEDURES                                       

Compliance Resources                                                

      Your most  immediate  resource for any matter  related to the Code is your
supervisor. He or she may have the information you need, or may be able to refer
the question to another  appropriate  source.  There may, however, be times when
you prefer not to go to your  supervisor.  In these  instances,  you should feel
free to discuss your concern with a Managing  Director,  the General  Counsel or
the Chairperson of the Audit Committee.                                         

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Clarifying Questions and Concerns; Reporting Possible Violations    

      If you encounter a situation or are considering a course of action and its
appropriateness is unclear,  discuss the matter promptly with your supervisor, a
Managing  Director,  the  General  Counsel  or  the  Chairperson  of  the  Audit
Committee; even the appearance of impropriety can be very damaging and should be
avoided.                                                                        

      If you are aware of a suspected or actual  violation of Code  standards by
others,  you have a  responsibility  to report it. You are  expected to promptly
provide a compliance resource with a specific  description of the violation that
you believe has occurred,  including any  information you have about the persons
involved  and the time of the  violation.  Whether you choose to speak with your
supervisor,  a Managing Director,  the General Counsel or the Chairperson of the
Audit  Committee,  you should do so without fear of any form of retaliation.  We
will take prompt disciplinary action against any employee who retaliates against
you, up to and including termination of employment.                             

      Supervisors  must promptly  report any complaints or  observations of Code
violations to a Managing Director, the General Counsel or the Chairperson of the
Audit Committee.  A Managing Director, the General Counsel or the Chairperson of
the Audit  Committee  will  investigate  all reported  possible Code  violations
promptly and with the highest degree of  confidentiality  that is possible under
the  specific  circumstances.  Your  cooperation  in the  investigation  will be
expected.                                                                       

IF THE  INVESTIGATION  INDICATES  THAT A  VIOLATION  OF THE  CODE  HAS  PROBABLY
OCCURRED,  WE WILL TAKE SUCH  ACTION AS WE BELIEVE TO BE  APPROPRIATE  UNDER THE
CIRCUMSTANCES.  IF WE  DETERMINE  THAT AN  EMPLOYEE  IS  RESPONSIBLE  FOR A CODE
VIOLATION,  HE OR SHE  WILL  BE  SUBJECT  TO  DISCIPLINARY  ACTION  UP  TO,  AND
INCLUDING,  TERMINATION OF EMPLOYMENT OR SUMMARY DISMISSAL  ("ONTSLAG OP STAANDE
VOET")  AND,  IN  APPROPRIATE  CASES,  CIVIL  ACTION OR  REFERRAL  FOR  CRIMINAL
PROSECUTION.  APPROPRIATE  ACTION  MAY ALSO BE TAKEN TO DETER  ANY  FUTURE  CODE
VIOLATIONS.                                                                     

18.   SECTION 406 OFFICERS                                                      

      a) The Section 406 Officers shall supervise the implementation of measures
that are designed to ensure that information  disclosed in reports and documents
filed with or submitted to the Securities and Exchange Commission,  or contained
in other public communications made by ICTS, is full, fair, accurate,  complete,
timely and understandable.                                                      

      b) The Section 406 Officers  shall  promptly bring to the attention of the
Audit  Committee of the ICTS's  Supervisory  Board (the "Audit  Committee")  any
material  information  of which he or she may become aware that could affect the
disclosures made by ICTS in its public filings.                                 

      c) The Section 406 Officers  shall  promptly bring to the attention of the
Audit  Committee any  information he or she may have  concerning (i) significant
deficiencies  in the  design or  operation  of  internal  controls  which  could
adversely affect ICTS ability to record, process, summarize and report financial
data or (ii) any fraud,  whether or not material,  that  involves  management or
other  employees  who have a  significant  role in ICTS's  financial  reporting,
disclosures or internal controls.                                               

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      d) The Section 406  Officers  shall  promptly  bring to the  attention  of
ICTS's Corporate  Compliance  Officer and to the Audit Committee any information
he or she may have  concerning  any  violation  of this Code of Ethics or ICTS's
Business  Conduct  Guidelines by any director,  officer or other employee of the
Company.                                                                        

      e) The Section 406 Officers  shall  promptly bring to the attention of the
Corporate Compliance Officer and to the Audit Committee any material transaction
or relationship that arises and of which he or she becomes aware that reasonably
could be  expected  to give rise to an actual or  apparent  conflict of interest
between a director or senior  officer of ICTS, on the one hand, and ICTS, on the
other. Any failure of a Section 406 Officer to observe the terms of this Code of
Ethics or the Business Conduct Guidelines may result in appropriate disciplinary
action that shall be designed to deter wrongdoing and to promote  accountability
to this Code of Ethics and the Business Conduct Guidelines.                     

      The Audit Committee  shall be responsible  for  recommending to the ICTS's
Supervisory  Board  whether  and on what terms to grant to any ss. 406 Officer a
waiver of this Code of Ethics or the Business Conduct  Guidelines.  The decision
to grant to any ss. 406 Officer a waiver of this Code of Ethics or the  Business
Conduct  Guidelines shall be made by the Supervisory Board and shall be promptly
disclosed to the public and ICTS's  shareholders  in accordance  with applicable
law and listing standards.                                                      

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Acknowledgement Form                                                            

      All  employees,  officers and  directors of ICTS are required to sign this
acknowledgement  form  at the  time  their  employment  commences  and  annually
thereafter.                                                                     

      This Code describes  important  information  regarding  values and ethical
behavior at ICTS, and I understand  that I should consult the General Counsel or
a Managing  Director,  the  Chairperson  of the Audit  Committee  regarding  any
questions not answered in this Code.                                            

      Since the information  described here is necessarily  subject to change, I
acknowledge  that  revisions  to this Code may occur.  All such  changes will be
communicated through official notices, and I understand that revised information
may  supersede,  modify or eliminate  the existing  Code.  This Code may only be
changed as provided herein.                                                     

      I have received this Code and I understand that it is my responsibility to
read and comply with the  principles  contained  in this Code and any  revisions
made to it. I  understand  that by signing this I am  acknowledging  that I have
read this Code and any  violations of this Code will be subject to  disciplinary
action,  up to and including  termination  of  employment  or summary  dismissal
("ontslag op staande voet").                                                    

NAME (printed):                                                                 

SIGNATURE:                                                                      

DATE:                                                                           

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 POWER OF ATTORNEY AND PROXY

      The  undersigned,  hereby grants power of attorney and proxy,  jointly and
severally to:                                                                   

Avraham Dan                                                                     
Ran Langer                                                                      
Ranaan Nir                                                                      

for and in name, place and stead of the undersigned to attend the Annual General
meeting of  Shareholders  of ICTS  International  N.V., a public  company  whose
statutory seat and registered  office is in Amstelveen,  The Netherlands,  which
Annual General Meeting to be held at 10:00,  local time, on Wednesday,  December
23, 2009,  at the offices of the Company,  located at  Biesbosch  225,  1181 JC,
Amstelveen,  The Netherlands or any adjournment or adjournments thereof, and for
and in name,  place and stead of the  undersigned to sign at that Annual General
Meeting the attendance register,  to take part in all discussions,  to make such
proposals as the attorney may deem expedient,  and to exercise the right to vote
attached to the shares of the  undersigned as well as all other rights which may
be exercised at the Annual  General  Meeting on behalf of the  undersigned,  and
further to do and perform any and all acts relating to the  foregoing  which may
be useful or necessary and which the undersigned  might or could or should do if
personally present, all this with full power of substitution.                   

The Proposed Resolutions                                                        

Unless otherwise  indicated,  this Power of Attorney and Proxy confers authority
to vote "FOR" for the resolutions contained herein. The Management Board and the
Supervisory  Board  recommends  a vote of "FOR"  for the  resolutions  contained
herein.  This  proxy is  solicited  on  behalf of the  Management  Board of ICTS
International  N.V. and may be revoked prior to its exercise by a written notice
to the Chief Executive Officer of the Company.                                  

1. Adoption of the English language to be used for the annual accounts and      
annual reports of the Company.                                                  
FOR    AGAINST    ABSTAIN                                                       
[ ]      [ ]        [ ]                                                         

2. Adoption of the annual accounts of the fiscal year 2008.                     
FOR    AGAINST    ABSTAIN                                                       
[ ]      [ ]        [ ]                                                         

3. Election of three Managing Directors.                                        
FOR    AGAINST    ABSTAIN                                                       
[ ]      [ ]        [ ]                                                         

4. Election of six Supervisory Directors.                                       
FOR    AGAINST    ABSTAIN                                                       
[ ]      [ ]        [ ]                                                         

5. Ratification of appointment of Independent Auditors for the Company.         
FOR    AGAINST    ABSTAIN                                                       
[ ]      [ ]        [ ]                                                         

6. Discharge from liability of the Management and Supervisory Boards.           
FOR    AGAINST    ABSTAIN                                                       
[ ]      [ ]        [ ]                                                         

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If a natural person insert:  surname,  forenames,  full residential  address and
date of birth. If a body corporate insert:                                      

corporate name, place of registered  office,  full business address.  A power of
attorney given by a body corporate  must be signed by an  officer/officers  duly
authorized to represent the body corporate.  If necessary inspect the records of
the Chamber of  Commerce  where the body  corporate  is  registered,  and/or its
articles of association or by-laws.                                             

NOTE:  Signature(s)  should follow exactly the name(s) on the stock certificate.
Executor,  administrator,  trustee or guardian should sign as such. If more than
one trustee, all should sign. ALL JOINT OWNERS MUST SIGN.                       

Dated:           , 2009                                                         

By:                                                                             
------------------------------                                                  

Name:                                                                           
------------------------------                                                  

Title:                                                                          
------------------------------                                                  

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ICTS INTERNATIONAL, N.V.

Annual Report 
Year Ended December 31, 2008

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

 FORM 20-F

[_]   REGISTRATION  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934                                                

OR

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008             

OR

[_]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934                                                

OR

[_]   SHELL  COMPANY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
EXCHANGE ACT OF 1934                                                

Date of event requiring this shell company report . . . . . . .                 

 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)

 Avraham Dan, Tel: +31-20-3471077,
Email: dan@ictsusa.com, Address: Same as above
----------------------------------------------------------------------------- 
(Name, Telephone, E-mail and/or Facsimile number
and Address of Company Contact Person)

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

Title of each Class: None                                                       

Name of each exchange on which registered: None                                 

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

Common Shares, par value 0.45 Euro per share
----------------------------------------------------------------------------- 
(Title of Class)

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

None
-----------------------------------------------------------------------------   
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of    
capital or common stock as of the close of the period covered by the annual     
report: 6,528,100                                                               
---------                                                       

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.                                      

                                                        YES [_]     NO [X]

If this report is an annual or transition report,  indicate by check mark if the
registrant  is not required to file  reports  pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.                                            

                                                        YES [_]     NO [X]

Note - Checking the box above will not relieve any  registrant  required to file
reports  pursuant to Section 13 or 15(d) of the Securities  Exchange Act of 1934
from their obligations under those sections.                                    

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 whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter)  during the  preceding 12 months (or for such shorter  period that
the registrant was required to submit and post such files).                     

                                                        YES [X]     NO [_]

Indicate by check mark whether the registrant is a large  accelerated  filer, am
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):                                                                           

Large accelerated filer [_]   Accelerated filer [_]    Non-accelerated filer [X]

      Indicate by check mark which basis of accounting  the  registrant has used
to prepare the financial statements included in this filing:                    

U.S. GAAP [X] International Financial Reporting Standards as issued Other [_] by
the International Accounting Standards Board [_]                                

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      If "Other" has been checked in response to the previous question, indicate
by check mark which  financial  statement  item the  registrant  has  elected to
follow.                                                                         

                                                 Item 17 [_]   Item 18 [_]

If this is an annual report,  indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).                   

                                                        YES [_]     NO [X]

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY  PROCEEDINGS  DURING THE PAST
FIVE YEARS)                                                                     

      Indicate by check mark whether the  registrant has filed all documents and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.                                                           

                                                        YES [_]     NO [_]

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

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Table of Contents 

Part I                                                                          
------                                                                          
Item 1            Identity of Directors, Senior Management and Advisers         
Item 2            Offer Statistics and Expected Timetable                       
Item 3            Key Information                                               
Item 4            Information on the Company                                    
Item 5            Operating and Financial Review and Prospects                  
Item 6            Directors, Senior Management and Employees                    
Item 7            Major Shareholders and Related Party Transactions             
Item 8            Financial Information                                         
Item 9            The Offer 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                                       
Item 16A          Audit Committee Financial Expert                              
Item 16B          Code of Ethics                                                
Item 16C          Principal Accountant Fees and Services                        
Item 16D          Exceptions from Listing Standards for Audit Committees        
Item 16G          Corporate Governance                                          

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

Exhibits                                                                        
--------                                                                        
Exhibit 12.1      Certification                                                 

Exhibit 13.1      Certification                                                 

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PART I

Item 1. Identity of Directors, Senior Management and Advisers                   

Not Applicable

Item 2. Offer Statistics and Expected Timetable                                 

Not Applicable

Item 3. Key information.                                                        

Operations                                                          

      ICTS  International,   N.V.,  including  its  subsidiaries   (collectively
referred  to herein  as "ICTS" or "the  Company"),  is a  provider  of  aviation
security and other aviation  related  services  through  service  contracts with
airline companies, airport authorities and governments.                         

Selected Financial Data                                             

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

      The data reflects the results of  operations  and net assets of continuing
operations,   while  details  of  the  discontinued   operations  are  presented
separately.                                                                     

                        (U.S Dollars in thousands)
-----------------------------------------------------------------------------   
Continuing Operations          2008        2007      2006      2005     2004    
---------------------         -------     ------    ------    ------   ------   
Cash and cash equivalents     $ 3,750     $2,095    $1,743    $5,927   $3,224   
Current Assets                 16,571     15,771    17,444    24,962   23,529   
Total Assets                   25,396     24,230    26,425    31,676   37,507   
Current Liabilities            29,971     28,216    29,249    25,435   20,395   
Shareholders Equity                                                             
 (Deficiency)              (22,965)   (20,610)  (19,002)   (5,148)  21,506
-----------------------------------------------------------------------------   

Discontinued Operations                                                         
-----------------------                                                         
Total Assets                      --      $2,873      $130      $537  $17,455   
Total Liabilities              9,174      10,619    13,441    11,424    8,786   
-----------------------------------------------------------------------------   

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Selected Financial Data Statement of Operations                                 

      The following table  summarizes  certain  statement of operations data for
ICTS for the years ended December 31, 2008, 2007, 2006, 2005, and 2004:         

                                                        [Enlarge/Download Table]

                                                        (U.S Dollars in thousands except per share data)       
                                                                    Year ended December 31,                    
                                                 ------------------------------------------------------------- 
                                                    2008         2007         2006         2005         2004   
                                                 ---------    ---------    ---------    ---------    --------- 
                                                                                                               
Revenues                                           $98,809      $64,780      $60,791      $57,713      $57,993 
Cost of revenues                                    85,107       52,397       55,284       53,721       52,825 
                                                 ---------    ---------    ---------    ---------    --------- 
GROSS PROFIT                                        13,702       12,383        5,507        3,992        5,168 
Selling, General and administrative expenses        15,341       13,338       14,878       11,690       12,201 
                                                 ---------    ---------    ---------    ---------    --------- 
OPERATING LOSS                                      (1,639)        (955)      (9,371)      (7,698)      (7,033)
Other income (expense), net                           (856)      (3,580)         527         (761)      (3,359)
                                                 ---------    ---------    ---------    ---------    --------- 
LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN                                                                    
AFFILIATES AND INCOME TAXES                         (2,495)      (4,535)      (8,844)      (8,459)     (10,392)

Equity loss from investments in affiliates                       (2,479)        (132)        (486)      (1,625)

Income taxes benefits (expenses)                      (402)        (966)        (846)      (2,387)       1,529 
                                                 ---------    ---------    ---------    ---------    --------- 
LOSS FROM CONTINUING OPERATIONS                     (2,897)      (7,980)      (9,822)     (11,332)     (10,488)

Income (loss) from discontinued operations,                                                                    
  net of income tax benefit (expense) of                                                                       
  $(2), $2,470, $(2,476), $2,525 and                                                                           
  $1,655 in 2008, 2007, 2006, 2005 and                                                                         
  2004, respectively                                   928        5,422       (4,248)     (13,548)     (15,474)
                                                 ---------    ---------    ---------    ---------    --------- 

NET LOSS                                            (1,969)      (2,558)     (14,070)     (24,880)     (25,962)
                                                 =========    =========    =========    =========    ========= 

NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED:                                                                
Continuing Operations                               $(0.44)      $(1.22)      $(1.51)      $(1.74)      $(1.61)
Discontinuing Operations                              0.14         0.83        (0.65)       (2.07)       (2.37)
                                                 =========    =========    =========    =========    ========= 
Net Loss per share                                  $(0.30)      $(0.39)      $(2.16)      $(3.81)      $(3.98)
                                                 =========    =========    =========    =========    ========= 
Weighted average number of shares outstanding    6,528,100    6,528,100    6,528,100    6,528,100    6,524,250 
                                                 =========    =========    =========    =========    ========= 

COMPREHENSIVE LOSS                                                                                             
Net loss                                            (1,969)      (2,558)     (14,070)     (24,880)     (25,962)
Translation adjustment                                (487)          80         (399)      (1,560)       1,043 
Unrealized gain (loss) on marketable                                                                           
  equity securities                                                 497          104         (214)        (616)
                                                 ---------    ---------    ---------    ---------    --------- 
                                                      (487)         577         (295)      (1,774)         427 
                                                 ---------    ---------    ---------    ---------    --------- 
Comprehensive loss                                 $(2,456)     $(1,981)    $(14,365)    $(26,654)    $(25,535)
                                                 =========    =========    =========    =========    ========= 

Risk Factors                                                                    

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

Developments that have had a significant impact on our operations.  

      One major event in 2001 and early 2002 significantly  changed our business
operations:  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 United  States  Transportation  Security  Administration  ("TSA")  took over
aviation  security  services in the U.S. in November  2002.  As a result of this
event, we have limited aviation security operations in the U.S.                 

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      If we are unable to increase revenues from aviation security services, our
financial  condition  and results of  operations  will be  adversely  materially
affected.                                                                       

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

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

      If the TSA will claim such  difference  from Huntleigh and will prevail in
all of its contentions,  and none of Huntleigh's claims will be recognized, then
the Company may suffer a loss in an amount of approximately  $59.2 million.  The
Company is engaged in litigation with the FAA/TSA.  No provisions have been made
by the Company with respect to the above potential claims.                      

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

Potential liability claims                                          

      As a result of the September 11th  terrorist  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. The outcome of
these 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.                                                           

Losses in recent years                                              

      We incurred net losses of approximately $2.0, $2.6, $14.1, $24.9 and $26.0
million in 2008,  2007, 2006, 2005 and 2004  respectively.  We cannot assure you
that we can  achieve  profitability.  The losses  were  accompanied  by net cash
provided by (used in) operating activities of $3.9, $(3.6),  $(7.6),  $(5.2) and
$(1.2) million in 2008, 2007, 2006, 2005 and 2004, respectively, and at December
31, 2008 the  Company  had a working  capital  deficiency  of $15.3  million and
negative equity of $23.0 million. If we do not achieve new service contracts and
profitability,  the  viability  of our company will be in question and our share
price will likely decline.                                                      

Auditors' going concern opinion                                     

      In their  report,  our  auditors  have  expressed an opinion that there is
substantial doubt about our ability to continue as a going concern. As discussed
in the accompanying  audited financial statements at the year ended             

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December 31, 2008,  the Company had a total loss of $2.0 million,  a net working
capital  deficiency  of $15.3  million  and  shareholders'  deficiency  of $23.0
million.                                                                        

Loans from principal stockholder                                    

      Our  financing  activities  have  consisted  primarily  of loans  from our
principal  stockholder.  We do not  have  any  other  continual  commitments  or
identified  sources  of  additional  capital  from  third  parties.  There is no
assurance that our principal  stockholder  will continue  making loans to us and
even if loans are made,  there is no assurance  that the terms will be favorable
to the Company.                                                                 

IRS Audit                                                           

      The  Company's  U.S.  subsidiary,  ICTS  USA,  Inc and  Subsidiaries,  has
undergone an examination by the IRS for the years ended December 31, 2004,  2003
& 2002. The IRS has proposed a number of adjustments that collectively result in
an assessed tax liability and penalties of more than  approximately $7.3 million
plus interest. Management is vigorously contesting the proposed adjustments, and
has filed a "Protest"  with the IRS.  This matter will be heard by the Appellate
Division  of the IRS,  at which  time  management  will have an  opportunity  to
present its  position on the various  issues  raised at the  examination  level.
Management  has  provided  for  possible  tax  liabilities  resulting  from this
examination in its financial statements presented herein.                       

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 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.       

Major customers                                                     

   Our contracts with airports or airlines may be canceled or not renewed.

      Our revenues are primarily  provided from services  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.  In  addition  consolidation  in the airline  industry
could also result in a loss of  customers.  Any such  termination  or failure to
renew a contract with us could have a material  adverse effect on our results of
operations  and  financial  condition.  There is a material  contract  that will
expire in 2010 and the  Company is in the process of  negotiations  to renew the
contract.  If the negotiations will not be in the Company's favor it will have a
material adverse effect on the Company's financial results.                     

      If our relationship  with our major customers is impaired,  then there may
be a  material  adverse  affect  on our  results  of  operations  and  financial
condition.  Our major  customers  consist of the major  airlines  servicing  the
United States.  Currently our customers' financial results have suffered because
of the economic slowdown which affected our situation as service  provider.  The

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airline industry continues to encounter financial difficulties and this may have
a material adverse impact on our business.                                      

Development of new Technology                                       

      As part of our  technology  business  strategy,  we develop  technological
solutions  and systems for the  aviation  security  industry,  develop  security
activities  other  than  aviation  security,  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.                                                              

      We compete in a highly  competitive  industry and our  competitors  may be
more successful in developing new technology and achieving market  acceptance of
their products.                                                                 

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.                                               

Governmental regulation                                             

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

      The Security  Act has had a  significant  negative  impact on our aviation
security  business in the USA. In addition,  our ability to successfully  market
new systems will be dependent upon government  regulations over which we have no
control. Any existing or new regulation may cause us to incur increased expenses
or impose substantial  liability upon us. The likelihood of such new legislation
is  difficult  to  predict.  During  2007 the TSA took over part of  Huntleigh's
business  regarding  the ticket  checkers.  Annual loss of  revenues  due to the
business taking was approximately $5 million.                                   

Legislation designed to protect privacy rights.                     

      From time to time, personal identity databases and technologies  utilizing
such databases have been the focus of organizations  and individuals  seeking to
curtail or eliminate the use of personal  identity  information  technologies on

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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. 

Licenses for operations                                             

      A license  to  operate  is  required  from the  airport  authority  in the
airports in which we  currently  operate.  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.                                                                       

Litigation                                                          

      We are currently a defendant in several significant lawsuits,  the loss of
which could have a material adverse effect on the Company.                      

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.                                                                      

Limitations in price share                                          

      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.                             

Main shareholders activities                                        

      As of December 31, 2008, there are three main shareholders in the Company,
which own  together  approximately  78.2% of our shares  (excluding  options and
conversion rights). Their interests could conflict with yours; significant sales
of shares held by them could have a negative effect on our stock price.         

      Mr. Menachem  Atzmon, a director and chairman of the board of the Company,
as a representative of the Atzmon Family Trust,  owns or controls  approximately
56% of our issued and outstanding common stock (excluding options and conversion
rights). As a result of such ownership,  and/or control, the Atzmon Family Trust
is able to significantly  influence all matters requiring  shareholder approval,
including  the  election of  directors  and  approval of  significant  corporate
transactions.  Such  concentration  may also  have the  effect  of  delaying  or
preventing a change in control.                                                 

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Dividends                                                           

      We cannot  assure you that any  dividends  will be declared or paid on our
common stock.                                                                   

Laws in the Netherlands                                             

      As a Netherlands  "Naamloze  Vennootschap" (N.V.) public limited liability
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  December  17,  2008,  the date of such  authorization,  and has
authorized  the  Supervisory  Board to exclude or limit  shareholder  preemptive
rights with  respect to any issuance of common  shares prior to such date.  Such
authorizations  may be renewed by the general meeting of shareholders  from time
to time, for up to five years at a time.  This  authorization  would also permit
the issuance of shares in an acquisition,  provided that shareholder approval is
required in connection with a statutory  merger (except that, in certain limited
circumstances,  the board of  directors  of a  surviving  company may resolve to
legally  merge the company).  Shareholders  do not have  preemptive  rights with
respect to shares which are issued against payment other than in cash.          

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

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U.S. judgments may not be enforceable in the Netherlands            

      A  significant  number of our  activities  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
United  States  investors  will be able to enforce  any  judgments  in civil and
commercial  matters,  including  judgments  under the  federal  securities  laws
against us or members of the Management or Supervisory Board [or certain experts
named herein] who are residents of the  Netherlands or countries  other than the
United States.  In addition,  a court in the Netherlands  might not impose civil
liability on us or on the members of the Management or Supervisory  Boards in an
original action predicated solely upon the federal securities laws of the United
States brought in a court of competent jurisdiction in the Netherlands.         

Item 4. Information on the Company                                              

History and Development of the Company                              

      Unless the  context  indicates  otherwise,  all  references  herein to the
"Company" or "ICTS" include ICTS International N.V., and its subsidiaries.      

Aviation Security Business                                          

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

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

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Company  acquired all of the assets and assumed all of the  liabilities  of ICTS
International.                                                                  

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

      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 is not able to comply
with the  ownership  requirements  under the  Security  Act. The Security Act is
administered through 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 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 fully divested itself at that time from its European  operations,
except for its operations in the Netherlands and Russia.                        

      In February 2005, as the non-competition restrictions, related to the sale
of the European aviation security  operations as mentioned above,  expired,  the
Company made a strategic  decision to re-enter the  European  aviation  security
market. In March 2005 the Company  established a wholly owned subsidiary,  I-SEC
International  Security  B.V.,  under which all the European  aviation  security
activities provided by ICTS are operated.                                       

      Since 2005,  the company  re-entered  the  aviation  security  business in
Europe  by  signing  contracts  with  U.S.  certain  carriers.  Following  these
contracts I-SEC established new subsidiaries throughout Europe and the Far East,
in the Netherlands,  France, England,  Spain, Hungary,  Germany, Japan and other
countries.                                                                      

Leasing Business                                                    

      In the second quarter of 2002, the Company purchased  equipment and leased
it back to the sellers, an affiliated private Dutch company.                    

      In June 2005,  the company  granted  the lessee an option to purchase  the
equipment  for an amount of $5 million,  plus an amount  equal to a related loan
balance. The option was exercised in December 2005, and by that time the leasing
activities of the company were terminated.                                      

Entertainment Business                                              

      On December 23,  2003,  the Company,  through  wholly owned  subsidiaries,
purchased from ITA  International  Tourist  Attractions,  Ltd.,  ("ITA") certain
assets  owned  by ITA  and  used  by it in the  development,  establishment  and

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operation of motion-based  entertainment  theaters. The assets purchased consist
primarily of  intangible  property and certain  equipment.  ITA was a company in
which  a  principal  shareholder  of the  Company,  at the  time,  owned  in the
aggregate in excess of 50% of the shares.                                       

      Shortly after the facilities were opened,  and based on its  performances,
the Company's  management  revaluated these  investments and determined that the
forecasted cash flows from these projects will not cover the investments.  Based
on the fair value using  discounted cash flows model, the Company had recognized
impairment  losses in 2003 and 2004  totaling  $20.8 million with respect to its
entertainment investments.                                                      

      In 2005 the Company  decided to cease its operations in the  entertainment
business.  In early 2006,  the  Company  closed its  motion-based  entertainment
theater in Baltimore,  MD and its  multi-experience  motion-based  entertainment
theater  in  Atlantic  City,  NJ.  The  Company  is also a partner  (42.5%) in a
movie-based entertainment facility in Niagara Falls, NY.                        

Business Overview                                                   

General                                                             

      ICTS specializes in the provision of aviation security services. Following
the taking of its aviation  security business in the United States by the TSA in
2002, ICTS through its subsidiary  Huntleigh  engages  primarily in non-security
related activities in the USA.                                                  

      ICTS,  through  I-SEC  International  Security  B.V.  ("I-SEC"),  supplies
aviation security services at airports in Europe and the Far East.              

      In addition,  ICTS  develops  technological  systems and solutions for the
following  markets:  aviation  and non - aviation  security,  banking  and other
markets.                                                                        

Business Strategy                                                   

ICTS is currently pursuing the following business strategy:         

Developing Security Related Technology                              

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

Aviation Security Operations in Europe                              

      ICTS, through I-SEC,  supplies aviation security at airports, airlines and
governments  in Europe and the far east.  During 2008,  I-SEC was  contracted to
provide and extend the  security  services  it  provides to Schiphol  Airport in
Amsterdam ("Schiphol"). The contract is for a period of five years.             

      ICTS NAS, a partnership in which ICTS held 50% interest,  had one contract
serving Schiphol which expired in February 2008. ICTS NAS is being liquidated.  

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U.S. Operations                                                     

      ICTS  continues to provide  limited  security  services  and  non-security
aviation services in the U.S. through its subsidiary, Huntleigh.                

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,
operated manual devices,  consulting services,  public transportation,  security
consulting and training.                                                        

      Following the sale, ICTS primarily  provided advanced  passenger-screening
services in The  Netherlands  and Russia.  With its  reentry  into the  aviation
security  market,  I-SEC is offering  the same types of services as those listed
above to interested  clients, as well as additional,  new services.  The Company
has  completed  the  initial  phase of its  re-entry  and  penetration  into the
international  aviation security market. This phase, executed in parallel to the
expansion of the Company's existing operations in The Netherlands and in Russia,
includes the  establishment  of  subsidiaries  and the  provision of services at
international airports in London, UK; Paris, France; Barcelona, Spain; Budapest,
Hungary;  Edinburgh,  Scotland,  Narita,  Japan and others. I-SEC is supplying a
range  of  aviation   security   services  and   implementing   state-of-the-art
technologies  at these  locations  within the  framework of long-term  contracts
signed  with  various  airlines.  Following  this  recent  expansion,  I-SEC  is
providing services at a total of 13 locations.                                  

Consulting, Auditing and Training                                   

      ICTS,  through  I-SEC,   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.  The Company trains airline  employees to
screen  passengers  and to perform other  security  measures  through  extensive
courses and written training manuals.                                           

      Services  Offered  in the United  States.  Prior to the  enactment  of the
Security  Act,  Huntleigh  was one of the  leading  providers  of  security  and
non-security  aviation  services  in  the  United  States.  Huntleigh  currently
provides  limited  aviation  security  services and other  separate  services at
approximately 30 airports in 23 states.                                         

      The  limited  security  services   provided  by  Huntleigh   involves  the
following:                                                                      

            o     Charter  Flight   Screening  for  Airlines  -  which  includes
          security check of passengers' body and carry-on items.

            o     Cargo Security Screening - for some international and domestic
carriers.                                   

            o     Aircraft  Search - Search  of the  entire  aircraft  to detect
dangerous objects.                          

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      Each of the non-security  services involves one of the following  specific
job classifications:                                                            

Agent Services For Airlines                                         

      Agent services include:  passenger service, ground handling, vendor behind
counters and baggage  service.  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.  

Maintenance                                                         

Huntleigh provides workers that maintain equipment in airports.     

Queue Monitors                                                      

      Huntleigh   provide  queue  monitors   assisting   passengers  before  the
checkpoint.                                                                     

Aircraft Cleaning                                                   

      Huntleigh  provides  employees  who  perform  interior  aircraft  cleaning
services.                                                                       

Janitorial                                                          

      Huntleigh  provides to airline airport  offices,  airline  terminal areas,
airline gates, etc. cleaning (janitorial) services.                             

Ramp Services                                                       

Ramp services include:                                              

            o     directing  the  aircraft  into the  arrival  gate and from the
departure gate                              

o     cleaning the aircraft                             

o     conducting cabin searches                         

o     stocking supplies                                 

o     de-icing the aircraft and                         

            o     moving  luggage from one airplane to the baggage room and vice
versa.                                      

Shuttle Service                                                     

      Huntleigh  shuttles  airline  crews from their hotels to the aircraft back
and forth in airports.                                                          

Skycap Services Provider                                            

      A skycap assists passengers with their luggage. Located at the curbside of
the  check-in at  airports,  a skycap  checks in  passengers'  luggage and meets
security requirements established by the TSA to screen passengers. A skycap     

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also assists  arriving  passengers  with  transporting  luggage from the baggage
carousel to ground transportation or other designated areas.                    

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

Wheelchair attendants                                               

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

Baggage Handling Services                                           

      Huntleigh provides employees who move passengers'  baggage from the check-
in counter to screening  machines and/or vice versa, as well as moving oversized
baggage from check-in to appropriate bag belts.                                 

Technological Systems and Solutions                                 

APS                                                                 

      The accumulated  know-how and expertise of ICTS in the  implementation  of
computer-based  processors  for  advanced  passenger  screening  enabled ICTS to
develop  its  APS  technology  and  system.  The  APS  system  is  an  automated
computerized  system  that  enables  the  pre-departure  analysis  of  passenger
information  and is designed to screen  airline  passengers in a faster and more
efficient manner.                                                               

I-BOX                                                               

      I-BOX, a unique technological platform developed by the Company, comprises
one of the main  contributors  to  operational  efficiency of the Company and is
being used as part of our aviation  security  systems.  It is an advanced mobile
unit that can be implemented  with multiple  choices of software  packages.  The
I-BOX systems  provides an  unparalleled  level of  performance  while  reducing
processing  times to a minimum,  thus  eliminating  related  delays and avoiding
inconvenience to the passengers. The I-BOX system has been deployed successfully
in various  locations  around the world,  providing our customers  with enhanced
security operations.                                                            

Travel Documents Check                                              

      Travel  DocCheck (TDC) is the travel  industry's most reliable and easy to
operate system for automated clearing of travel document compliance. It verifies
that the  passengers'  travel  documents  fully comply with the  requirements of
countries of destination and transit prior to embarkation,  and also facilitates
the detection of forged travel  documents.  Automated  Travel Check enhances the
level of  security,  assists in  combating  illegal  immigration  and reduces or
mitigates associated civil penalties for airlines.                              

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Identity Document Authentication and Management System (FDI)        

      FDI is designed to speed-up  client  authentication  and  capture/retrieve
document data and images. FDI is a fully automated,  easy to operate,  front-end
client enrollment system.                                                       

Key features:                                                                   

o     Full page document scanning (automated or push-button)        

o     Hi-resolution document imaging                                

o     Photograph extraction                                         

o     Full content extraction                                       

      o     Multi-layer identity  authentication  (performance enabled by client
hardware capabilities)                                  

o     Simple indications                                            

      o     Ability to investigate  alerts,  carry out manual  double-checks and
investigate template and watch-list libraries           

      FDI works with a range of operating system environments and terminals with
minimal system requirements.                                                    

      The system can work with a wide range of document  scanners  (from  simple
scanners to full featured 3-illumination enterprise scanners) and links with any
type of biometric input device.                                                 

      FDI-equipped  terminals can work stand-alone or in real-time  network with
enterprise systems.                                                             

      Electronic Identity Document Authentication and Management System ("E-ID")

      E-ID is a fully  automated  system for  authentication  and  enrollment of
persons carrying electronic identity documents (ePassports, e-IDs/EMV cards).   

      E-ID  is   designed  to  speed-up   full  scope   client   authentication,
capture/retrieve  printed,  embedded and electronic  data, and capture  document
images.                                                                         

Key features:                                                                   

      o     Full capture of electronic chip data (in compliance with country and
industry regulations)                                   

o     Handling of all common electronic security standards          

o     Full page document scanning (automated or push-button)        

o     Hi-res document imaging                                       

o     Photograph extraction                                         

o     Full content extraction                                       

      o     Multi-layer identity  authentication  (performance enabled by client
hardware capabilities)                                  

o     Simple indications                                            

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      o     Ability to investigate  alerts,  carry out manual  double-checks and
investigate template and watch-list libraries           

      E-ID works with a range of operating  system  environments  and  terminals
with minimal system requirements.                                               

      The  system  can work  with a wide  range  of  document  scanners  (simple
scanners,  full  featured  3-illumination  enterprise  scanners),   self-service
kiosks,  with internal or external  biometric  chip readers,  and links with any
type of biometric input device.                                                 

      E-ID equipped  terminals can work stand-alone or in real-time network with
enterprise systems.                                                             

Smart Document reader (SDR)                                         

      SDR is a proprietary state-of-the-art software solution that automatically
extracts data from a variety of standard and non-standard  travel documents,  ID
documents,  E-ID  documents,  driver's  licenses,  airline  boarding  passes and
various mass transit tickets at extremely high levels of accuracy and speed. SDR
also implements  various advanced means and proprietary  checks to detect forged
documents.  It comprises a main component in many of the advanced  technological
systems offered by the Company.                                                 

Bank Client Security and regulatory Compliance Solution             

      ICTS,  through its subsidiary,  I-SEC  Technologies  B.V., offers a unique
front-end  solution  meeting  the banking  industry's  security  and  regulatory
compliance  requirements,  including  Section 326 of the USA Patriot Act,  while
also  ensuring  that bank  clients  are  provided  with a high level of customer
service. It is a fully automated banking check authentication  system.  Contrary
to  back-end  systems  offered  by  the  competitors,   our  front-end  solution
incorporates unique features, such as a dynamic questionnaire,  developed on the
basis of ICTS's  experience  in  detection of  suspicious  signs and in advanced
document checks.                                                                

Marketing of Security Systems and Technology                        

      ICTS market its  technologies  by  establishing  projects  with  Airports,
airlines, banks and other existing and potential customers.                     

Main Customers                                                      

      In 2008 ICTS had two main clients,  each one  constituting  10% or more of
the Company's consolidated revenues,  which accounted together for 55% of ICTS's
revenues.                                                                       

Sales                                                               

Sales in the U.S                                                    

      ICTS revenue in the USA during the years 2008, 2007 and 2006 totaled $40.4
million (41% of total revenue),  $46.7 (72% of total  revenue) and $46.8 million
(77% of total revenue) respectively.                                            

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Sales in Europe                                                     

      ICTS revenue in Europe during the years 2008,  2007 and 2006 totaled $58.0
million (59% of total revenue),  $17.3 (27% of total  revenue) and $13.7 million
(23% of total revenue) respectively                                             

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.                                      

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,  is
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,  a license to operate is required
from the  respective  airport  authority.  ICTS  currently  holds  the  licenses
required to operate in such locations.                                          

Organizational Structure                                            

      The following are the significant  subsidiaries of ICTS as of December 31,
2008:                                                                           

ICTS USA, Inc. (New York - 100%).                       

Huntleigh USA Corporation. (Missouri - 100%).           

            I-SEC   Technologies   B.V.   (the   Netherlands  -  100%)  and  its
subsidiaries (100%).                                    

            I-SEC  International  Security B.V. (The Netherlands - 100%) and its
subsidiaries (100%).                                    

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Property, Plant and Equipment                                       

      The Company leases  premises under  long-term  operating  leases,  in most
cases with renewal  options.  Lease expenses from continuing  operations for the
years ended December 31, 2008,  2007 and 2006 were $1.5,  $1.2 and $1.2 millions
respectively.                                                                   

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

Year Ended                                  
December 31, 2008                                   
-----------------                                   
2009                         $1,213     
2010                            822     
2011                            453     
2012                            134     
2013                              5     
                        ------
                        $2,627
                        ======

      During  2002,  subsidiaries  from the  Entertainment  segment  signed rent
contracts for 17 years.  As of December 2005, the company decided to discontinue
the  operations  of the  Entertainment  segment.  The Company has an accrual for
future rent,  regarding its  discontinued  Entertainment  operations.  The total
accruals  as of  December  31,  2008 and  2007  totaled  $7.3 and $8.5  million,
respectively.  The accruals  have been updated  according to the legal claims of
the landlord against the Company.                                               

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      

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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 in the provision of aviation  security  services.  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 Huntleigh provides limited aviation
security 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, and because of  non-competition  restrictions in the sale agreement,  ICTS
has fully divested itself at that time from its European operations,  except for
its operations in the Netherlands and Russia.                                   

      Following  the sale of its European  operations  in 2002 and the taking of
its aviation  security  business in the United  States by the TSA in 2002,  ICTS
engaged  in  the  U.S.  primarily  in  non-security  related  activities.  These
activities   consist  of  non-security   aviation   security  services  and  the
development of technological services.                                          

      In February 2005, as the non-competition  restrictions  expired in Europe,
the company made a strategic decision to re-enter the European aviation security
market.  Since then the company has signed contracts throughout Europe with U.S.
carriers and has established subsidiaries in different locations.               

Critical Accounting Policies                                        

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

      Please  refer  to  Note  2 of  ICTS's  consolidated  financial  statements
included  in this  Annual  Report for the year  ended  December  31,  2008 for a
summary of ICTS's significant accounting policies.                              

Use of Estimates                                                    

      The  preparation  of  financial  statements  in  conformity  with  US GAAP
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the dates of the financial statements and the reported amounts of
revenue  and  expenses  during  the  reporting  periods.  The  most  significant
estimates and  assumptions  relate to the (a)  calculation  of the allowance for
doubtful accounts, (b) recognition of contingent liabilities, (c) calculation of
income taxes,  (d)  impairment  evaluation of marketable  equity  securities and
equity method  investments and (e) calculation of stock-based  compensation  for
stock option grants. Actual results could differ from those estimates.          

Discontinued Operations:                                            

      1)    In  December  2005,  the  Company  sold  its  lease   equipment  and
terminated its business in the Lease segment.           

      2)    After reviewing the financial results of the Entertainment  segment,
          the Company decided in December 2005 to cease those operations. As

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            a result of this  decision,  as of December  31, 2008 and 2007,  the
            Company accrued $7.3 and $8.5 million, respectively, for future rent
            regarding  its  Entertainment  locations.  The amounts  were accrued
            according to claims the landlord prosecuted against the Company, and
which are under litigation.                             

      Pursuant to Statement of Financial  Accounting  Standard ("FAS") No.144 of
the  Financial  Accounting  Standard  Board of the United  States (the  "FASB"),
"Accounting  for the  Impairment  or Disposal of Long Lived Assets" in a case of
discontinued operations there has to be a separation in the Financial Statements
between  continuing  operations and the discontinued  operations - see note 3 in
the financial statements.                                                       

      Following this statement,  all the amounts that represent the discontinued
operations were presented separately from the continuing  operations,  including
the comparative numbers of the previous years.                                  

Functional and reporting currency                                   

      The  accompanying  information and consolidated  financial  statements are
presented in United  States  dollars in accordance  with  Statement of Financial
Accounting Standards ("SFAS") No 52, "Foreign Currency Translation." The Company
has determined that the functional  currency of its foreign  subsidiaries is the
local currency.  For financial reporting purposes, the assets and liabilities of
such subsidiaries are translated into United States dollars using exchange rates
in  effect  at the  balance  sheet  date.  The  revenue  and  expenses  of  such
subsidiaries  are translated  into United States dollars using average  exchange
rates in effect during the reporting period.  Resulting translation  adjustments
are  presented  as  a  separate  category  in  shareholders'  deficiency  called
accumulated other comprehensive loss.                                           

      Since  2007  the  activities  in  Europe  increased  materially.   As  the
functional  currency  in most of Europe is the Euro,  the  Company is exposed to
foreign currency  fluctuations  based on the exchange rate fluctuations  between
the Euro and the Dollar.                                                        

Principles of Consolidation                                         

      The consolidated financial statements include the accounts of ICTS and its
wholly-owned  subsidiaries.  All  significant  intercompany  balances  have been
eliminated in consolidation.                                                    

Accounts Receivable                                                 

      Accounts  receivable  represent  amounts due to the  Company for  services
rendered.  The Company  provides an  allowance  for  doubtful  against  accounts
receivable to estimate losses  resulting from  customers'  inability to pay. The
allowance for doubtful  accounts is based on historical  collection  experience,
factors related to a specific customer and current economic trends.  The Company
written off accounts receivable against the allowance for doubtful accounts when
the balance is determined to be uncollectible.                                  

Comprehensive Loss                                                  

      The Company  reports  comprehensive  loss in accordance with SFAS Nb. 130,
"Reporting  Comprehensive Income" ("SFAS 130"). SFAS 130 requires the disclosure
of  comprehensive  income  (loss) to  reflect  changes in  shareholders'  equity

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(deficiency)  that result from  transactions  and economic events from non-owner
sources.  The  Company's  comprehensive  loss  consists  of its net loss of $2.0
million, $2.6 million and $14.1 million, foreign currency translation adjustment
of $(487),  $80 and $(399)  and  unrealized  gain  (loss) on  marketable  equity
securities of $0, $497 and $104, for the years ended December 31, 2008, 2007 and
2006, respectively.                                                             

Revenue Recognition                                                 

      Revenue  is  recognized  as  services  are  rendered,  based on the  terms
contained  in the  contractual  arrangements,  provided  the  fee is  fixed  and
determinable,  the services have been  rendered,  and  collection of the related
receivable is reasonably assured.                                               

Cost of Revenue                                                     

      Cost of revenue represents  primarily payroll and related costs associated
with employees who provide services under the terms of the company's contractual
arrangements. Such costs are recognized as services are provided.               

Legal Proceedings                                                   

United States Transportation Security Administration                

      In February 2002, one of the Company's subsidiaries was awarded a security
services  contract  (the "TSA  Contract")  by the United  States  Transportation
Security  Administration ("TSA") to continue to provide security services in all
of its  current  airport  locations  until the  earlier of either the  completed
transition of these  security  services on an airport basis to the U.S.  Federal
Government or November  2002. In accordance  with the terms of the TSA Contract,
the U.S.  Federal  Government  provided the Company with a non-interest  bearing
advance of $26 million which was payable to the TSA in monthly  installments  of
$1.3 million commencing in April 2002. Through December 31, 2008, the subsidiary
has repaid $11.7 million of the advance. As of December 31, 2008, the amount due
from the TSA with respect to services  provided  under the TSA Contract is $17.3
million.  The  Company  has  reflected  the amount due from the TSA,  net of the
remaining unpaid advance,  of $3 million as other receivable on the accompanying
consolidated balance sheet as of December 31, 2008 and 2007.                    

      The TSA filed a contract dispute with the Office of Dispute Resolution for
Acquisition  ("ODRA") in connection with the TSA Contract seeking  reimbursement
of an alleged  overpayment  of  principal in the amount of $59.2  million.  This
claim follows a lawsuit which the Company's subsidiary had already filed against
the TSA for repeated breach of contract.  The Company's subsidiary is vigorously
challenging  the TSA's  claim which it asserts is devoid of any factual or legal
merit. The TSA's filing comes on the heels of a recent decision by ODRA granting
the subsidiary's  motion for partial summary judgment against the TSA for breach
of contract  by failing the give  appropriate  notice for the  transitioning  of
airport  locations.  A separate  hearing will be held to determine the amount of
damages due to the  subsidiary on this claim.  With respect to the claim for the
$59.2  million  overpayment,  the  subsidiary  has filed a motion to dismiss the
action which has been denied.  Both claims are now in mediation.  At this stage,
Management is unable to determine the outcome of the dispute or estimate a range
of  potential  loss.  Accordingly,   no  provision  has  been  included  in  the
accompanying  consolidated  balance sheet related to this matter.               

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United States Department of Labor                                   

      During 2003, the United States  Department of Labor ("DOL")  finalized its
audit of the pay  rates  used to  compensate  employees  for  services  rendered
pursuant  to the TSA  Contract.  The DOL  concluded  that in certain  instances,
employees had not been paid the correct base rate, fringe benefits, vacation and
holiday pay. A long-term  liability of $7.3 million was  recognized  for the DOL
claim as of December  31,  2006.  The DOL claim was  settled  during 2007 for $3
million, payable with the proceeds received from any settlement with the TSA. As
a result of the  settlement  with the DOL, the Company  recorded  income of $4.3
million  during  the year ended  December  31,  2007,  which is  reflected  as a
reduction  in cost of  revenue.  As of December  31, 2008 and 2007,  a long-term
liability  to the DOL of $3 million is reflected  in  accompanying  consolidated
balance sheet.                                                                  

September 11, 2001 Terrorist Attacks                                

      As a result of the September 11, 2001 terrorist attacks, numerous lawsuits
charging the Company with wrongful death and/or  property  damage were commenced
in the United States District Court,  Southern  District of New York,  resulting
from certain airport security  services  provided by one of its subsidiaries for
United  Flight 175 out of Logan  Airport in Boston,  Massachusetts.  A number of
these cases have been settled,  are in the process of being settled or have been
dismissed at no cost to the Company.                                            

      The Company may be  indemnified by the airlines if the Company is found to
have followed the procedures  specified by the Federal Aviation  Administration.
However,  if the Company is found to have violated these screening  regulations,
it could be liable for  damages.  Based on an  internal  review of this  matter,
Management  has not found any  evidence of  non-compliance  with  respect to the
security services provided at Boston's Logan International  Airport on September
11, 2001.                                                                       

      The Company  maintains  an aviation  insurance  policy,  which may provide
limited  coverage for liabilities  that may be assessed against the Company as a
result of the events of September 11, 2001.  The  liabilities  under these cases
may, by statute,  be limited to the policy  coverage.  After the September  11th
terrorist  attacks,  the  Company's  insurance  carriers  canceled  all war risk
provisions contained in the Company's insurance policies.                       

      Management is unable to determine the likelihood of an unfavorable outcome
or estimate a range of loss with respect to the  remaining  open claims  against
the Company.  Accordingly,  no provision has been  included in the  accompanying
balance sheet related to these matters.                                         

The United States Government                                        

      The Company had commenced an action  against the United States  Government
with  respect  to its  Fifth  Amendment  rights  relating  to the  taking of its
business. In December 2004, the United States Government's motion to dismiss the
case was denied.  A motion for  reconsideration  was also filed by the defendant
and  denied.  The trial for this  action was held and in March  2007,  the court
ruled against the Company's action. The Company appealed the decision and in May
2008,  the United States Court of Appeals for the Federal  Circuit  affirmed the
lower court's ruling.  In addition,  the Company appealed the case to the United
States Supreme Court, which denied certiorari.                                  

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Audiovisual-Washington, Inc.                                        

      In September 2005, Avitecture, Inc. (a/k/a  Audiovisual-Washington,  Inc.)
("Avitecture")  filed a Demand for Arbitration and Mediation  against one of the
Company's  subsidiaries with the American  Arbitration  Association in Somerset,
New  Jersey.  The  Demand  for  Arbitration  alleges  that the  subsidiary  owes
Avitecture  $0.2  million  for audio,  video and control  systems.  The case was
decided  against the Company's  subsidiary in an arbitration  proceeding,  which
resulted in an award to Avitecture of $0.2 million.  The  arbitrator's  decision
was affirmed by the Superior  Court of New Jersey in May 2007 and the  Appellate
Court in February  2008.  The Company has $0.2  million in accrued  expenses and
other  current  liabilities  related to this matter as of December  31, 2008 and
2007.                                                                           

Turner Construction Company                                         

      In November 2005, Turner  Construction  Company  ("Turner") filed a Demand
for Arbitration and Mediation against one of the Company's subsidiaries with the
American  Arbitration  Association  in  Somerset,  New  Jersey.  The  Demand for
Arbitration  alleges that pursuant to a written agreement dated in October 2003,
the subsidiary owes Turner $0.9 million for work and/or services  performed.  In
an arbitration  proceeding,  the  arbitrator  awarded Turner $956 plus interest.
This award was  affirmed on appeal.  In October  2007,  the  subsidiary  filed a
petition of bankruptcy with the New Jersey  Superior Court,  which dismissed the
action again the  subsidiary  without  prejudice  as a result of the  bankruptcy
filing.  In anticipation  of Turner  attempting to reinstate or reopen the case,
the Company  elected not to release the $1.0 million  previously  established in
accrued expenses and other current  liabilities related to this matter. To date,
Turner has not moved to reinstate or reopen the case.                           

Landlord Claims                                                     

      Two of the Company's  subsidiaries have been sued by their landlord (which
is the same  entity for both  properties)  alleging  breach of their  respective
leases.  One suit is in the Circuit  Court of Baltimore  and the other is in the
Superior Court of New Jersey. The landlord is seeking unpaid rent for the entire
terms of the  leases  for $2.6  million in  Atlantic  City,  New Jersey and $3.7
million in Baltimore,  Maryland, plus legal fees. The Company filed a bankruptcy
petition for both of the subsidiaries. However, the landlord was able to prevail
in one of the claims  because of a guarantee  given by the Company in connection
with the lease in one of the  locations.  In January  2008,  a  judgment  in the
amount of $2.6 million was awarded in favor of the landlord.  The subsidiary has
filed an appeal to challenge the judgment. As of December 31, 2008 and 2007, the
Company  has $7.3 and  $8.5  million,  respectively  in other  liabilities  from
discontinued  operations.  The  reduction  in the  Company's  reserve  for these
matters is based on changes in the claims  against the Company and is  presented
as part of discontinued operations.                                             

Fraport A.G. International Airport Services Worldwide               

      The Company  was in a dispute  with  Fraport  A.G.  International  Airport
Services  Worldwide  over the  alleged  unlawful  use of the letter  combination
"ICTS" by the Company.  Fraport initiated  proceedings before the district court
of Amsterdam. The principal amount claimed was (euro)57.7 million ($80.8 million
as of December 31, 2008). This dispute was settled in 2008 without any liability
to the Company.                                                                 

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General                                                             

      The  Company  is  subject  to  various  investigations,  claims  and legal
proceedings  covering a wide range of matters that arise in the ordinary  course
of its business  activities.  These claims are  primarily  related to grievances
filed  by  current  and  former   employees   for  unfair  labor   practices  or
discrimination,  and for  passenger  aviation  claims.  Management  recognizes a
liability for any matter when the likelihood of an unfavorable outcome is deemed
to be probable and the amount is able to be reasonably estimated. Management has
concluded that such claims, in the aggregate,  would not have a material adverse
effect on the Company's consolidated financial position,  results of operations,
or cash flows.                                                                  

Selected Financial Data Statement of Operations                     

      The following table  summarizes  certain  statement of operations data for
ICTS for the years ended December 31, 2008, 2007, 2006, 2005, and 2004:         

                                                        [Enlarge/Download Table]

                                                           (U.S Dollars in thousands except per share data)            
                                                                         Year ended December 31,                       
                                                 --------------------------------------------------------------------- 
                                                    2008           2007           2006           2005           2004   
                                                 ---------      ---------      ---------      ---------      --------- 
                                                                                                                       
Revenues                                           $98,809        $64,780        $60,791        $57,713        $57,993 
Cost of revenues                                    85,107         52,397         55,284         53,721         52,825 
                                                 ---------      ---------      ---------      ---------      --------- 
GROSS PROFIT                                        13,702         12,383          5,507          3,992          5,168 
Selling, General and administrative expenses        15,341         13,338         14,878         11,690         12,201 
                                                 ---------      ---------      ---------      ---------      --------- 
OPERATING LOSS                                      (1,639)          (955)        (9,371)        (7,698)        (7,033)
Other income (expense), net                           (856)        (3,580)           527           (761)        (3,359)
                                                 ---------      ---------      ---------      ---------      --------- 
LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN                                                                            
AFFILIATES AND INCOME TAXES                         (2,495)        (4,535)        (8,844)        (8,459)       (10,392)

Equity loss from investments in affiliates                         (2,479)          (132)          (486)        (1,625)

Income taxes benefits (expenses)                      (402)          (966)          (846)        (2,387)         1,529 
                                                 ---------      ---------      ---------      ---------      --------- 
LOSS FROM CONTINUING OPERATIONS                     (2,897)        (7,980)        (9,822)       (11,332)       (10,488)

Income (loss) from discontinued operations,                                                                            
  net of income tax benefit (expense) of                                                                               
  $(2), $2,470, $(2,476), $2,525 and                                                                                   
  $1,655 in 2008, 2007, 2006, 2005 and                                                                                 
  2004, respectively                                   928          5,422         (4,248)       (13,548)       (15,474)
                                                 ---------      ---------      ---------      ---------      --------- 

NET LOSS                                            (1,969)        (2,558)       (14,070)       (24,880)       (25,962)
                                                 =========      =========      =========      =========      ========= 

NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED:                                                                        
Continuing Operations                               $(0.44)        $(1.22)        $(1.51)        $(1.74)        $(1.61)
Discontinuing Operations                              0.14           0.83          (0.65)         (2.07)         (2.37)
                                                 =========      =========      =========      =========      ========= 
Net Loss per share                                  $(0.30)        $(0.39)        $(2.16)        $(3.81)        $(3.98)
                                                 =========      =========      =========      =========      ========= 
Weighted average number of shares outstanding    6,528,100      6,528,100      6,528,100      6,528,100      6,524,250 
                                                 =========      =========      =========      =========      ========= 

COMPREHENSIVE LOSS                                                                                                     
Net loss                                            (1,969)        (2,558)       (14,070)       (24,880)       (25,962)
Translation adjustment                                (487)            80           (399)        (1,560)         1,043 
Unrealized gain (loss) on marketable                                                                                   
  equity securities                                                   497            104           (214)          (616)
                                                 ---------      ---------      ---------      ---------      --------- 
                                                      (487)           577           (295)        (1,774)           427 
                                                 ---------      ---------      ---------      ---------      --------- 
Comprehensive loss                                 $(2,456)       $(1,981)      $(14,365)      $(26,654)      $(25,535)
                                                 =========      =========      =========      =========      ========= 

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

                                                     Year Ended December 31,
                                                    --------------------------
                                                    2008      2007      2006
                                                    ------    ------    ------
Revenues ........................................     100 %     100  %     100 %
Cost of revenues.................................    86.1 %     80.9 %    90.9 %
Gross profit.....................................    13.9 %     19.1 %     9.1 %
Selling, general and administrative expenses.....    15.5 %     20.6 %    24.5 %
Operating loss...................................    (1.7)%     (1.5)%   (15.4)%
Loss from continuing operations..................    (2.9)%    (12.3)%   (16.2)%
Income (Loss) from discontinued operations.......     0.9 %       8.4%    (7.0)%
Net loss for the year.......................         (2.0)%     (3.9)%   (23.1)%

      The following information  represents only the results of the Company from
continuing operations unless mentioned otherwise.                               

      Year Ended  December  31, 2008  Compared to Year Ended  December  31, 2007
(U.S. Dollars in thousands unless otherwise indicated)                          

      Revenues. Revenues for the year ended December 31, 2008 were $98.8 million
(2007:  $64.8 million)  consisted of $40.4 million (2007: $46.7 million) from US
operations,   $44.2  million  (2007:   $7.6  million)  from  operations  in  The
Netherlands,  $6.4 million  (2007:  $4.8 million) from  operations in France and
$7.8 ,million (2007: $5.7 million) from operations in other locations.          

      The decrease in the revenues from the  operations in the US relates mostly
to the fact that since the fourth quarter of 2007 the TSA operates the checks of
the boarding  authorization  of passengers and the comparison to the passengers'
IDs before  allowing  the  passengers  to pass through the  checkpoint.  Loss of
revenues for the Company is approximately $5 million for 2008.                  

      Increase  in the  revenue  from The  Netherlands  relates  mainly to a new
contract with Schiphol Airport which added $34.4 million to the revenues.       

      Increase  in the  other  locations  was  the  result  of  increase  in new
contracts and more volume at existing locations.                                

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

      Gross profit for the year ended December 31, 2008 was $13.7 million, 13.9%
as percentage of revenue (2007: $12.4 million, 19.1% as percentage of revenue). 

      In 2007 an amount  of $4.3  million  reduced  the cost of  revenues  which
relates to the agreement of the Company with the DOL. This amount  increased the
2007 gross profit by the $4.3  million.  The 2007 gross profit  without the $4.3
million would be $8.1 million,  12.5% as percentage of revenues. The increase in
the 2008 gross  profit  excluding  the $4.3  million,  comparing to last year is
mainly because of the increase of revenue from the aviation security  operations
which maintains higher margin  associated with the service provided than the non
aviation security operations.                                                   

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      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative expenses were $15.3 million for the year ended December 31, 2008,
15.5%  as  percentage  of  revenues,  as  compared  to $13.3  million,  20.6% as
percentage of revenue for the year ended December 31, 2007.                     

      The 2007 SG&A expenses included $1.1 million expense  regarding  potential
penalties  resulting  from IRS audit for the years 2002 - 2004,  comparing  to a
penalty  reduction  of  $0.2  million  in 2008  recorded  as part of the IRS tax
accrual examination by the Company's tax advisors. The SG&A expenses, net of the
IRS penalties,  totaled $15.5 million in 2008 compared to $12.2 million in 2007.
The increase in the SG&A  expenses in 2008 relate  mainly to the increase of the
aviation security operations in Europe.                                         

      Operating  Loss.  Operating  loss for the year ended December 31, 2008 was
$1.6 million compared to operating loss of $1.0 million in 2007.                

      Other Income  (Expenses),  Net.  Other expense for the year ended December
31, 2008 totaled $0.9 million  compared to $3.6 million in 2007.  Other  expense
for the year 2008 relates to the following:                                     

      (a) Income of $0.4 million  relates to  agreement  between the Company and
Bilu which  released ICTS from  guarantees  that were provided by the Company in
the past and were fully accrued for.                                            

      (b) Financial expenses net in 2008 were $1.3 million (2007: $3.3 million).
Financial  expenses of $0.5 million  compared to 2.2 million in 2007,  relate to
estimated  interest for previous years possible tax exposure in the US. Interest
expenses to related  parties  totaled $0.3 million,  both in 2008 and 2007.  The
interest  is  calculated  according  to the loan terms - Libor  plus  1.5%.  The
outstanding  loan as of  December  31,  2008 was $6.1  million  compared to $6.5
million in 2007.                                                                

      (c) Other expenses in 2007 of $0.3 million included profit of $0.3 million
from  investments  that  were  fully  impaired  in  the  previous  years  and an
impairment of the investment in Plangraphics which totaled $0.6 million.        

      Taxes on Income.  Tax expenses in 2008  totaled  $0.4 million  compared to
$1.0  million in 2007.  The Company  expensed in 2008 an amount of $0.2  million
regarding the 2002-2004 IRS audit compared to $0.7 million in 2007.             

      Share in Losses of Associated Companies. During 2007 the Company wrote off
all its  investments in associated  companies.  As a result of that the share in
loss of associated companies in 2008 was zero compared to $2.5 million in 2007. 

      Loss for Continuing  Operations.  ICTS's loss from  continuing  operations
totaled in 2008 $2.9 million compared to $8.0 million in 2007.                  

      Profit from  Discontinued  Operations.  ICTS's  profit  from  discontinued
operations totaled $0.9 million compared to profit of $5.4 million in 2007.     

      Against the Company there are two legal claims  outstanding  regarding its
discontinued  operations.  The Company  has fully  accrued for the claims of the
landlord regarding the two sites of the entertainment operations. As of December
31, 2008 and 2007 the total  accruals were $7.3 and $8.5 million,  respectively.
The change of $1.2 million on the  accruals was recorded  based on the change in
the  claims.  In 2007 the  Company  recognized  similar  income of              

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$1.6  million  following  the  changes in the claims  between the years 2007 and
2006.  The 2007 amount  included also $2.8 million  relating to refund  received
from the IRS in the USA.                                                        

      Net Loss.  As a result  of the  foregoing,  ICTS's  losses  amounted  $2.0
million  for  the  year  2008,  compared  to  $2.6  million  for  2007.  As  for
geographical segments, see note 15 in the financial statements of the Company.  

      Year Ended  December  31, 2007  Compared to Year Ended  December  31, 2006
(U.S. Dollars in thousands unless otherwise indicated)                          

      Revenues. Revenues for the year ended December 31, 2007 were $64.8 million
(2006:  $60.8  million),  consisted of $46.7 million (2006:  $46.8 million) from
U.S.  operations,  $7.6 million  (2006:  $7.2  million)  from  operations in the
Netherlands,  $4.8 million  (2006:  $3.4 million) from  operations in France and
$5.7 million (2006: $3.3 million) from other operations.                        

      The increase in other  operations is because of the  penetration  of I-SEC
into new  countries in Europe.  ICTS expects that the revenues from the European
activities will grow materially in the next few years.                          

      Almost all revenues in the U.S.  are derived  from non  aviation  security
services.                                                                       

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

      Gross profit for the year ended December 31, 2007 was $12.4 million, 19.1%
as a  percentage  of  revenue  (2006:  $5.5  million,  9.1% as a  percentage  of
revenue).  The increase in gross profit as a percentage of revenues is primarily
attributed  to an amount of $4.3  million  reducing  the cost of revenue of 2007
with regards to the  agreement  of the Company with the DOL. In previous  years,
the Company accrued an amount of $7.3 million liability for the DOL claim.      

      During 2007,  the Company has reached an  agreement  with the DOL of which
its maximum exposure will be $3 million,  payable after the Company will reach a
settlement  with the TSA.  Following this agreement,  the Company  decreased its
cost of revenue by $4.3  million.  The gross profit  excluding  the deduction of
this amount totaled $8.1 million,  12.5% as a percentage of revenue comparing to
9.1% in 2006. The additional change was achieved mainly based on the increase of
the  security  operations  in Europe  during  2007,  which  has a higher  margin
associated with the service provided.                                           

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative expenses were $13.3 million for the year ended December 31, 2007,
20.6% as a percentage  of  revenues,  as compared to $14.9  million,  24.5% as a
percentage  of  revenues  for the year ended  December  31,  2006.  This  amount
includes $880 legal expenses  regarding the "taking case" and the TSA litigation
compared to $3.5 million in 2006.  The increase in the SG&A  expenses  after the
deduction  of the legal  expenses  ($12.4  million in 2007  compared to $11.4 in
2006) was  generated  mainly  from the  increase in the SG&A  expenses  from the
security  operations  in Europe  which grew $1.8 million in 2007  following  the
increase of the revenues of the European activities.                            

      The 2007  SG&A  expense  also  includes  $1.1  million  expense  regarding
potential penalties resulting from the IRS audit for the years 2002-2004.       

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      Operating  Loss.  Operating  Loss for the year ended December 31, 2007 was
$955 compared to operating loss of $9.4 million in 2006.                        

      Other Income  (Expenses),  Net. Other expenses for the year ended December
31, 2007 totaled  $3,580  compared to income of $527 in 2006. The other expenses
relate to the following:                                                        

      (a)  Financial  expenses-net  were $3,334,  compared to $714 in 2006.  The
Financial  expenses  included  in 2007 an  expense of $2,179  estimated  accrued
interest  regarding  possible  tax  exposure  in the U.S.  for  previous  years.
Interest expenses to related party totaled $285 in 2007 compared to $88 in 2006.
The interest is  calculated  according to the loan terms - Libor plus 1.5%.  The
outstanding loan as of December 31, 2007 was $6,528 compared to $2,652 in 2006. 

      (b) During  2007,  the  interest  expenses  from the  European  activities
totaled $189 compared to $30 in 2006. The increase was mainly  attributed to the
financing  needs of the Company for the  expansion of its operation by using its
credit line.                                                                    

      (c) Gain from sale of investments totaled $349 in 2007 compared to $576 in
2006.                                                                           

      (d) During 2007 the  Company has fully  impaired  its  investment  in Plan
Graphics which totaled $600.                                                    

      (e) In 2006 the Company  recognized  a profit of $665  regarding  deposits
that were fully accrued in the past related to the Bilu investment and were paid
back to the Company.                                                            

      Taxes on Income.  Taxes  expenses in 2007 totaled $966 compared to $846 in
2006. The Company expensed an additional  amount of $659 regarding the 2002-2004
IRS audits.                                                                     

      Share in Losses of Associated Companies.  The Company's share in losses of
associated  companies during 2007 totaled $2.5 million compared to $132 in 2006.
The Company had 50% in the partnership  ICTS  Netherlands  Airport  Services VOF
(NAS).  The  partnership  had one contract with Schiphol  airport,  which was to
terminate on February 1, 2008. The  partnership is in the process of liquidation
during 2008.  During 2007, ICTS recognized  losses of $2.2 million which include
an impairment of $332,  compared to profit of $1.3 million in 2006.  The Company
recognized  losses of $284 in 2007 from its  investment in InkSure,  compared to
the $1.4  million in 2006.  The net value of this  investment  in the  company's
financials as of December 31, 2007 and 2006 is $0 and $289, respectively.       

      Loss From Continuing  Operations.  ICTS's loss from continuing  operations
total in 2007, $8 million compared to $9.8 million in 2006.                     

      Loss  From  Discontinued  Operations.   ICTS's  profit  from  discontinued
operations  in 2007  totaled  $5.4  million  compared to loss of $4.2 million in
2006.                                                                           

      During 2006 the Company expensed a receivable from the IRS of $2.5 million
following a criminal  investigation of the IRS against the Company. ICTS filed a
complaint  against  the IRS in the U.S.  District  Court and the  complaint     

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was dismissed.  In the beginning of 2008 the criminal  investigation was removed
and the refund was paid to the Company with interest of $373.                   

      Against the Company there are a few legal claims outstanding regarding its
discontinued  operations.  The Company  has fully  accrued for the claims of the
landlord regarding the two sites of the Entertainment operations. As of December
31,  2007 and 2006 the total  accruals  were  $8.5  million  and $10.1  million,
respectively.  The change of $1.6  million on the accruals was done based on the
change in the claims.                                                           

      Net Loss.  As a result  of the  foregoing,  ICTS's  losses  amounted  $2.6
million for the year ended  December 31, 2007, as compared to $14.1 million loss
for the year ended December 31, 2006. As for geographical  segments, see note 15
in the financial statements.                                                    

      Year Ended  December  31, 2006  Compared to Year Ended  December  31, 2005
(U.S. Dollars in thousands unless otherwise indicated)                          

      Revenues. Revenues for the year ended December 31, 2006 were $60.8 million
(2005: $57.7 million), and consisted of $46.8 million (2005: $48.3 million) from
U.S.  operations,  and $13.9 million (2005: $9.4 million) from other operations.
The reduction in revenues in the USA is mainly due to the Company's  decision to
terminate some unprofitable contracts in its Huntleigh subsidiary.  The increase
of  revenues  from  other   operations  is  mainly  because  of  the  successful
penetration of the I-SEC group into the European aviation security market.      

      Almost all  revenues  in the U.S.  are  derived  from other than  aviation
security services.                                                              

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

      Gross profit for the year ended December 31, 2006 was $5.5 million,  9.1%,
as a  percentage  of  revenue  (2005:  $4.0  million,  6.9% as a  percentage  of
revenue).  The increase in gross profit as a percentage of revenues is primarily
attributable  to the fact that the gross profit for the year 2006 is  influenced
from new activities in Europe with higher profitability,  improving and reducing
operational expenses and termination of unprofitable contracts in the USA.      

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative expenses were $14.9 million for the year ended December 31, 2006,
24.5%  as a  percentage  of  revenues,  as  compared  to  $11.7  million,  20.3%
percentage  of revenues for the year ended  December 31, 2005.  Of the increase,
approximately  $1.2  million  is from the  European  operations,  as part of the
establishment of new  subsidiaries  and new operations.  $0.5 million related to
stock based  compensation,  which is being expensed starting in 2006 (see note 2
in the Financial  Statements).  During 2006 legal expenses regarding the "taking
case" totaled  approximately  $3 million  compared to $1.3 million in 2005.  The
reason  for the  increase  is the  preparations  for trial  which  took place in
February 2007.                                                                  

      The   amortization   expense   increased  of  $423   relating  to  accrued
amortization of Procheck's intangible assets and their life term due to the     

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high  competition  in the security  market in the  Netherlands  and the fact the
contract with Schiphol will be over on 2008 and the renewal is uncertain.       

      Operating  Loss.  Operating  loss for the year ended December 31, 2006 was
$9.4 million as compared to an operating loss of $7.7 million for the year ended
December 31, 2005.                                                              

      Other Income (Expense),  Net. Other income for the year ended December 31,
2006 was $527 compared to other expense of $761 for the year ended  December 31,
2005. Other income in 2006 relates to the following:                            

      (a) Financial expenses-net in 2006 were $714 compared to $908 in 2005. The
decrease during 2006 versus 2005 is that in 2005 the Company  included  one-time
losses of $576 from  securities  of an  unaffiliated  company  in its  financial
expense.  During 2006 the Company paid approximately $150 more interest and fees
regarding its line of credit in Huntleigh and accrued $88 interest (Libor +1.5%)
to related  party.  Exchange rate income for the years 2006 and 2005 totaled $96
and $382, respectively.                                                         

(b) Gains from sales of investments totaling an amount of $576.     

      (c)  Guarantees  provided to Bilu in the past against cash  deposits  were
fully accrued in previous  years.  During 2007,  $665 of those  guarantees  were
cancelled and paid back to the Company and are included in other income.        

      Taxes On Income.  In 2006 and 2005,  the Company  recorded tax expenses of
$846 attributable  mainly to tax accruals regarding tax years 2002 and 2003. The
tax  updates  are based on our tax  advisors  opinion  of the  exposure,  mainly
regarding  royalties  that  Huntleigh  paid at those years and that might not be
recognized by the tax authorities.                                              

      Share in Losses of Associated Companies.  There was a $132 loss in 2006 as
compared to a loss of $486 for the year ended  December  2005.  The high loss is
according to our  investments in Inksure (our part in loss of 1.4 million during
2006  compared to $1.2 million in 2005) and NAS (profit of $1.3  million  during
2006 compared to $705 profit in 2005).                                          

      Loss from  Continuing  Operations.  ICTS loss from  continuing  operations
totaled $9.8 million in 2006, compared to $11.3 million in 2005.                

      Loss from Discontinued Operations.  ICTS loss from discontinued operations
in 2006 totaled $4.2 million compared to $13.5 million in 2005. The loss of 2005
includes a capital  loss of $4,774 from the  selling of the  leasing  equipment.
During 2005 an expense of $9.7  million  was  recognized  regarding  leases that
should be paid until  2019,  and was  updated in 2006 by $1.4  million  based on
legal claims from the landlord and update of the net present value.             

      The loss from  discontinued  operations in 2006 includes also $2.5 million
receivable  from IRS which was written-off in 2006 according to dispute with IRS
in which ICTS filed a  complaint  in the United  States  District  Court and its
complaint was dismissed.                                                        

      Net loss.  As a result of the  foregoing,  ICTS's  loss  amounted to $14.1
million for the year ended  December 31, 2006, as compared to $24.9 million loss
for the year ended December 31, 2005.                                           

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      As to the  geographical  segments,  please  see  note 15 in the  financial
statements.                                                                     

Liquidity and Capital Resources                                     

      The following  information refers to the continuing  operations results of
the company:                                                                    

      Our auditors have  expressed an opinion that there is a substantial  doubt
about our ability to continue as a going concern.                               

      ICTS's  principal  cash  requirement  for its operations is the payment of
wages. Working capital is financed primarily by cash from operating  activities,
and by short-term and long-term borrowings. As of December 31, 2008, we had cash
and cash equivalents of $3.8 million as compared to $2.1 million on December 31,
2007. In 2008 there was no short-term  restricted  cash compared to $1.8 million
on December 31, 2007.                                                           

      The  Company  has a  history  of  recurring  losses  and  working  capital
deficiency.  The Company  incurred net losses of $2.0,  $2.6,  and $14.1 million
during the years ended December 31, 2008,  2007, and 2006,  respectively.  As of
December 31, 2008, the Company had a working  capital  deficit and  shareholders
deficiency of $15.3 and $23.0,million respectively.  In addition, the Company is
subject to potential material  contingencies in connection with: (a) an audit of
the Company's operations in the United States of America by the Internal Revenue
Service (b) the  September  11, 2001  terrorist  attacks in the United States of
America,  (c) unpaid rent  obligations  related to certain  non-core  businesses
which have been  discontinued  in the United States of America,  and (d) certain
claims made  against the Company by the United  States  Transportation  Security
Administration.  These  factors  raise  substantial  doubt  about the  Company's
ability to continue as a going concern.                                         

      Management  believes that the Company's  operating  cash flows and related
party financing  activities  will provide it with  sufficient  funds to meet its
obligations and execute its business plan. However, there are no assurances that
management's  plans to  generate  sufficient  cash to  continue  to operate  the
Company will be successful.  The accompanying  consolidated financial statements
do not include any adjustments  that might be necessary if the Company is unable
to continue as a going concern.                                                 

      Our  future   capital  will  depend  on  our  success  in  developing  and
implementing our business strategy.                                             

      As of  December  31,  2008 and 2007,  the Company had loans from a related
party which amount to $6.1 and $6.5  million,  respectively,  which were used to
cover part of the Company's obligations.                                        

      The Company's cash and cash equivalents  increased in 2008 by $1.7 million
as a result of the following:                                                   

      Net cash provided by (used in) in operating  activities for the year ended
December  31, 2008 was $3.9  million as  compared to net cash used in  operating
activities  of $3.6  million for the year ended  December  31, 2007 and net cash
used in operating  activities  of $7.6  million for the year ended  December 31,
2006. The net loss during 2008 totaled $2.0 million, offset by non-cash expenses
in $0.1  million  relating  to stock  based  compensation  and $0.8  million  in
depreciation  and  amortization.  Changes in operating assets and liabilities   

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in 2008  amounted  to $3.6  million  compared  to $4.0  million in 2007 and $2.7
million in 2006.  The changes in operating  assets and  liabilities in 2008 were
primarily  attributable to a $4.9 million increase in accrued expenses and other
current  liabilities,  a decrease  of $0.3  million in  accounts  payable and an
increase  of  $1.3  million  in  accounts  receivable.   Net  cash  provided  by
discontinued operations totaled $2.4 million.                                   

      Net cash  provided by investing  activities  was $0.6 million for the year
ended December 31, 2008 as compared to net cash used in investing  activities of
$1.1 million for the year ended December 31, 2007 and net cash used in investing
activities of $0.2 million for the year ended December 31, 2006. The increase in
2008 is mainly  because of the change in  restricted  cash  which  totaled  $1.8
million and cash used for  purchase of  equipment  totaled  $1.0 million in 2008
compared to $0.8 million in 2007 and $0.6 in 2006.                              

      Net cash used in financing activities were $2.1 million for the year ended
December 31, 2008 as compared to net cash  provided by financing  activities  of
$5.0 for the year ended  December  31, 2007 and $3.7  million for the year ended
December 31, 2006. In 2008,  net cash provided by financing  activities was used
primarily to decrease the notes payable - bank loans by $1.8 million.           

Notes Payable - Bank                                                

      In April 2005, one of the Company's  subsidiaries  entered into a loan and
security  agreement  with  a  commercial  bank.  Pursuant  to the  terms  of the
arrangement,  the commercial  bank committed to providing the subsidiary with up
to $8 million in revolving loans, including a maximum of $3.5 million in letters
of  credit.  Borrowings  issued  under the  arrangement  are  limited  to 85% of
eligible  accounts  receivable  and  95%  of  the  subsidiary's   required  cash
collateral. As of December 31, 2008 and 2007, the subsidiary has $3.5 million in
cash collateral  deposited with the commercial bank. The term of the arrangement
extends through March 10, 2010.  Loans made under the arrangement are designated
as either  prime  based or LIBOR  based  loans at the option of the  subsidiary.
Prime based loans bear interest,  which is payable monthly,  at the bank's prime
rate  plus 1% per  annum  (4.25%  and  8.25% at  December  31,  2008  and  2007,
respectively).  LIBOR based loans bear interest,  which is payable  monthly,  at
LIBOR plus 350 basis  points  (5.50% and 8.38% at  December  31,  2008 and 2007,
respectively).  The subsidiary is also assessed commitment fees of 3% per annum.
The arrangement is secured by the cash collateral  deposited with the commercial
bank and the assets of the  subsidiary.  As of December  31, 2008 and 2007,  the
subsidiary has $4.8 and $5.7 million,  respectively,  in outstanding  borrowings
and $0.6 and $1.0 million,  respectively, in outstanding letters of credit under
the arrangement.  The arrangement  subjects the subsidiary to various  financial
covenants,  including  interest  coverage,  minimum  tangible net worth,  and an
annual capital expenditure limitation.                                          

      In November 2004, one of the Company's  subsidiaries entered into a credit
agreement with a commercial  bank to provide it with a borrowing  arrangement of
up to (euro)0.7 million.  Borrowings under the arrangement are limited to 60% of
eligible  accounts  receivable,  secured  by the assets of the  subsidiary,  and
guaranteed by the Company. Loans made under the arrangement bear interest, which
is payable  monthly at the  commercial  bank's  euro base rate plus 2% per annum
(7.3% at December 31, 2007).  As of December 31, 2007,  the  subsidiary has $0.7
million  in  outstanding  borrowings  and  under  the  arrangement.  The  credit
agreement expired in February 2008.                                             

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      In February 2008, two of the Company's subsidiaries jointly entered into a
credit  agreement  with a  commercial  bank to  provide  them  with a  borrowing
arrangement  of up to  (euro)2.2  million.  The  available  capacity  under  the
borrowing arrangement automatically reduces to (euro)1.7 million on May 1, 2008,
(euro)1.2  million on August 1, 2008 and  (euro)0.7  million on January 1, 2009.
Borrowings under the arrangement bear interest, which is payable monthly, at the
bank's  euro base rate  (subject  to a floor of 3.5%) plus 2% per annum (7.4% at
December 31, 2008).  Borrowings  under the arrangement are secured by the assets
of the  subsidiaries  and  guaranteed  by the Company.  As of December 31, 2008,
there  are no  outstanding  borrowings  and  (euro)1.2  million  in  outstanding
guarantees under the arrangement.  The arrangement  subjects the subsidiaries to
various  financial  covenants,  including  minimum  tangible  net  worth.  As of
December 31, 2008, the Company was in violation of certain  financial  covenants
specified in the credit  agreement,  including the payment of dividends  without
the approval of the commercial  bank and the  maintenance of a minimum  tangible
net worth threshold. On May 1, 2009, the credit agreement expired.              

      The Company is indebted to a commercial bank for bank overdrafts of $0 and
$0.4 million as of December 31, 2008 and 2007, respectively.  These amounts bear
interest, which is payable monthly, at 7% per annum.                            

Trend information                                                   

      Labor  market  conditions  may require the Company to increase its prices.
Cost of labor is the most important  variable in determining any cost increases.
The Company is affected by the worldwide  economic  slowdown,  which affects the
aviation  industry.  As the Company is a service  provider to this industry,  it
affects the results of the Company.                                             

Off-balance sheet arrangements                                      

      The Company is not a party to any material off-balance sheet arrangements.
In addition, ICTS has no unconsolidated special purpose financing or partnership
entities that are likely to create material contingent obligations.             

      The  following  table  summarizes   ICTS's   obligations  from  continuing
operations to make future payments under contracts as of December 31, 2008:     

                                                        [Enlarge/Download Table]

Contractual Obligations                       Payments due by Period (in thousands)     
---------------------------------------   ----------------------------------------------
                                                    Less        1-3      4-5   more than
                                          Total  than 1 year   years    years   5 years 
                                          -----  -----------   -----    -----  ---------
                                                                                        
Long-term debt                            3,146          90    3,056                    
Accrued severance pay                        88                                      88 
Operating lease obligations (1)           2,627       1,213    1,409        5           
Loan from related party, including                                                      
  accrued interest                        6,072                6,072                    
Employment contracts                      1,130         514      616                    
Fees and interest regarding Credit Line     600         600                             
                                         ------      ------   ------   ------    ------ 
                                         13,663       2,417   11,153        5        88 

As of  December  31,  2008 and 2007 the  Company  recorded  an accrual for      
future rent  regarding  its  discontinued  operations  of $7.3 and $8.5 million,
respectively.  The accruals  have been updated  according to the legal claims of
the landlord against the Company.                                               

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      (1) The Company leases premises under long-term  operating leases, in most
cases with renewal options. Lease expenses from continuing  operations,  for the
years ended December 31, 2008,  2007 and 2006 were $1.5, $1.2 and $1.2 millions,
respectively.                                                                   

Item 6. Directors, Senior Management and Employees                              

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

Age     Position          
-----    ----------         
Menachem Atzmon            65      Chairman of the Supervisory Board            
David W. Sass              73      Member of the Supervisory Board              

Eytan Barak                65      Member of the Supervisory Board, Member of   
                      Compensation and Audit Committee
Elie Housman               72      Member of the Supervisory Board, Chairman    
                   of the Compensation Committee
Gordon Hausmann            63      Member of the Supervisory Board, Member of   
                                  the Compensation Committee and Member of the
     Audit Committee
Philip M. Getter           72      Member of the Supervisory Board, Chairman    
            of the Audit Committee
Avraham Dan                64      Managing Director                            
Ran Langer                 63      Managing Director                            
Raanan Nir                 60      Managing Director                            
Alon Raich                 33      Chief Financial Officer                      

      Menachem  J.  Atzmon is a CPA (Isr).  Since  1996 Mr.  Atzmon has been the
managing director of Albermale Investment Ltd. and Kent Investment Holding Ltd.,
both investment  companies.  Since January 1998 he has served as CEO of Seehafen
Rostock. He has been a member of the Supervisory Board of ICTS since 1999.      

      Eytan Barak is a CPA (Isr).  From the year 2001 to the present,  Mr. Barak
is a partner in  Dovrat-Barak  Investment  in High-Tech  Companies  Ltd.,  He is
currently,  and has been since 2004,  a member of the Board of  Directors of two
companies  owned by the Tel-Aviv  Municipality.  In addition,  he is currently a
member of the board of directors  since the year 2006 in Mer  Telecommunications
Solution (MTS), a  public  company.  He is since the year 2000 to the  present a
member  of the  executive  board and a member of the  finance  committee  of the
Olympic  Committee of Israel.  Since 2008 to the present,  he is a member of the
board of directors of Menora  Mivtachim Mutual Funds Ltd. Since January 2009, he
is a  member  of the  board  of  directors  in Eltek  Ltd,  Meshulam  Levinstrin
Contracting & Engineering Ltd, and Elgo irrigation Ltd, public companies.       

      Elie Housman served as Chairman of Inksure Technologies,  Inc. until 2008.
Mr. Housman was a principal at  Charterhouse  Group  International,  a privately
held merchant bank, from 1989 until June 2001. At Charterhouse,  Mr. Housman was
involved in the acquisition of a number of companies with total sales of several
hundred million dollars.  Mr. Housman was the Chairman of Novo Plc. in London, a
leading company in the broadcast storage and services industry. He is a director
of Top Image System,  Ltd. At present,  Mr. Housman is a director of a number of
privately  held  companies  in the  United  States.  He  became a member  of the
Supervisory Board of ICTS in 2002.                                              

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      Gordon Hausmann is the senior partner of his own law firm which he founded
in London 28 years ago. He specializes  in business  finance and banking law. He
holds  office  as a  Board  Member  of the UK  subsidiaries  of  various  quoted
companies,  Company Secretary of Superstar Holidays Ltd., (a subsidiary of El Al
Airlines  Ltd.)  Director of Dominion  Trust Co.  (UK) Ltd.,  associated  with a
private Swiss banking group, and a Governor of the Hebrew University.           

      David W. Sass for the past 48 years has been a practicing  attorney in New
York City and is  currently  a senior  partner in the law firm of  McLaughlin  &
Stern,  LLP.  He has been a  director  of ICTS since  2002.  Mr.  Sass  became a
director of Inksure  Technologies,  Inc., a company which develops,  markets and
sells  customized  authentication  systems  designed to enhance the  security of
documents  and branded  products and to meet the growing  demand for  protection
from  counterfeiting  and diversion.  He is also a director of several privately
held corporations. He is an Honorary Trustee of Ithaca College.                 

      Philip M. Getter is  currently  the managing  member of GEMPH  Development
LLC. From 2000 to 2005 he was president of DAMG Capital, LLC Investment Bankers.
Prior thereto he was most  recently  head of Investment  Banking and a member of
the board of directors of Prime  Charter,  Ltd. He has more than thirty years of
corporate finance experience.                                                   

      Having served as Administrative Assistant to the Director of United States
Atomic Energy  Commission  from 1958 to 1959, he began his Wall Street career as
an analyst at Bache & Co. in 1959.  He was a partner  with  Shearson,  Hammill &
Company  from  1961 to  1969  and a  Senior  Partner  of  Devon  Securities,  an
international  investment  banking and research  boutique from 1969 to 1975. Mr.
Getter was a member of the New York Society of Security  Analysts.  From 1975 to
1983 he was  President  and CEO of Generics  Corporation  of  America,  a public
company  that was one of the largest  generic drug  manufacturers  in the United
States.  As Chairman and CEO of Wolins  Pharmaceutical  from 1977 to 1983 he led
the reorganization and restructuring one of the oldest and largest direct to the
profession  distributors  of  pharmaceuticals.  Mr.  Getter became a director of
Inksure  Technologies,  Inc. in 2003 and became its  Chairman in 2008, a company
which develops,  markets and sells customized authentication systems designed to
enhance the security of documents  and branded  products and to meet the growing
demand for protection from counterfeiting and diversion. He has been a member of
the League of American  Theatres and  Producers,  Advisory Board of the American
Theatre Wing,  Trustee of The Kurt Weill  Foundation  for Music, a member of the
Tony  Administration  Committee  and has produced for Broadway,  television  and
film.  Mr.  Getter  received  his B.S.  in  Industrial  Relations  from  Cornell
University.  He is Chairman  of the Audit  Committees  of EVCI Career  Colleges,
Inksure Technologies, Inc. as well as the Company.                              

      Avraham  Dan is a CPA (Isr).  Mr.  Dan  joined  ICTS in June 2004 as Chief
Financial  Officer.  Since September 2004 to the present,  Mr. Dan is a Managing
Director.  From 1995 to 2001 he was Chief  Executive  Officer  and a Director of
Pazchem Limited,  an Israeli chemical company.  Mr. Dan holds an MBA degree from
Pace University, NY.                                                            

      Ran Langer  joined  ICTS in 1988  through  1998 as General  Manager of the
German  subsidiaries  of ICTS.  From 1998 to the  present,  he serves as General
Manager of  Seehafen  Rostock  Umschlagsgesellschaft  mbH,  the  operator of the
Seaport in Rostock,  Germany.  Mr. Langer became a Managing  Director of ICTS in
September 2004.                                                                 

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      Raanan Nir has been managing director, since 2002, of his own company, Red
Flag, B.V., which is a trust company  established in The Netherlands,  providing
financial and general management services. From 2000 to 2002 he was in charge of
finance  for an IT  start-up  company.  From  1998  to  2000  he was CFO of ICTS
International, N.V.                                                             

      Alon Raich is a CPA (Isr),  joined  ICTS in  September  2005 as  Financial
Controller and became Chief Financial Officer (CFO) of the Company in 2008. From
2001  to  2005  he  worked  in  the  accounting  firm,  Kesselman  &  Kesselman,
PriceWaterhouseCoopers  (PwC).  Mr.  Raich  holds a BA degree in  economics  and
accounting and an MA degree in law from Bar-Ilan University, Israel.            

Summary Compensation Table

The following table sets forth compensation earned by the executive officers and
the highest paid executive during 2008:                                         

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------------------
                                                                              Nonqualified                                 
Name and                                                      Non-Equity        Deferred       Number of    Number         
Principal                                     All Other     Incentive Plan    Compensation      Option     of Stock        
Position        Year     Salary    Bonus     Compensation    Compensation       Earnings        Awards      Awards    Total
                           $         $            $                $                $                                   $  
---------------------------------------------------------------------------------------------------------------------------

                                                                                                                           
Avraham Dan,    2008      180        68           60                                                                   308 
Managing                                                                                                                   
Director        2007      180                     60                                                                   240 

                2006      180        60           60                                            45,000                 300 
---------------------------------------------------------------------------------------------------------------------------
Ran Langer,     2008       No Salary                                                                                       
Managing                                                                                                                   
Director        2007       No Salary                                                                                       

                2006       No Salary                                                            45,000                     
---------------------------------------------------------------------------------------------------------------------------
Doron Zicher,   2008      294       321           36                                                                   651 
Managing                                                                                                                   
Director of     2007      242       174           39                                                                   455 
Subsidiary(1)                                                                                                              
                2006      221       217           32                                            55,000                 470 
---------------------------------------------------------------------------------------------------------------------------

(1) Mr. Zicher is entitled to a bonus,  net of sale expenses,  of 8% of the sale
proceeds in the event I-SEC will be sold.                                       

      Each member of the Supervisory Board who is not an employee of the Company
receives  an annual  fee of $10 and a fee for each  Board or  committee  meeting
attended of $1. The Chairman of the Audit  Committee  receives an additional $20
per year.                                                                       

      Mr.  Dan has  been  employed  as a  Managing  Director  under a five  year
employment  agreement  commencing February 1, 2005, at a monthly compensation of
$15.                                                                            

      Mr.  Langer has been  employed as  Managing  Director  since 2004  without
compensation.                                                                   

      The  following  table  sets forth  information  concerning  the  aggregate
compensation  paid or accrued on behalf of all of our  directors  and  executive
officers as a group for the year ended December 31, 2008.                       

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                                         Salaries, fees,     Pension, retirement
                                       commissions             and other
                                          and bonuses         similar benefits
                                         ---------------     -------------------
                                        (in thousands)
                                         ---------------------------------------

Directors as a group (6 persons)               $108                             
All officers as a group(7 persons)           $1,442                  $103       

Board practices                                                     

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

      The members of the Supervisory  Board and the initial year they joined the
Board are as follows:  Menachem Atzmon (1999),  Eytan Barak (2006), Elie Housman
(2002),  Gordon  Hausmann  (2005),  David W. Sass  (2002) and  Philip M.  Getter
(2003).                                                                         

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

      ICTS's Compensation Committee consists of Elie Housman,  Chairman,  Gordon
Hausmann  and Eytan  Barak.  The  Compensation  committee  determines  salaries,
incentives and other forms of  compensation  for ICTS's  executive  officers and
administrator's  stock  plans  and  employee  benefit  plans.  The  Compensation
Committee has an operating charter as well.                                     

      The members of the Audit  Committee  and  Compensation  Committee  are all
independent  and were never  officers  or  employees  of ICTS  except  Mr.  Elie
Housman, for a short period, was chairman of the Board of ICTS under contract.  

      The  Supervisory  Board of the  Company  has  adopted a Code of Ethics for
principal Executive Officers, Directors and senior financial officers.          

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

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Employees                                                           

      As of December 31, 2008 the number of employees in Europe is approximately
950.                                                                            

      As  of  December   31,  2008  the  number  of  employees  in  the  USA  is
approximately 2,400.                                                            

Share ownership                                                     

      See  tables  under  Item  7:  "Major   Shareholders"  and  "Related  Party
Transactions" below.                                                            

Options to Purchase Securities                                      

      On December 17, 2008 shareholders adopted the 2008 Employee,  Director and
Commitment  Stock Option Plan (the  "Plan").  The Plan  provides a means whereby
employees,   officers,   directors,  and  certain  consultants  and  independent
contractors of the Company ("Qualified  Grantees") may acquire the Common Shares
of the Company  pursuant to grants of (i) Incentive  Stock  Options  ("ISO") and
(ii) "non-qualified stock options".  A summary of the significant  provisions of
the Plan is set forth below. The following  description of the Plan is qualified
in its entirety by reference to the Plan itself.                                

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

      The Plan provides  that options to purchase up to 1,500,000  Common Shares
of the Company may be issued to the employees and outside directors. All present
and future  employees  shall be eligible to receive  incentive  awards under the
Plan,  and all present and future  non-employee  directors  shall be eligible to
receive   non-statutory   options  under  the  Plan.  An  eligible  employee  or
non-employee director shall be notified in writing, stating the number of shares
for which  options  are  granted,  the option  price per share,  and  conditions
surrounding the grant and exercise of the options.                              

      The exercise  price of shares of Company Stock covered by an ISO shall not
be less than 100% of the fair market  value of such shares on the date of grant;
provided that if an ISO is granted to an employee who, at the time of the grant,
is a 10%  shareholder,  then the  exercise  price of the  shares  covered by the
incentive  stock  option shall not be less than 110% of the fair market value of
such shares on the date of the grant.  The exercise price of shares covered by a
non-qualified  stock  option shall be not less than 85% of the fair market value
of such shares on the date of the grant.  The Plan shall be  administered by the
Compensation  Committee.  No options have been granted under this plan as of the
date hereof.                                                                    

      The Management  Board and the Supervisory  Board on November 30, 2004 have
approved and the shareholders have adopted on February 12, 2005, the 2005 Equity
Incentive Plan, (the "Plan").                                                   

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

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

      The Plan  shall  be  administered  by the  Compensation  Committee  of the
Supervisory  Board,  which shall be  appointed by the  Supervisory  Board of the
Company,  and  which  shall  consist  of a  minimum  of  three  members  of  the
Supervisory Board of the Company.                                               

      The Plan provides  that options to purchase up to 1,500,000  Common Shares
of the  Company  may  be  issued  to  the  employees,  certain  consultants  and
directors.  All  present  and  future  employees  shall be  eligible  to receive
incentive  awards  under the  Plan,  and all  present  and  future  non-employee
directors shall be eligible to receive  non-statutory options under the Plan. An
eligible employee or non-employee director shall be notified in writing, stating
the number of shares for which options are granted,  the option price per share,
and conditions surrounding the grant and exercise of the options.               

      The exercise  price of shares of Company  Stock covered by an ISO and NQSO
shall be not less than 100% of the fair market  value of such shares on the date
of grant;  provided that if an ISO is granted to an employee who, at the time of
the grant is a 10% shareholder, then the exercise price of the shares covered by
the incentive  stock option shall be not less than 110% of the fair market value
of such  shares  on the date of  grant.  The Plan  also  provides  for  cashless
exercise of Options at the  discretion of the  Compensation  Committee.  In such
event,  there may be a charge to the earnings of the Company with respect to the
cashless exercise of the Options.                                               

      The Compensation  Committee may determine the number of shares that may be
awarded to a participant as restricted stock and the provisions relating to risk
of forfeiture and may determine  that the  restricted  stock is only earned upon
the  satisfaction  of  performance  goals  established  by  the  Committee.  The
Committee  shall also  determine  the nature,  length and  starting  date of any
performance period and the terms thereof.                                       

      The  Compensation  Committee,  in  November  2004,  recommended,  and  the
Supervisory  Board and the Management  Board have approved,  the granting of the
following options under the 2005 Equity Incentive Plan as follows:              

      1.  Menachem  Atzmon  (Chairman  of the Board) - 550,000  options of which
250,000 shall be  immediately  vested and 300,000  options to be vested  equally

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over the next three years.  With respect to the Options for 200,000  shares they
are granted in lieu of a current salary for Mr. Atzmon.  Options are exercisable
at $1.35 per share representing the fair market value on the date of grant.     

      2. Doron Zicher (Key  Employee) - 45,000 options to be vested equally over
the next three years.  Options are  exercisable at $1.35 per share  representing
the fair market value on the date of grant.                                     

      3. Ran Langer (Managing Director) - 65,000 options to be vested equally in
the next three years.  Options are  exercisable at $1.35 per share  representing
the fair market value on the date of grant.                                     

      4. Avraham Dan (Managing  Director) - 55,000  options to be vested equally
in the next three years. Options are exercisable at $1.35 per share representing
the fair market value on the date of grant.                                     

      5.  Directors  - 30,000  options  were  granted to each of the  Directors,
namely,  Elie Housman,  Philip  Getter,  M. Albert Nissim and David W. Sass. The
Options  shall be  immediately  vested as to 10,000 shares and shall vest 10,000
shares on each anniversary in the event such person is a Director of the Company
at that time. The options are  exercisable at $1.35 per share  representing  the
fair market value on the date of grant.                                         

      6. Committee Chairmen The Chairman of the Audit Committee and the Chairman
of the Compensation  Committee should each be granted 30,000 additional Options.
The  Options  shall be  immediately  vested as to 10,000  shares  and shall vest
10,000 shares on each  anniversary in the event such person is a Director of the
Company  at  that  time.  The  options  are   exercisable  at  $1.35  per  share
representing the fair market value on the date of grant.                        

      The  Compensation  Committee,  in October 16, 2006,  recommended,  and the
Supervisory  Board and the Management  Board have approved,  the granting of the
following options under the 1999 and the 2005 Equity Incentive Plans as follows:

      1.  Menachem  Atzmon  (Chairman  of the Board) - 350,000  options of which
250,000 shall be  immediately  vested and 100,000  options to be vested  equally
over three years.  Options are exercisable at $1.00 per share  representing  the
fair market value on the date of grant.                                         

      2. Doron Zicher (Key  Employee) - 55,000 options to be vested equally over
three years.  Options are exercisable at $1.00 per share  representing  the fair
market value on the date of grant.                                              

      3. Ran Langer  (Managing  Director) - 45,000  options to be vested equally
over three years.  Options are exercisable at $1.00 per share  representing  the
fair market value on the date of grant.                                         

      4. Avraham Dan (Managing  Director) - 45,000  options to be vested equally
over three years.  Options are exercisable at $1.00 per share  representing  the
fair market value on the date of grant.                                         

      5. Philip  Getter  (Chairman  - Audit  Committee)  - 40,000  options to be
vested  equally over three  years.  Options are  exercisable  at $1.00 per share
representing the fair market value on the date of grant.                        

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      6. Eli Housman (Chairman - Compensation  Committee) - 45,000 options to be
vested  equally over three  years.  Options are  exercisable  at $1.00 per share
representing the fair market value on the date of grant.                        

      7. David W. Sass  (Director)  - 20,000  options to be vested  equally over
three years.  Options are exercisable at $1.00 per share  representing  the fair
market value on the date of grant.                                              

      8. Gordon  Hausmann  (Director) - 50,000 options to be vested equally over
three years.  Options are exercisable at $1.00 per share  representing  the fair
market value on the date of grant.                                              

      9. Eytan Barak (Director) - 30,000 options to be vested equally over three
years.  Options are exercisable at $1.00 per share  representing the fair market
value on the date of grant.                                                     

      10.  Richard Sporn (Key  Employee) - 15,000  options to be vested  equally
over three years.  Options are exercisable at $1.00 per share  representing  the
fair market value on the date of grant.                                         

      11. Alon Raich (Key  Employee) - 15,000  options to be vested equally over
three years.  Options are exercisable at $1.00 per share  representing  the fair
market value on the date of grant.                                              

A summary of the Options granted is as follows:                     

      As of  December  31,  2008 there  were  outstanding  options  to  purchase
1,632,000  shares,  out of  3,600,000  that were  approved  and issued.  All the
options  were granted to  directors,  executive  officers  and  employees of the
Company at  exercise  prices  ranging  from  $1.00 to $1.35 per share  under the
plans. These options vest over various terms,  ranging from immediately to three
years and no later than  October  2009.  Options  available  for grant under the
plans are 1,968,000. The plans expire by their terms at various dates to 2018.  

      All  current  executive  officers  (Managing  Directors)  (3 persons) as a
group: 210,000 Options.                                                         

All current directors (6 persons) as a group: 1,230,000 Options.    

      All  non-executive  officers  and other (6  persons)  as a group:  192,000
Options.                                                                        

During the year 2009 one of the Company's  employees  exercised  50,000  options
which were granted to him in previous years.                                    

U.S. Federal Income Tax Consequences                                

      The rules  governing  the U.S.  federal tax  treatment  of stock  options,
restricted  stock and shares  acquired  upon the  exercise of stock  options are
quite  technical.   Therefore,  the  description  of  U.S.  federal  income  tax
consequences  set forth  below is  necessarily  general  in nature  and does not
purport to be  complete.  Moreover,  the  statutory  provisions  are  subject to
change,  as are  their  interpretations,  and  their  application  may  vary  in
individual  circumstances.  In  particular,  the "American  Jobs Creation Act of
2004" imposed new rules concerning the taxation of various deferred compensation
arrangements. It is not clear whether, and to what extent, these new rules apply
to awards  under the Plan.  Although  the Company  does not believe             

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that  awards  under  the Plan are  affected  by the new  rules,  there can be no
assurance to that effect until adequate  guidance is  forthcoming  from the U.S.
Treasury Department. Finally, the tax consequences under applicable state, local
and foreign income tax laws may not be the same as under the U.S. federal income
tax laws.                                                                       

      INCENTIVE STOCK OPTIONS. ISOs granted pursuant to the Plan are intended to
qualify as  incentive  stock  options  within the meaning of Section 422A of the
Internal  Revenue Code. If the  participant  makes no  disposition of the shares
acquired  pursuant to  exercise of an ISO within one year after the  transfer of
shares to such  participant and within two years from grant of the option,  such
participant  will realize no taxable income as a result of the grant or exercise
of such  option,  and any  gain or loss  that is  subsequently  realized  may be
treated as  long-term  capital  gain or loss,  as the case may be.  Under  these
circumstances,  neither  the Company  nor any  subsidiary  will be entitled to a
deduction for federal income tax purposes with respect to either the issuance of
the ISOs or the issuance of shares upon their exercise.                         

      If shares  acquired  upon  exercise  of ISOs are  disposed of prior to the
expiration of the above time periods,  the participant  will recognize  ordinary
income in the year in which the disqualifying  disposition occurs, the amount of
which will generally be the lesser of (i) the excess of the fair market value of
the  shares on the date of  exercise  over the  option  price,  or (ii) the gain
recognized on such  disposition.  Such amount will  ordinarily be deductible for
federal  income  tax  purposes  by  the  Company  or  subsidiary  for  whom  the
participant  performs services ("service  recipient") in the same year, provided
that the amount  constitutes  reasonable  compensation  for services  that would
result in a deduction  for U.S.  federal  income tax  purposes  and that certain
federal income tax  withholding  requirements  are satisfied.  In addition,  the
excess,  if any, of the amount realized on a disqualifying  disposition over the
market  value of the shares on the date of  exercise  will be treated as capital
gain.                                                                           

      The foregoing  discussion  does not consider the impact of the alternative
minimum tax, which may be particularly applicable to the year in which an ISO is
exercised.                                                                      

      NON QUALIFIED STOCK OPTIONS. A participant who acquires shares by exercise
of a NQSO  generally  realizes  as  taxable  ordinary  income,  at the  time  of
exercise, the difference between the exercise price and the fair market value of
the shares on the date of exercise. Such amount will ordinarily be deductible by
the service recipient for federal income tax purposes in the same year, provided
that the amount  constitutes  reasonable  compensation  for services  that would
result in a deduction  for U.S.  federal  income tax  purposes  and that certain
federal  income  tax   withholding   requirements   are  satisfied.   Subsequent
appreciation  or  decline  in the  value  of the  shares  on the  sale or  other
disposition of the shares will generally be treated as capital gain or loss.    

      RESTRICTED  STOCK. A participant  granted shares of restricted stock under
the Plan is not required to include the value of such shares in ordinary  income
until the first time such participant's rights in the shares are transferable or
are not subject to substantial  risk of forfeiture,  whichever  occurs  earlier,
unless such  participant  timely files an election  under  Section  83(b) of the
Internal Revenue Code to be taxed on the receipt of the shares.  In either case,
the amount of such income  will be equal to the excess of the fair market  value
of the stock at the time the income is recognized  over the amount (if any) paid
for the stock. The service recipient will ordinarily be entitled to a           

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deduction,  in the amount of the ordinary income  recognized by the participant,
for the service  recipient's  taxable year in which the  participant  recognizes
such income,  provided that the amount constitutes  reasonable  compensation for
services that would result in a deduction for U.S.  federal  income tax purposes
and that certain federal income tax withholding requirements are satisfied.     

Item 7. Major Shareholders and Related Party Transactions                       

Major Shareholders                                                  

      The following table sets forth certain information  regarding ownership of
the Company's  Common Shares as of May 31, 2009 (including  options  exercisable
within 60 days from that date) with respect to:                                 

      (1) Each person who is known by the Company to own beneficially  more than
5% of the Company's outstanding Common Shares.                                  

     (2) Each director or officer who holds more than 1% of the Common shares.

      (3) All  directors  and  officers  as a group.  None of the  directors  or
officers,  excluding Mr. Menacham  Atzmon,  owns 1% or more of ICTS  outstanding
share capital.                                                                  

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------
                                                         Percent of                       
                                                    Amount Beneficially     Common Shares 
Name of Five Percent Shareholders                         Owned (a)        Outstanding (b)
------------------------------------------------------------------------------------------
                                                                                          
Atzmon Family Trust (c)                                   4,547,226            61.22%     
------------------------------------------------------------------------------------------
Nicholas P. Monteban, Xalladio Holding B.V. and                                           
Galladio Capital Management B.V.                            688,000            10.54%     
------------------------------------------------------------------------------------------
Everest Special Situations Fund                                                           
 & Affiliates (d)                                           770,582            11.80%     
------------------------------------------------------------------------------------------
All officers and directors as a group including                                           
the Atzmon Family Trust                                                                   
(12 persons)                                              5,267,226            64.64%     
------------------------------------------------------------------------------------------

      (a) The  amounts  includes  common  shares  owned  by  each of the  above,
directly or indirectly and options immediately exercisable or exercisable within
60 days from May 31, 2009.                                                      

      (b) As to each shareholder,  the percentage is calculated using the amount
beneficially  owned by such  shareholder  (as determined in accordance  with (a)
above) divided by the number of total  outstanding  common shares and the shares
issuable pursuant to the exercise of options exercisable within 60 days from the
date of the grant,  if any held by such  shareholder.  Common shares  subject to
options that are  immediately  exercisable or exercisable  within 60 days of the
date of the grant are deemed outstanding for computing the ownership  percentage
of the  shareholder  holding such options,  but are not deemed  outstanding  for
computing the ownership of any other shareholders.                              

      (c) 1.  Aragata  Holdings  Co.,  Limited,  owns  directly  and  indirectly
approximately  56% of the issued and outstanding  Common Shares.  A family trust
for the benefit of the family of Mr.  Menachem  J.  Atzmon  (the  Atzmon  Family
Trusts) owns Aragata Holdings Co., Limited.  Mr. Atzmon disclaims any beneficial
interest in the Atzmon  Family  Trust.  Aragata  Holdings  Co.,  Limited and the

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Atzmon Family Trust may be able to appoint all the directors of ICTS and control
the affairs of ICTS.                                                            

            2. Of the  900,000  options  to  Menachem  Atzmon  (Chairman  of the
Board), 900,000 are currently exercisable.  Options are exercisable at $1.35 per
share for 550,000 options and $1.00 per share for 350,000  options  representing
the fair market value on the dates of grant.                                    

            3. As of May 31, 2009 the Company  received loans from related party
in total amount of $6.9 million and accrued  interest of $0.8 million.  The loan
is convertible to the Company's common stock at a rate of $2.10 per share.      

  (d) The shares were purchased by the group during 2008, 2007 and 2006.

Related Party Transactions                                          

      The Company had an outstanding  guarantee with respect to certain  related
party debt  obligations  of $2,515,  which were  fully  reserved.  In 2007,  the
Company was  released  from $665 of the  guarantee.  In 2008,  the Company  paid
$1,429 to settle  certain  outstanding  obligations  under the guarantee and was
released  from its remaining  guarantee of $421.  The Company  recognized  other
income  related to the recovery of its  guarantee of $0.4,  $0, and $0.7 million
during the years ended December 31, 2008, 2007 and 2006, respectively.          

      ICTS holds  4,825,555  shares of Inksure  Technologies  Inc.  ("Inksure"),
which represents  27.4% of Inksure's  outstanding  shares.  In October 2002, Mr.
Elie  Housman,  then the Chairman of the Board of Inksure,  was appointed to the
ICTS Supervisory  Board. Mr. Getter, a member of the ICTS Supervisory Board, was
elected  to the  Board of  Inksure.  Mr.  Sass is also a member  of the Board of
Inksure.  Messrs. Housman, Getter and Sass, as well as an entity associated with
the Atzmon  Family  Trust,  own shares and  warrants  in Inksure.  In  addition,
Messrs.  Housman,  Getter and Sass hold options to purchase Inksure  securities.
Inksure develops,  markets and sells customized authentications systems designed
to enhance  the  security of  documents  and  branded  products  and to meet the
growing demand for protection from counterfeiting and diversion.                

      In September 2006, the Company entered into an arrangement  with a related
party to provide it with up to $3.1 million in  revolving  loans  through  April
2007.  Loans received under the arrangement  bear interest,  which is payable at
maturity, at LIBOR plus 1.5% per annum. The arrangement was secured by 2,157,894
shares of Inksure Technologies, Inc. common stock.                              

      In  January  2007,  the  borrowing  capacity  under  the  arrangement  was
increased to $6.3 million and the term was extended to April 2008. In connection
with the  extension,  the  related  party  was  granted  an  option  to  convert
outstanding  notes payable under the arrangement into the Company's common stock
at a price of $3.50 per share.                                                  

      In April 2008, the Company entered into a new arrangement with the related
party, which replaced all previous  arrangements,  to provide it with up to $6.6
million in revolving  loans through  November 2010. All  outstanding  borrowings
from previous  arrangements  were applied to the  borrowing  capacity of the new
arrangement.  Loans  received  under the  arrangement  bear  interest,  which is
payable at maturity, at LIBOR plus 1.5% per annum. The arrangement is secured by
a 26% interest in one of the  Company's  subsidiaries.  In  connection  with the
arrangement,  the  related  party was  granted an option to convert             

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outstanding  notes payable under the arrangement into the Company's common stock
at a price of $2.75 per share.                                                  

      In April 2009, the Company entered into a new borrowing arrangement with a
related party which replaced all previous  arrangements between the parties. The
new  arrangement  provides  the  Company  with the  ability to borrow up to $6.3
million from the related  party and is  convertible  at the option of the holder
into the Company's common stock at $2.10 per share.  All outstanding  borrowings
from previous  arrangements  were applied to the  borrowing  capacity of the new
arrangement. Borrowings under the arrangement bear interest, which is compounded
semi-annually,  at rates equivalent to those charged by the Company's commercial
bank. Principal and interest under the arrangement are payable in November 2013.
The  arrangement  is  secured  by  a  26%  interest  in  one  of  the  Company's
subsidiaries.                                                                   

      Entities  related to two of the  Company's  board  members  provide  legal
services to the Company.  Legal expense  related to these  services is $93, $138
and $107 for the years ended  December  31, 2008,  2007 and 2006,  respectively.
Included in accounts payable on the accompanying  consolidated  balance sheet is
$106 and  $182  due for  these  services  as of  December  31,  2008  and  2007,
respectively.                                                                   

      During the year ended December 31, 2007, the Company  engaged the services
of an  entity  owned  by a  related  party  as a  subcontractor  for  one of the
Company's  subsidiaries.  The Company incurred  expenses of $176, $91 and $0 for
such  services  for the  years  ended  December  31,  2008 and  2007  and  2006,
respectively.                                                                   

Item 8. Financial Information                                                   

Consolidated Statements and Other Financial Information.            

See pages F-1 through F-36 incorporated herein by reference.        

Legal Proceedings                                                   

United States Transportation Security Administration                

      In February 2002, one of the Company's subsidiaries was awarded a security
services  contract  (the "TSA  Contract")  by the United  States  Transportation
Security  Administration ("TSA") to continue to provide security services in all
of its  current  airport  locations  until the  earlier of either the  completed
transition of these  security  services on an airport basis to the U.S.  Federal
Government or November  2002. In accordance  with the terms of the TSA Contract,
the U.S.  Federal  Government  provided the Company with a non-interest  bearing
advance of $26 million which was payable to the TSA in monthly  installments  of
$1.3 million commencing in April 2002. Through December 31, 2008, the subsidiary
has repaid $14.3 million of the advance. As of December 31, 2008, the amount due
from the TSA with respect to services  provided  under the TSA Contract is $17.3
million.  The  Company  has  reflected  the amount due from the TSA,  net of the
remaining unpaid advance,  of $3 million as other receivable on the accompanying
consolidated balance sheet as of December 31, 2008 and 2007.                    

      The TSA filed a contract dispute with the Office of Dispute Resolution for
Acquisition  ("ODRA") in connection with the TSA Contract seeking  reimbursement
of an alleged  overpayment  of  principal in the amount of $59.2                

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million. This claim follows a lawsuit which the Company's subsidiary had already
filed against the TSA for repeated breach of contract.  The Company's subsidiary
is  vigorously  challenging  the TSA's  claim  which it asserts is devoid of any
factual or legal merit. The TSA's filing comes on the heels of a recent decision
by ODRA granting the  subsidiary's  motion for partial summary  judgment against
the TSA for breach of contract by failing  the give  appropriate  notice for the
transitioning of airport locations. A separate hearing will be held to determine
the amount of damages due to the  subsidiary on this claim.  With respect to the
claim for the $59.2 million  overpayment,  the  subsidiary has filed a motion to
dismiss the action which has been denied.  Both claims are now in mediation.  At
this  stage,  Management  is unable to  determine  the outcome of the dispute or
estimate a range of potential loss. Accordingly,  no provision has been included
in the accompanying consolidated balance sheet related to this matter.          

United States Department of Labor                                   

      During 2003, the United States  Department of Labor ("DOL")  finalized its
audit of the pay  rates  used to  compensate  employees  for  services  rendered
pursuant  to the TSA  Contract.  The DOL  concluded  that in certain  instances,
employees had not been paid the correct base rate, fringe benefits, vacation and
holiday pay. A long-term  liability of $7.3 million was  recognized  for the DOL
claim as of December  31,  2006.  The DOL claim was  settled  during 2007 for $3
million, payable with the proceeds received from any settlement with the TSA. As
a result of the  settlement  with the DOL, the Company  recorded  income of $4.3
million  during  the year ended  December  31,  2007,  which is  reflected  as a
reduction  in cost of  revenue.  As of December  31, 2008 and 2007,  a long-term
liability  to the DOL of $3 million is reflected  in  accompanying  consolidated
balance sheet.                                                                  

September 11, 2001 Terrorist Attacks                                

      As a result of the September 11, 2001 terrorist attacks, numerous lawsuits
charging the Company with wrongful death and/or  property  damage were commenced
in the United States District Court,  Southern  District of New York,  resulting
from certain airport security  services  provided by one of its subsidiaries for
United  Flight 175 out of Logan  Airport in Boston,  Massachusetts.  A number of
these cases have been settled,  are in the process of being settled or have been
dismissed at no cost to the Company.                                            

      The Company may be  indemnified by the airlines if the Company is found to
have followed the procedures  specified by the Federal Aviation  Administration.
However,  if the Company is found to have violated these screening  regulations,
it could be liable for  damages.  Based on an  internal  review of this  matter,
Management  has not found any  evidence of  non-compliance  with  respect to the
security services provided at Boston's Logan International  Airport on September
11, 2001.                                                                       

      The Company  maintains  an aviation  insurance  policy,  which may provide
limited  coverage for liabilities  that may be assessed against the Company as a
result of the events of September 11, 2001.  The  liabilities  under these cases
may, by statute,  be limited to the policy  coverage.  After the September  11th
terrorist  attacks,  the  Company's  insurance  carriers  canceled  all war risk
provisions contained in the Company's insurance policies.                       

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    Management is unable to determine the likelihood of an unfavorable outcome
or estimate a range of loss with respect to the  remaining  open claims  against
the Company.  Accordingly,  no provision has been  included in the  accompanying
balance sheet related to these matters.                                         

The United States Government                                        

      The Company had commenced an action  against the United States  Government
with  respect  to its  Fifth  Amendment  rights  relating  to the  taking of its
business. In December 2004, the United States Government's motion to dismiss the
case was denied.  A motion for  reconsideration  was also filed by the defendant
and  denied.  The trial for this  action was held and in March  2007,  the court
ruled against the Company's action. The Company appealed the decision and in May
2008,  the United States Court of Appeals for the Federal  Circuit  affirmed the
lower court's ruling.  In addition,  the Company appealed the case to the United
States Supreme Court, which denied certiorari.                                  

Audiovisual-Washington, Inc.                                        

      In September 2005, Avitecture, Inc. (a/k/a  Audiovisual-Washington,  Inc.)
("Avitecture")  filed a Demand for Arbitration and Mediation  against one of the
Company's  subsidiaries with the American  Arbitration  Association in Somerset,
New  Jersey.  The  Demand  for  Arbitration  alleges  that the  subsidiary  owes
Avitecture  $0.2  million  for audio,  video and control  systems.  The case was
decided  against the Company's  subsidiary in an arbitration  proceeding,  which
resulted in an award to Avitecture of $0.2 million.  The  arbitrator's  decision
was affirmed by the Superior  Court of New Jersey in May 2007 and the  Appellate
Court in February  2008.  The Company has $0.2  million in accrued  expenses and
other  current  liabilities  related to this matter as of December  31, 2008 and
2007.                                                                           

Turner Construction Company                                         

      In November 2005, Turner  Construction  Company  ("Turner") filed a Demand
for Arbitration and Mediation against one of the Company's subsidiaries with the
American  Arbitration  Association  in  Somerset,  New  Jersey.  The  Demand for
Arbitration  alleges that pursuant to a written agreement dated in October 2003,
the subsidiary owes Turner $0.9 million for work and/or services  performed.  In
an arbitration  proceeding,  the  arbitrator  awarded Turner $956 plus interest.
This award was  affirmed on appeal.  In October  2007,  the  subsidiary  filed a
petition of bankruptcy with the New Jersey  Superior Court,  which dismissed the
action again the  subsidiary  without  prejudice  as a result of the  bankruptcy
filing.  In anticipation  of Turner  attempting to reinstate or reopen the case,
the Company  elected not to release the $1.0 million  previously  established in
accrued expenses and other current  liabilities related to this matter. To date,
Turner has not moved to reinstate or reopen the case.                           

Landlord Claims                                                     

      Two of the Company's  subsidiaries have been sued by their landlord (which
is the same  entity for both  properties)  alleging  breach of their  respective
leases.  One suit is in the Circuit  Court of Baltimore  and the other is in the
Superior Court of New Jersey. The landlord is seeking unpaid rent for the entire
terms of the  leases  for $2.6  million in  Atlantic  City,  New Jersey and $3.7
million in Baltimore,  Maryland, plus legal fees. The Company filed a bankruptcy
petition for both of the subsidiaries. However, the landlord was able to prevail
in one of the claims  because of a guarantee  given by the                      

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Company in connection with the lease in one of the locations. In January 2008, a
judgment in the amount of $2.6 million was awarded in favor of the landlord. The
subsidiary  has filed an appeal to challenge  the  judgment.  As of December 31,
2008 and 2007,  the Company  has $7.3 and $8.5  million,  respectively  in other
liabilities from discontinued operations. The reduction in the Company's reserve
for these  matters is based on changes in the claims  against the Company and is
presented as part of discontinued operations.                                   

Fraport A.G. International Airport Services Worldwide               

      The Company  was in a dispute  with  Fraport  A.G.  International  Airport
Services  Worldwide  over the  alleged  unlawful  use of the letter  combination
"ICTS" by the Company.  Fraport initiated  proceedings before the district court
of Amsterdam. The principal amount claimed was (euro)57.7 million ($80.8 million
as of December 31, 2008). This dispute was settled in 2008 without any liability
to the Company.                                                                 

General                                                             

      The  Company  is  subject  to  various  investigations,  claims  and legal
proceedings  covering a wide range of matters that arise in the ordinary  course
of its business  activities.  These claims are  primarily  related to grievances
filed  by  current  and  former   employees   for  unfair  labor   practices  or
discrimination,  and for  passenger  aviation  claims.  Management  recognizes a
liability for any matter when the likelihood of an unfavorable outcome is deemed
to be probable and the amount is able to be reasonably estimated. Management has
concluded that such claims, in the aggregate,  would not have a material adverse
effect on the Company's consolidated financial position,  results of operations,
or cash flows.                                                                  

Subsequent  Events                                                  

      In April 2009, the Company entered into a new borrowing arrangement with a
related party which replaced all previous  arrangements between the parties. The
new  arrangement  provides  the  Company  with the  ability to borrow up to $6.3
million from the related  party and is  convertible  at the option of the holder
into the Company's common stock at $2.10 per share.  All outstanding  borrowings
from previous  arrangements  were applied to the  borrowing  capacity of the new
arrangement. Borrowings under the arrangement bear interest, which is compounded
semi-annually,  at rates equivalent to those charged by the Company's commercial
bank. Principal and interest under the arrangement are payable in November 2013.
The  arrangement  is  secured  by  a  26%  interest  in  one  of  the  Company's
subsidiaries.                                                                   

      Credit agreement of (euro)2,100 with one of the commercial banks,  expired
in May 2009 without being extended.                                             

Item 9. The Offer and Listing                                       

      ICTS's shares of common stock are currently  traded on the Bulletin  Board
OTC under the symbol ICTSF.OB.                                                  

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The reported  high and low closing sales prices per shares during the last      
five years were as follows:                                                     

Year                                        High               Low  
----                                        -----             ----- 
2004                                        $8.42             $1.35 
2005                                        $3.23             $1.58 
2006                                        $2.54             $0.10 
2007                                        $2.79             $1.40 
2008                                        $2.30             $1.70 

      The  reported  high and low  closing  sales  prices per share  during each
quarter for the last 3 years were as follows:                                   

2006                                        High               Low  
----                                        -----             ----- 
First quarter                               $2.54             $2.18 
Second quarter                              $2.33             $1.65 
Third Quarter                               $1.90             $1.06 
Fourth Quarter                              $2.30             $0.10 

2007                                        High               Low  
------                                      -----             ----- 
First Quarter                               $2.79             $2.00 
Second Quarter                              $2.25             $1.60 
Third Quarter                               $2.05             $1.45 
Fourth Quarter                              $1.98             $1.40 

2008                                        High               Low  
------                                      -----             ----- 
First Quarter                               $2.20             $1.80 
Second Quarter                              $2.20             $2.00 
Third Quarter                               $2.30             $1.92 
Fourth Quarter                              $2.20             $1.70 

Item 10. Additional Information                                     

Memorandum and Articles of Association                              

Introduction                                                        

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

Shares                                                              

      The  Company's   authorized  share  capital  is  currently   divided  into
17,000,000  common  shares,  per value  0.45 Euro per common  share.  The common
shares may be in bearer or  registered  form.  As of December 31, 2008 and 2007,

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6,672,980  shares were  issued.  The Company  holds  144,880  shares of treasury
stock.                                                                          

Dividends                                                           

      Dividends on common shares may be paid out of annual  profits shown in the
Company's  annual accounts,  which must be adopted by the Company's  Supervisory
Board.                                                                          

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

Voting Rights                                                       

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

General Meetings of Shareholders                                    

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

      Other  general  meetings  of  shareholders  may be held as often as deemed
necessary by the Supervisory  Board or the Management  Board and must be held if
one or more shareholders or other persons entitled to attend the general meeting
of shareholders  jointly representing at least 10% of the Company's issued share
capital make a written request to the Supervisory  Board or the Management Board
that a meeting  must be held and  specifying  in detail the business to be dealt
with  at  such  meeting.   Resolutions  are  adopted  at  general   meetings  of
shareholders  by a  majority  of the  vote's  cast,  except  where  a           

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different  proportion  of votes are required by the Articles of  Association  or
Netherlands  law,  in a meeting in which  holders of at least  one-third  of the
outstanding common shares are represented. Each share carries one vote.         

Amendment of Articles of Association and Winding Up                 

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

Approval of Annual Accounts                                         

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

Liquidation Rights                                                  

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

Issues of Shares; Pre-emptive Rights                                

      The  Company's  Supervisory  Board  has the  power  to issue  shares.  The
shareholders  have by an  authorizing  resolution  provided such authority for a
five year period ending  December 17, 2008. The number of shares the Supervisory
Board is authorized to issue must be set at the time of the  resolution  and may
not exceed 17,000,000 shares of the common shares then outstanding.             

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

Repurchase and Cancellation of Shares                               

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

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of the common shares.  Any such proposal is subject to general  requirements  of
Netherlands law with respect to reduction of share capital.                     

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

      On December 17, 2008, shareholders authorized the Company, for a period of
18 months, to expend funds up to $6.5 million to repurchase common shares in the
open  market  at prices  not to exceed  $10 per  share.  As of May 31,  2009 the
Company has not re-purchased any shares.                                        

Material contracts                                                  

For material contracts See "Item 8 - Financial Information".        

Exchange controls                                                   

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

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

Taxation                                                            

United States Federal Income Tax Consequences                       

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

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

      As used herein,  the term "U.S. Holder" means a beneficial owner of shares
that is (i) for United States  federal income tax purposes a citizen or resident
of the United States, (ii) a corporation or other entity created or organized in
or under the laws of the United States or any political  subdivision thereof,   

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or (iii) an estate or trust,  the income of which is  subject  to United  States
federal income taxation regardless of its source.                               

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

Taxation of Dividends                                               

      For U.S.  federal income tax purposes,  the gross amount of  distributions
(including any  withholding  tax thereon) made by the Company out of its current
or accumulated earnings and profits (as determined under U.S. federal income tax
principles)  will be  included in the gross  income of a direct  U.S.  Holder as
foreign source  dividend  income on the date of receipt but will not be eligible
for the dividends  received  deduction  generally allowed to U.S.  corporations.
Subject to the discussion below regarding passive foreign investment  companies,
the Company should be considered to be a "qualified foreign corporation" so that
such dividends should be eligible to be taxed as net capital gains (at a maximum
U.S.  federal rate of 15 percent).  Distributions  in excess of the earnings and
profits of the Company will be treated,  for U.S.  federal  income tax purposes,
first as a nontaxable return of capital to the extent of the U.S. Holder's basis
in the shares  (thereby  increasing  the amount of any gain and  decreasing  the
amount of any loss realized on the  subsequent  disposition  of such shares) and
then as a gain  from the sale or  exchange  of the  shares.  The  amount  of any
dividend paid in Euro will be equal to the U.S.  dollar value of the Euro on the
date of receipt  regardless of whether the U.S. Holder converts the payment into
U.S. dollars.                                                                   

      The  declaration  of dividends  will be at the discretion of the Company's
board  of  directors  and  will  depend  upon the  Company's  earnings,  capital
requirements,   financial  position,  general  economic  conditions,  and  other
pertinent factors.  The Company cannot assure you that dividends will be paid in
the future.                                                                     

Foreign Tax Credits                                                 

      U.S.  Holders will  generally be entitled to claim a credit  against their
United  States  federal  income  tax  liability  for the  amount of  Netherlands
dividend  withholding  tax  imposed  on  dividends  paid  to U.S.  Holders.  See
Netherlands  Dividend  Withholding  Tax.  U.S.  Holders who are  entitled to the
benefits of a reduced rate of  Netherlands  dividend  withholding  tax under the
U.S. Tax Treaty will be allowed a credit for only the amount of withholding  tax
provided for under the U.S. Tax Treaty (i.e. 15%).  However,  the full amount of
the dividend,  including any withheld  amounts in excess of 15%, will be subject
to current  United States  federal  income  taxation  whether or not such Holder
obtained a refund of the excess amount withheld. In the event the Company pays a
dividend  to a U.S.  Holder  out  of the  earnings  of a  non-Dutch  subsidiary,
however, it is possible that under certain  circumstances such U.S. Holder would
not be entitled  to claim a credit for a portion of any Dutch taxes  withheld by
the Company from such dividend.  The portion of Dutch  withholding  tax that may
not be creditable in this instance equals a maximum of 3% of the gross amount of
such dividend (or 20% of the Dutch taxes  withheld in the case of a U.S.  Holder
entitled  to claim a 15%  withholding  rate  under the U.S.  Tax  Treaty).  This
limitation could only potentially  apply under  circumstances  where the Company
pays dividends on the shares.                                                   

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

Taxation on Sale or Disposition of Shares                           

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

Gift and Estate Tax                                                 

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

Backup Withholding and Information Reporting                        

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

Passive Foreign Investment Company                                  

      Management has determined  that the Company has not been a passive foreign
investment  company  ("PFIC") for United States  federal income tax purposes for
prior  taxable years and believes that the Company will not be treated as a PFIC
for the current  and future  taxable  years,  but this  conclusion  is a factual
determination  made annually and thus subject to change.  The Company would be a
PFIC with  respect to a U.S.  Holder if, for any taxable year in which such U.S.
Holder held shares,  either (i) at least 75% of the  Company's  gross income for
the taxable year is passive income, or (ii) at least 50% of the Company's       

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assets are attributable to assets that produce or are held for the production of
passive income.  Under a "look-through" rule, a corporation takes into account a
pro rata share of the income and the assets of any corporation in which it owns,
directly  or  indirectly,  25% or more of the  stock by  value.  Passive  income
generally includes dividends,  interest,  royalties, rents (other than rents and
royalties derived from the active conduct of a trade or business and not derived
from a related  person),  annuities,  and gains from assets that produce passive
income.  The 50% asset  test would  apply to the  Company  based on fair  market
values.                                                                         

      If the Company is a PFIC for any taxable year during  which a U.S.  Holder
holds shares,  the U.S. Holder will be subject to special tax rules with respect
to:                                                                             

      o     any "excess  distribution"  that the U.S. Holder receives on shares,
and                                                     

      o     any gain the U.S. Holder  realizes from a sale or other  disposition
(including a pledge) of the shares,                     

unless the U.S.  Holder makes a "qualified  electing  fund" or  "mark-to-market"
election as discussed below.                                                    

      Distributions  the U.S. Holder receives in a taxable year that are greater
than 125% of the average annual  distributions  the U.S.  Holder received during
the shorter of the three preceding  taxable years or the U.S.  Holder's  holding
period for the shares  will be treated as an excess  distribution.  Under  these
special tax rules:                                                              

      o     the excess  distribution or gain will be allocated  ratably over the
U.S. Holder's holding period for the shares,            

      o     the amount  allocated to the current  taxable year,  and any taxable
            year  prior to the first  taxable  year in which the  Company  was a
PFIC, will be treated as ordinary income, and           

      o     the  amount  allocated  to each other year will be subject to tax at
            the highest tax rate in effect for that year and the interest charge
            generally  applicable to underpayments of tax will be imposed on the
resulting tax attributable to each such year.           

      The tax  liability  for  amounts  allocated  to years prior to the year of
disposition  or  "excess  distribution"  cannot be  offset by any net  operating
losses,  and gains (but not losses) realized on the sale of the shares cannot be
treated as capital, even if the U.S. Holder holds the shares as capital assets. 

      If the Company  were to become a PFIC,  a U.S.  Holder may avoid  taxation
under the  excess  distribution  rules  discussed  above by making a  "qualified
electing  fund"  election to include the U.S.  Holder's  share of the  Company's
income on a current basis.  However, a U.S. Holder may make a qualified electing
fund election only if the Company,  as a PFIC,  agree to furnish the shareholder
annually with certain tax information. Management has not decided whether, under
such circumstances, the Company would prepare or provide such information.      

      Alternatively,  if the Company  were to become a PFIC,  a U.S.  Holder may
make a  mark-to-market  election to elect out of the excess  distribution  rules
discussed above. If a U.S. Holder made a mark-to-market election for the        

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shares, the U.S. Holder would include in income each year an amount equal to the
excess,  if any, of the fair  market  value of the shares as of the close of the
U.S. Holder's taxable year over the U.S. Holder's adjusted basis in such shares.
A U.S.  Holder is allowed a deduction  for the excess,  if any, of the  adjusted
basis of the shares over their fair market  value as of the close of the taxable
year only to the extent of any net  mark-to-market  gains on the shares included
in the U.S. Holder's income for prior taxable years.  Amounts included in a U.S.
Holder's income under a mark-to-market  election,  as well as gain on the actual
sale or other disposition of the shares are treated as ordinary income. Ordinary
loss treatment also applies to the deductible portion of any mark-to-market loss
on the shares, as well as to any loss realized on the actual sale or disposition
of the  shares,  to the extent  that the amount of such loss does not exceed the
net  mark-to-market  gains previously  included for such shares. A U.S. Holder's
basis in the shares will be adjusted to reflect any such income or loss amounts.
Other than net capital gains  treatment for dividends,  the tax rules that apply
to   distributions   by  corporations   which  are  not  PFICs  would  apply  to
distributions by the Company.                                                   

      The mark-to-market election is available only for stock which is regularly
traded on a national  securities exchange that is registered with the Securities
and Exchange  Commission,  or the national market system established pursuant to
section  11A of the  Exchange  Act,  or any  exchange or market that the IRS has
determined  has rules  sufficient  to carry out the  purposes  of the income tax
rules.  There can be no assurance  that the Company will continue to satisfy the
requirements of the mark-to-market election.                                    

Taxes in the Netherlands                                            

      The  following is a general  non-exhaustive  discussion of the tax laws in
the Netherlands as they relate to the operations of the Company.                

Corporate Income Taxes                                              

      ICTS is  incorporated  under the laws of the  Netherlands and is therefore
subject  to the tax  laws of the  Netherlands.  In 2009 the  standard  corporate
income tax rate will be 20% on profits  up to (euro)  200,000  and 25.5% for the
excess.  In 2008 the standard  corporate  income tax rate was 20% applicable for
taxable profits up to (euro) 275,000 and 25.5% for the excess.                  

      ICTS and a number of its Dutch resident subsidiary companies form a fiscal
unity for Dutch  corporate  income tax purposes.  As a result,  Dutch  corporate
income tax is levied from these entities on a consolidated basis at the level of
ICTS.                                                                           

      For  Dutch  corporate  income  tax  purposes  business  affiliates  should
calculate  their  profits on an "at arms  length"  basis.  In case  transactions
between such  affiliates  are made or imposed on  conditions  (transfer  prices)
which differ from those conditions which would have been made or imposed between
independent  entities  in the free  market,  the profits of those  entities  are
determined as if the latter conditions had been agreed.                         

Participation Exemption                                             

      In  general,  the  Dutch  participation   exemption  is  applicable  to  a
shareholding  held  by ICTS  in a  subsidiary  company  in  case  the  following
conditions are met:                                                             

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(i) The subsidiary company has a capital divided into shares; and               

(ii)  ICTS  holds  at least  5% of the  nominal  paid-in  share  capital  of the
subsidiary  company;  unless  the  subsidiary  company  can be  considered  as a
low-taxed portfolio investment company;                                         

      A subsidiary  company is considered as  "low-taxed" in case the company is
not  subject to a profit tax that equals at least an  effective  tax rate of 10%
over a taxable base determined according to Dutch standards.                    

      Whether or a  subsidiary  company  qualifies  as a (low  taxed)  portfolio
investment  company  is  determined  based on an asset  test at the level of the
subsidiary.  A shareholding is qualified as a portfolio investment if the assets
of the subsidiary  directly or indirectly consist  predominantly  (i.e. for more
than 50%) of "free portfolio  investments",  being portfolio assets that are not
used for business activities,  including assets used for passive group financing
activities. The test is applied from the perspective of the subsidiary itself.  

      Nonetheless, the participation exemption will be applicable in case 90% or
more of the assets of the subsidiary company consist of real estate.            

      In case the participation exemption is applicable,  income in the hands of
ICTS arising  from  dividends  paid by  subsidiaries  or capital  gains from the
disposal of its shares in such  subsidiaries is exempt from corporate income tax
in The  Netherlands.  Apart  from  special  provisions  in  relation  to certain
liquidation   losses,   capital  losses   incurred  in  relation  to  qualifying
participations are not deductible for Dutch corporate income tax purposes.      

      In case the participation exemption is not applicable, income derived from
a  subsidiary  company  will be taxed  in the  hands  of ICTS  against  ordinary
corporate  income  tax  rates,  while a  (partial)  credit  may be  allowed  for
underlying taxes.                                                               

      Costs  related  to  the  acquisition  of  qualifying   participations  are
generally  added  to the  cost  price  of the  acquisition  and are as such  not
deductible.  Other  expenses  relating  to  participations  (e.g.  the  cost  of
financing),  regardless  of whether  they are  resident  in the  Netherlands  or
abroad,  are in principle  deductible  (however,  see infra).  As of 2007, costs
related  to the  disposal  of  participations  falling  within  the scope of the
participation exemption will also no longer be deductible.                      

Interest deduction limitations                                      

      As of January 1, 2004,  thin  capitalization  rules were introduced in the
Netherlands  which include  restrictions on the deductibility of interest in the
case of companies that are excessively  financed by debts. A company is regarded
as  excessively  financed by debts if the average  annual debt for tax  purposes
exceeds  three times the average  annual  equity for tax  purposes to the extent
that the excess is larger than (euro)500,000.  As an alternative to applying the
fixed 3:1 debt/equity ratio, as a safe harbor, ICTS may from year to year decide
to apply  the  average  debt/equity  ratio of the "top  entity"  of the group of
companies  to which it belongs as its  maximum  debt/equity  ratio  based on the
statutory  commercial  (consolidated)  accounts  of that  entity.  The amount of
non-deductible interest is limited to interest due to affiliated group companies
(to the extent that such interest  exceeds  interest  received  from  affiliated
group companies).                                                               

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      Besides  the  thin-capitalization  regulations,  Dutch  tax  law  includes
various  other  sets of  anti-abuse  provisions  in  relation  to  deduction  of
interest.                                                                       

Loss compensation                                                   

      As of 2008 the term for  carry-back  operating  losses is  reduced  to one
year. Further, the term for carry-forward of losses is restricted to nine years,
subject  to certain  anti-abuse  provisions.  Not yet  compensated  losses  will
disappear  after these terms have lapsed.  Based on transitional  rules,  losses
sustained in book years up to and including 2002 may be set-off  against profits
of book years up to and including 2011,                                         

      Limitations on loss  compensation  may also apply in the case of so-called
"holding  losses",  - losses incurred in a book year during which the activities
of ICTS  (jointly  with the  subsidiary  companies  that form part of the fiscal
unity for Dutch  corporate  income tax purposes) for the entire or almost entire
year,  entirely or almost entirely consist of the holding of  participations  or
the direct  financing  of related  companies.  This will be deemed not to be the
case if at least 25  employees  are engaged in other  activities  on a full-time
basis.                                                                          

Corporate Income Tax 2007 Act, other changes                        

      As of January 1, 2007,  changes to the  corporate  income tax  legislation
include the introduction of an "interest box" and a "patent box".               

      In the  interest  box regime  (not yet  entered  into  force),  subject to
certain conditions, the positive balance of interest receivable from and payable
to group  companies  will be taxed  against an effective tax rate of 5% (up to a
certain maximum depending on the amount of equity for tax purposes). Application
of the interest box regime is optional.  Therefore,  ICTS may  determine  itself
whether or not to apply the  interest box regime.  If applied,  the interest box
regime must, in principle,  be applied by all Dutch resident group companies for
a period of at least 3 years.                                                   

      In the patent box  regime,  which has  entered  into  force,  income  from
self-developed  intangible assets will be taxed an effective tax rate of 10%. In
general,  the maximum  amount of income to be taxed this special rate is limited
to 4 times the total costs in relation to the intangible assets.  Application of
the patent box is  possible in relation  only to  intangible  assets for which a
patent is granted.  Further,  application of the patent box regime is subject to
the condition that the income generated with an intangible asset, can for 30% or
more,  be  attributed  to the  patent.  Brands,  images and  similar  assets are
excluded  from the patent box  regime.  Application  of the patent box regime is
optional. ICTS may also decide to deduct R&D costs against other regularly taxed
income when determining its taxable income. At a later stage, subject to certain
conditions aimed at avoiding that costs are deducted  against regular  corporate
income tax rates whereas  income is taxed under the patent box regime against an
effective  rate of 10%,  ICTS may in this case still  decide to apply the patent
box regime.                                                                     

      Further,  as of January  1, 2008  restrictions  apply on the  depreciation
period of goodwill and other business assets.  The minimum  depreciation  period
for goodwill is 10 years.  The minimum  depreciation  period for other  business
assets  is 5 years.  It  should  still be  possible  to  value  assets  at lower
going-concern value. Further, restrictions have been                            

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introduced  on  the  depreciation  of  real  estate  property.  Depreciation  of
investment  property is no longer allowed in case the book value of the property
falls below the official fair market value of the property for tax purposes. The
depreciation  of real  estate  property  used as part of a trade or  business is
allowed  as long as the book  value of the real  estate  property  does not fall
below 50% of the official fair market value of the property for tax purposes.   

Dutch Tax Consequences of Holding Shares                            

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

Dividend Withholding Tax in the Netherlands                         

      ICTS currently does not anticipate paying any dividends in the foreseeable
future.  To the extent that dividends are  distributed  by ICTS,  such dividends
ordinarily  would  be  subject,  under  the tax  laws of the  Netherlands,  to a
withholding tax at a rate of 15%. Dividends include  distributions in cash or in
kind, deemed dividends and redemption and liquidation proceeds in excess of, for
Dutch tax purposes,  recognized paid-in capital. In case there are profits or in
case profits can be  anticipated,  the  repayment of ICTS' share premium is also
subject to dividend  withholding  tax.  Further,  share dividends are subject to
Dutch dividend  withholding  tax,  unless  distributed  out of the paid-in share
premium of ICTS as recognized for tax purposes in the Netherlands.              

      A non-resident  Shareholder can be eligible for a reduction or a refund of
Dutch dividend withholding tax under a tax convention which is in effect between
the country of residence of the  shareholder and the  Netherlands,  or under the
provisions of the EU Parent/Subsidiary  Directive. The Netherlands has concluded
such  conventions  with,  among others,  the United States,  most European Union
member states,  Canada,  Switzerland and Japan. Under most of these conventions,
dividend  withholding tax in the Netherlands is effectively set at a rate of 15%
in the case of an individual  shareholder,  and is reduced to lower rates in the
case of a corporate shareholder.                                                

      Under the tax convention  currently in force between the United States and
the  Netherlands  (the  "Treaty"),  dividends  paid  by  ICTS  to an  individual
shareholder resident in the United States or a corporate  shareholder  organized
under the laws of the United  States or any State or territory  thereof  holding
less than 10% of the voting power in ICTS (each, a "U.S.  Treaty  Shareholder"),
are subject to Dutch dividend  withholding  tax of 15%,  unless such U.S. Treaty
Shareholder has a permanent  establishment  or permanent  representative  in the
Netherlands to which or to whom the Common Shares are  attributable.  Subject to
certain conditions, the dividend withholding tax rate may be reduced to 5% or 0%
in case a qualifying U.S. resident corporate shareholder would hold at least 10%
respectively at least 80% of the voting power in ICTS.                          

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      Generally,  there  is  no  dividend  withholding  tax  applicable  in  the
Netherlands  on the sale or  disposition  of Common Shares to persons other than
ICTS or its subsidiaries or affiliates. In case of sale or disposition of Common
Shares  to  ICTS or any of its  subsidiaries,  dividend  withholding  tax in the
Netherlands  may apply.  However,  after January 1, 2008, in exceptional  cases,
Dutch dividend withholding tax will not apply to repurchases of shares by ICTS. 

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

Income Tax and Corporate Income Tax in the Netherlands              

      Based on Dutch domestic tax law, a non-resident  Shareholder is subject to
Dutch  income  tax or Dutch  corporate  income  tax with  respect  to  dividends
distributed  by ICTS on the  Common  Shares or with  respect  to  capital  gains
derived from the sale or disposal of Common Shares in case:                     

      (a) the non-resident  Shareholder carries on a business in the Netherlands
through a permanent  establishment or a permanent  representative to which or to
whom the Common Shares are attributable; or                                     

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

      (c) the non-resident  Shareholder is entitled to a share in the profits of
an  enterprise  effectively  managed  in The  Netherlands,  other  than  through
ownership of securities  or, in the case of an individual  shareholder,  through
employment, to which enterprise the Common Shares are attributable.             

      Generally, there is a substantial interest in the share capital of ICTS if
the non-resident Shareholder, alone or together with his or her partner (spouse,
registered  partner or other  individuals  as defined in the Dutch 2001 Personal
Income Tax Act),  owns,  directly  or  indirectly,  (i) 5% or more of the issued
capital  of any class of shares in ICTS,  (ii)  options to acquire 5% or more of
the issued capital of any class of shares or (iii)  profit-sharing  rights to 5%
or more of the  annual  profits  or  liquidation  distributions  of ICTS.  If an
individual,  alone or together  with his  partner,  does not have a  substantial
interest based on these tests,  he or she may  nevertheless  be deemed to have a
substantial  interest in case certain  relatives hold a substantial  interest in
ICTS.  In case of a  substantial  interest  held by a corporate  shareholder,  a
receivable the  non-resident  Shareholder  has from ICTS may also belong to such
substantial interest. Non-resident Shareholders owning a substantial interest in
ICTS may be subject to income tax upon the  occurrence  of certain  events,  for
example when they cease to own a substantial interest.                          

      The Netherlands'  right to levy tax with respect to dividends  distributed
by ICTS to a non-resident  Shareholder or capital gains derived from the sale or
disposal of shares in ICTS by a non-resident  Shareholder may be limited under a
tax  convention  which may be in effect  between the country of residence of the
shareholder and the Netherlands.                                                

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      In case Dutch income tax is due with respect to dividends  distributed  by
ICTS,  Dutch dividend  withholding tax levied with respect to such dividends can
be credited against the income tax due as a pre-tax.                            

      If certain conditions are met, a non-resident  individual taxpayer can opt
to be treated like a resident of the Netherlands  for tax purposes.  This choice
will allow the individual to benefit from deductions and other tax benefits only
available to residents of the  Netherlands.  Whether or not such choice could be
beneficial should be determined separately in each individual case.             

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

      A gift or  inheritance  of Common Shares from a  non-resident  Shareholder
will be subject to gift, inheritance tax, and transfer tax upon gift or death in
the Netherlands in case:                                                        

            (a) (i) the  Common  Shares  are an  asset  attributable  to a Dutch
resident   enterprise   or  to  a   permanent   establishment   or  a  permanent
representative of a non-resident enterprise, as well as the Common Shares are an
asset that comes of a co-entitlement other than being a shareholder,  in such an
enterprise,  or (ii) the non-resident  Shareholder is entitled to a share in the
profits of an  enterprise  effectively  managed in the  Netherlands,  other than
through ownership of securities or through  employment,  to which enterprise the
Common Shares are attributable; or                                              

            (b)  the  Common  Shares  held  by  the   non-resident   qualify  as
"fictitious  real estate  holdings" for Dutch real estate transfer tax purposes;
or                                                                              

            (c)  the  non-resident  Shareholder  has  been  a  resident  of  the
Netherlands  at any time during the ten years  preceding the time of the gift or
death and is a national of the Netherlands at the time of the gift or death; or 

            (d) for purposes of the tax on gifts, the  non-resident  Shareholder
has been a resident  of the  Netherlands  at any time  during the twelve  months
preceding the time of the gift; or                                              

            (e) the  beneficiaries of a deceased  non-resident  Shareholder have
requested  the  treatment  of the  deceased  Shareholder  as a  resident  of the
Netherlands according to the Dutch inheritance taxes; or                        

            (f)  In  case  of a gift  of the  Common  Shares  by a  non-resident
Shareholder, the recipient has requested to have the donor treated as a resident
of the Netherlands for Dutch gift tax purposes.                                 

Tax assessment in the U.S                                           

      Under ongoing tax examination of the U.S  subsidiaries of the Company,  by
the U.S tax authorities,  through the years ended December 31, 2002 to 2004, the
subsidiaries were required to provide  information  regarding their treatment of
certain expenses.  By letter dated August 15, 2006, the Company was advised that
a criminal  investigation  by the  United  States  Department  of  Justice,  Tax
Division was ongoing by a grand jury regarding  possible criminal tax violations
by the  subsidiary  for the tax years 2002 and 2003  regarding  certain  royalty
payment made to the  Company.  In 2008 the Company was advised that the criminal
investigation  was dismissed.  The IRS has proposed a number of adjustments that
collectively  result in an assessed tax  liability  including  penalties of $7.3

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million  plus  interest.   Management  is  vigorously  contesting  the  proposed
adjustments and has filed a "protest" with the IRS. This matter will be heard by
the  Appellate  Division  of the  IRS,  at which  time  management  will  have a
opportunity  to  present  its  position  on the  various  issues  raised  at the
examination  level.   Management  has  provided  for  possible  tax  liabilities
resulting from this examination in its financial statements presented herein.   

Documents on display                                                

      The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended.  In accordance  with these  requirements,  the
Company files reports and other  information  with the United States  Securities
and  Exchange  Commission  ("SEC").  These  materials  may be  inspected  at the
Company's office in Amstelveen,  The  Netherlands.  Documents filed with the SEC
may also be read and  copied at the SEC's  public  reference  room at Room 1024,
Judiciary Plaza Building, 450 Fifth Street N.W.,  Washington,  D.C. 20549 and at
the regional offices of the SEC located at 500 West Madison Street,  Suite 1400,
Chicago, IL 60661. Please call the SEC at 1-800-SEC-0330 for further information
on  the  public   reference  rooms.  The  SEC  also  maintains  a  web  site  at
http://www.sec.gov that contains reports, proxy statements and other information
regarding registrants that file electronically with the SEC.                    

Subsidiary Information                                              

Not applicable                                                      

Item 11. Quantitative and Qualitative Disclosure About Market Risk              

      Foreign Currency Exchange Risk - applies to Company's  operations  outside
the USA. In 2008,  about 41% of the Companies  revenues were derived in the USA,
and 59% was derived in Europe.                                                  

      The Company is subject to changes in the rate based on the Federal Reserve
actions and general  market  interest  fluctuations.  The Company  believes that
moderate  interest rate increases will not have a material adverse impact on the
results of their operations,  or financial position,  in the foreseeable future.
An  increase  of 1% in the  interest  rate would have  increased  the  Company's
interest  expense  for  factor  advances,  bank  loans,  and other  parties,  by
approximately $125,000 in the year ended December 31, 2008.                     

See also note 2 in the financial statements.                        

Item 12. Description of Securities Other than Equity Securities                 

Not applicable                                                      

 PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies                        

      As of  December  31, 2008 two of the  subsidiaries  were in  violation  of
certain financial  covenants  specified in the credit  agreement,  including the
payment  of  dividends  without  the  approval  of the  commercial  bank and the
maintenance of a minimum  tangible net worth  threshold.  However the commercial
bank accepted those violations with no penalties to the Company.  On May 1, 2009
the credit agreement expired.                                                   

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

Not applicable                                                

Item 15. Controls and Procedures.                                               

  Management's report on internal control over financial reporting

      (a) Our  management,  including  our  chief  executive  officer  and chief
financial officer,  have evaluated the effectiveness of our disclosure  controls
and  procedures  as of  December  31,  2008.  Based on such  review,  our  chief
executive  officer and chief  financial  officer have  concluded that we have in
place  effective  controls and  procedures  designed to ensure that  information
required to be  disclosed  by us in the reports that we file or submit under the
Securities  Exchange Act of 1934, as amended, is accumulated and communicated to
our  management,  including  our principal  executive  and  principal  financial
officers,  or persons  performing  similar  functions,  as  appropriate to allow
timely decisions  regarding  required  disclosure,  and is recorded,  processed,
summarized  and reported,  within the time periods  specified in the SEC's rules
and forms.                                                                      

      (b) Our  management  including our chief  executive  officer and our chief
financial  officer are responsible  for  establishing  and maintaining  adequate
internal  control over  financial  reporting as defined in Rules  13a-15(f)  and
15d-15(f) under the Exchange Act. Our internal control over financial  reporting
is a process  to provide  reasonable  assurance  regarding  the  reliability  of
financial  reporting and the  preparation  of financial  statements for external
purposes in  accordance  with  generally  accepted  accounting  principles.  Our
internal control over financial reporting includes those policies and procedures
that:                                                                           

      o     pertain to the  maintenance  of records that, in reasonable  detail,
            accurately and fairly reflect the  transactions  and dispositions of
our assets,                                             

      o     provide  reasonable  assurance  that  transactions  are  recorded as
            necessary  to  permit   preparation   of  financial   statements  in
            accordance with generally accepted accounting  principles,  and that
            our receipts and expenditures are being made only in accordance with
authorizations of our management and directors, and     

      o     provide  reasonable   assurance   regarding   prevention  or  timely
            detection of  unauthorized  acquisition,  use or  disposition of our
            assets  that  could  have  a  material   effect  on  the   financial
statements.                                             

      Our  management  recognizes  that there are  inherent  limitations  in the
effectiveness  of any  system of  internal  control  over  financial  reporting,
including the  possibility of human error and the  circumvention  or override of
internal control.  Accordingly,  even effective  internal control over financial
reporting  can provide  only  reasonable  assurance  with  respect to  financial
statement preparation, and may not prevent or detect all misstatements. Further,
because of changes in conditions,  the  effectiveness  of internal  control over
financial reporting may vary over time.                                         

      Our  management  including  our  chief  executive  officer  and our  chief
financial  officer  assessed  the  effectiveness  of our  internal  control over

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financial  reporting as of December 31, 2008.  In conducting  its  assessment of
internal  control over financial  reporting,  management based its evaluation on
the  framework  in  "Internal  Control  -  Integrated  Framework"  issued by the
Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission  (COSO).
Management  has based the  assessment in a scope that  includes the  significant
subsidiaries i.e. ISEC  International  Security B.V, Procheck  International BV,
I-SEC  Netherlands  BV,  I-SEC  France  and  Huntleigh  Corp  USA;  collectively
"Subsidiaries".  Our management  including our chief  executive  officer and our
chief financial officer has concluded based on its assessment, that our internal
control over financial  reporting was effective as of December 31, 2008 based on
these criteria.                                                                 

      This  annual  report  does  not  include  an  attestation  report  of  our
registered  public  accounting  firm regarding  internal  control over financial
reporting.                                                                      

      Management's  report was not  subject  to  attestation  by our  registered
public  accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management's report in this annual report.                         

      (c) There were no changes in our internal control over financial reporting
that  occurred  during the year ended  December  31,  2008 that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.                                                       

Item 16A. Audit Committee Financial Experts                                     

      The members of the Audit  Committee  consist of Philip M.  Getter,  Gordon
Hausmann and Eytan Barak. All members are independent, with no relationship with
management. Mr. Getter and Mr. Barak have financial expertise. Mr. Getter is the
Chairman of the Audit Committee and Eytan Barak is a CPA (Isr).                 

Item 16B. Code of Ethics                                                        

      The  Company  has  adopted  a Code of  Ethics  for  principal's  executive
officers and senior financial  officers.                                        

Item 16C. Fees Paid to Our Independent Registered Public Accounting Firm        

      The following table sets forth the aggregate fees billed by our registered
independent  auditors,  MHM Mahoney Cohen,  CPAs,  P.C. ("MHM MC"), for services
rendered to us for the year ended  December 31, 2008.  The fee billed by MHM MC,
our  independent   registered  public  accounting  firm,  for  audit  and  other
professional  services during 2008 is summarized  below. The audit committee has
considered   whether  the  provision  of  these  services  is  compatible   with
maintaining the principal accountant's  independence and has concluded that such
services are  compatible.  All fees were reviewed and  pre-approved by the audit
committee.                                                                      

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                              2008    2007
                              ----    ----
Audit fees:                                     
Audit fees                       300     300    
Audit related fees                              
Sub-total                        300     300    
Non-Audit services:                             
Tax fees                                        
Total fees                       300     300    

Item 16D. Exemptions from listing standards for Audit Committees.               

      One of the  Company's  directors who acts as the chairman of the Company's
Audit Committee is also a director and chairman of the Audit Committee of one of
the Company's  affiliates.  Other than such  affiliation such director meets the
independence requirement for each such entity.                                  

Item 16F. Change in Accountants Disclosure.                                     

      ICTS International  N.V. ("the Company")  appointed MHM Mahoney Cohen CPAs
as the Company's new auditor on January 8, 2009. The Company's  audit  committee
approved the  engagement  of the successor  firm of MHM Mahoney Cohen CPAs.  The
Company was notified that the shareholders of Mahoney Cohen & Company, CPA, P.C.
("MC"),  became  shareholders  of Mayer Hoffman  McCann P.C pursuant to an asset
purchase  agreement which is registered with the PCAOB. The New York practice of
Mayer Hoffman McCann P.C. now operates under the name MHM Mahoney Cohen CPAs.   

      During the Company's two most recent fiscal years ended  December 31, 2007
and December 31, 2006,  and through the date of this Current Report on this Form
20F, the Company did not consult with MHM Mahoney  Cohen CPAs  regarding  any of
the  matters or  reportable  events set forth in Item 304 (a)(2) (i) and (ii) of
Regulation S-K.                                                                 

      The  audit  reports  of  MC  were  based  on  the  consolidated  financial
statements  of the Company as of and for the years ended  December  31, 2007 and
2006 did not contain an adverse opinion or a disclaimer of opinion, and were not
qualified except that both reports included emphasis  paragraphs  relating to an
uncertainty  as to the  Company's  ability to  continue  as a going  concern and
regarding other uncertainties.                                                  

      In  connection  with the audits of the  Company's  consolidated  financial
statements for each of the fiscal years ended December 31, 2007 and December 31,
2006 and through the date of this Current Report on Form 20F, there were (i.) no
disagreements between the Company and MC on any matters of accounting principles
or practices,  financial statement disclosures, or auditing scope or procedures,
which  disagreements,  if not  resolved to the  satisfaction  of MC,  would have
caused MC to make reference to the subject matter of the  disagreement  in their
reports  on the  Company's  financial  statements  for  such  years  or for  any
reporting period since the Company's last fiscal year end and (ii) no reportable
events within the meaning set forth in Item 304 (a)(1)(v) of Regulation S-K were
noted,  except in 2006 the Company reported material weaknesses as noted on Item
15 of Form 20-F for the year ended December 31, 2006 filed July 17, 2007.  These
matters were remediated in 2007.                                                

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Item 16G. Corporate Governance.                                                 

      There are no  significant  differences  between the  corporate  governance
practices  in the  Netherlands  and the U.S.  The  Company  has adapted the U.S.
practices.                                                                      

PART III

Item 17. Financial Statements. See Item 18.                                     

Item 18. Financial Statements                                                   

Reports of Independent Registered Public Accounting Firms           

Consolidated Financial Statements                                   

Consolidated Balance Sheets                                         

Consolidated Statements of Operations and Comprehensive Operations  

Consolidated Statements of Changes in Shareholders' Equity          

Consolidated Statements of Cash Flows                               

Notes to Consolidated Financial Statements                          

Item 19. Exhibits                                                               

1. Articles of Association of the Company.*                         

      2. Articles of Amendment of the Articles of  Association  filed as exhibit
to Form 6K dated April 22, 2009.                                                

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

      4. Code of Ethics for Principal  Executive  Officers and Senior  Financial
Officers.**                                                                     

      Certification by the Registrant's  Chief Executive  Officer pursuant to 18
U.S.C.  Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
Act of 2002                                                                     

      Certification by the Registrant's  Chief Financial  Officer pursuant to 18
U.S.C.  Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
Act of 2002                                                                     

*     Incorporated  by reference to the Company's  1999 annual report filed with
the Commission on Form 20-F.                                        

**    Incorporated  by reference to the Company's  2003 annual report filed with
the Commission on Form 20-F.                                        

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SIGNATURES

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

                                     ICTS INTERNATIONAL, N.V. AND SUBSIDIARIES

               By: /s/ Avraham Dan
                         -----------------------------
             Name: Avraham Dan
                    Title: Managing Director

Date: June 24, 2009                                                             

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES

2008 ANNUAL REPORT

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page

Reports of Independent Registered Public Accounting Firms                    F-2

Consolidated Financial Statements:                                          

  Consolidated Balance Sheets                                                F-4

  Consolidated Statements of Operations and Comprehensive Loss               F-5

  Consolidated Statements of Changes in Shareholders' Deficiency             F-6

  Consolidated Statements of Cash Flows                                      F-7

  Notes to Consolidated Financial Statements                                 F-9

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Directors and Shareholders of                                   
ICTS INTERNATIONAL N.V AND SUBSIDIARIES                                         

      We have  audited  the  accompanying  consolidated  balance  sheet  of ICTS
International  N.V.  and  Subsidiaries  as of December  31, 2008 and the related
consolidated  statements  of  operations  and  comprehensive  loss,  changes  in
shareholders'  deficiency,  and  cash  flows  for the  year  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.                                                                      

      We  conducted  our audit in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audit provides a
reasonable basis for our opinion.                                               

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all  material  respects,  the  financial  position  of ICTS
International  N.V. and  Subsidiaries as of December 31, 2008 and the results of
its  operations  and its cash flows for the year then ended in  conformity  with
accounting principles generally accepted in the United States of America.       

      As  disclosed  in Notes 13 and 16, the Company is involved in  significant
litigation  in connection  with (a) an audit of the Company's  operations in the
United States of America by the Internal  Revenue  Service (b) the September 11,
2001  terrorist  attacks  in the  United  States of  America,  (c)  unpaid  rent
obligations  related to certain non-core businesses which have been discontinued
in the United States of America, and (d) certain claims made against the Company
by the United States Transportation Security Administration.                    

      The  accompanying  consolidated  financial  statements  have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated  financial statements,  the Company has suffered recurring
losses  from  operations,  deficiencies  in  working  capital  and is subject to
potential material contingencies as discussed in the preceding paragraph.  These
matters raise  substantial  doubt about the  Company's  ability to continue as a
going  concern.  Management's  plans  with  regard  to  these  matters  are also
described in Note 1. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of these uncertainties.          

/s/ MHM Mahoney Cohen CPAs                                                      
(The New York Practice of Mayer Hoffman McCann P.C.)                      

New York, New York                                                              
June 26, 2009                                                                   

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Directors and Shareholders of                                   
ICTS INTERNATIONAL N.V AND SUBSIDIARIES                                         

      We have  audited  the  accompanying  consolidated  balance  sheet  of ICTS
International  N.V.  and  Subsidiaries  as of December  31, 2007 and the related
consolidated  statements  of  operations  and  comprehensive  loss,  changes  in
shareholders'  deficiency,  and cash flows for each of the years in the two year
period then ended.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.                                       

      We conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.                                               

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all  material  respects,  the  financial  position  of ICTS
International  N.V. and  Subsidiaries as of December 31, 2007 and the results of
its  operations  and its cash flows for each of the years in the two year period
then ended in conformity with accounting  principles  generally  accepted in the
United States of America.                                                       

      As  disclosed  in Notes 13 and 16, the Company is involved in  significant
litigation in connection  with: (a) an audit of the Company's  operations in the
United States of America by the Internal  Revenue  Service (b) the September 11,
2001  terrorist  attacks  in the  United  States of  America,  (c)  unpaid  rent
obligations  related to certain non-core businesses which have been discontinued
in the United States of America,  (d) certain claims made against the Company by
the United States Transportation  Security Administration and (e) the successful
renewal of a material contract by one of the Company's subsidiaries.            

      The accompanying financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations,  deficiencies  in working  capital and is subject to potential
contingencies  as discussed in the  preceding  paragraph.  These  matters  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans with regard to these  matters are also  described in Note 1.
The consolidated  financial statements do not include any adjustments that might
result from the outcome of these uncertainties.                                 

/s/ Mahoney Cohen & Company, CPA, P.C.                                          

New York, New York                                                              
June 30, 2008                                                                   

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  ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (US $ and (euro) in thousands, except per share data)

                                                        [Enlarge/Download Table]

                                                                December 31,           
                                                      -------------------------------- 
ASSETS                                                   2008                   2007   
                                                      -------------------------------- 
                                                                                       
CURRENT ASSETS:                                                                        
  Cash and cash equivalents                           $  3,750                $  2,095 
  Restricted cash                                         --                     1,795 
  Accounts receivable, net                              11,448                  10,200 
  Prepaid expenses and other current assets              1,373                   1,681 
  Current assets from discontinued operations             --                     2,873 
                                                      -------------------------------- 

Total current assets                                    16,571                  18,644 

Property and equipment, net                              1,728                   1,519 
Customer relationship, net                                --                        53 
Goodwill                                                   314                     314 
Restricted cash                                          3,500                   3,500 
Other receivable - United States government              3,000                   2,934 
Other assets                                               283                     139 
                                                      -------------------------------- 

Total assets                                          $ 25,396                $ 27,103 
                                                      ================================ 

LIABILITIES AND SHAREHOLDERS' DEFICIENCY                                               
CURRENT LIABILITIES:                                                                   
  Notes payable-bank                                  $  4,861                $  6,719 
  Accounts payable                                       4,087                   4,432 
  Accrued expenses and other current liabilities        21,023                  16,181 
  Convertible notes payable to related party,                                          
    including accrued interest                            --                       884 
  Current liabilities from discontinued operations       1,898                   2,089 
                                                      -------------------------------- 

Total current liabilities                               31,869                  30,305 

Convertible notes payable to related party,                                            
  including accrued interest                             6,072                   5,644 
Other liabilities                                        3,144                   3,234 
Non-current liabilities from discontinued operations     7,276                   8,530 
                                                      -------------------------------- 

Total liabilities                                       48,361                  47,713 
                                                      -------------------------------- 

COMMITMENTS AND CONTINGENCIES (NOTE 16)                                                

SHAREHOLDERS' DEFICIENCY:                                                              
  Common stock, (euro)0.45 par value; 17,000,000                                       
    shares authorized; 6,672,980 shares issued and                                     
    6,528,100 shares outstanding                         3,605                   3,605 
  Additional paid-in capital                            20,655                  20,554 
  Accumulated deficit                                  (38,827)                (36,858)
  Accumulated other comprehensive loss                  (7,499)                 (7,012)
  Treasury stock, at cost; 144,880 shares                 (899)                   (899)
                                                      -------------------------------- 

Total shareholders' deficiency                         (22,965)                (20,610)
                                                      -------------------------------- 

Total liabilities and shareholders' deficiency        $ 25,396                $ 27,103 
                                                      ================================ 

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

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

                                                        [Enlarge/Download Table]

                                                                   Year Ended December 31,               
                                                 ------------------------------------------------------- 
                                                     2008                  2007                 2006     
                                                 ------------------------------------------------------- 
                                                                                                         
Revenue                                          $    98,809           $    64,780           $    60,791 
Cost of revenue                                       85,107                52,397                55,284 
                                                 ------------------------------------------------------- 

GROSS PROFIT                                          13,702                12,383                 5,507 
Selling, general, and administrative expenses         15,341                13,338                14,878 
                                                 ------------------------------------------------------- 

OPERATING LOSS                                        (1,639)                 (955)               (9,371)
Other income (expense), net                             (856)               (3,580)                  527 
                                                 ------------------------------------------------------- 

LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN                                                              
   AFFILIATES AND INCOME TAXES                        (2,495)               (4,535)               (8,844)

Equity loss from investments in affiliates              --                  (2,479)                 (132)
Income taxes                                            (402)                 (966)                 (846)
                                                 ------------------------------------------------------- 

LOSS FROM CONTINUING OPERATIONS                       (2,897)               (7,980)               (9,822)
Income (loss) from discontinued operations,                                                              
  net of income tax benefit (expense) of                                                                 
  $(2), $2,470 and $(2,476) in 2008, 2007                                                                
  and 2006, respectively.                                928                 5,422                (4,248)
                                                 ------------------------------------------------------- 

NET LOSS                                         $    (1,969)          $    (2,558)          $   (14,070)
                                                 ======================================================= 

NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED                                                           
Continuing operations                            $     (0.44)          $     (1.22)          $     (1.51)
Discontinued operations                                 0.14                  0.83                 (0.65)
                                                 ------------------------------------------------------- 

Net loss per share                               $     (0.30)          $     (0.39)          $     (2.16)
                                                 ======================================================= 

Weighted average number of shares outstanding      6,528,100             6,528,100             6,528,100 
                                                 ======================================================= 

COMPREHENSIVE LOSS                                                                                       
Net loss                                         $    (1,969)          $    (2,558)          $   (14,070)
Translation adjustment                                  (487)                   80                  (399)
Unrealized gain on marketable equity securities         --                     497                   104 
                                                 ------------------------------------------------------- 

Comprehensive loss                               $    (2,456)          $    (1,981)          $   (14,365)
                                                 ======================================================= 

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

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  ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
 (US $ and (euro) in thousands, except per share data)

                                                        [Enlarge/Download Table]

                                                                                  Accumulated                          
                                   Common Stock        Additional                    Other                    Total    
                               --------------------     Paid-In    Accumulated   Comprehensive  Treasury  Shareholders'
                                Shares       Amount     Capital      Deficit         Loss        Stock      Deficiency 
                               --------------------------------------------------------------------------------------- 
                                                                                                                       
BALANCE at JANUARY 1, 2006     6,528,100     $3,605     $19,670     $(20,230)      $(7,294)      $(899)      $ (5,148) 

Stock-based compensation            --         --           511         --            --          --              511  
Net loss                            --         --          --        (14,070)         --          --          (14,070) 
Translation adjustment              --         --          --           --             104        --              104  
Unrealized loss on marketable                                                                                          
  equity securities                 --         --          --           --            (399)       --             (399) 
                               --------------------------------------------------------------------------------------- 

BALANCE at DECEMBER 31, 2006   6,528,100      3,605      20,181      (34,300)       (7,589)       (899)       (19,002) 
Stock-based compensation            --         --           373         --            --          --              373  
Net loss                            --         --          --         (2,558)         --          --           (2,558) 
Translation adjustment              --         --          --           --              80        --               80  
Unrealized gain on marketable                                                                                          
  equity securities                 --         --          --           --             497        --              497  
                               --------------------------------------------------------------------------------------- 

BALANCE at DECEMBER 31, 2007   6,528,100      3,605      20,554      (36,858)       (7,012)       (899)       (20,610) 
Stock-based compensation            --         --           101         --            --          --              101  
Net loss                            --         --          --         (1,969)         --          --           (1,969) 
Translation adjustment              --         --          --           --            (487)       --             (487) 
                               --------------------------------------------------------------------------------------- 

BALANCE AT DECEMBER 31, 2008   6,528,100     $3,605     $20,655     $(38,827)      $(7,499)      $(899)      $(22,965) 
                               ======================================================================================  

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

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  ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (US $ and (euro) in thousands, except per share data)

                                                        [Enlarge/Download Table]

                                                                Year Ended December 31,             
                                                     ---------------------------------------------- 
                                                       2008               2007                2006  
                                                     ---------------------------------------------- 
                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:                                                               
Net loss                                             $(1,969)           $(2,558)           $(14,070)
Income (loss) from discontinued operations               928              5,422              (4,248)
                                                     ---------------------------------------------- 

Loss from continuing operations                       (2,897)            (7,980)             (9,822)
Adjustments to reconcile net loss to net cash                                                       
  provided by (used in) operating activities:                                                       
  Depreciation and amortization                          781              1,218               1,127 
  Impairment of property and equipment                     4                 48                  40 
  Deferred income taxes                                 --                 --                    42 
  Loss (gain) on property and equipment                  (12)               (59)                  6 
  Other receivable - United States government            (64)              --                  --   
  Other assets                                            38               (295)               (575)
  Impairment of investments                             --                  855                --   
  Equity loss in investments in affiliates              --                2,290                 132 
  Stock- based compensation                              101                373                 511 
  Gain on settlement of liability                       --               (4,266)               --   
  Changes in assets and liabilities:                                                                
    Accounts receivable, net                          (1,339)               364                 438 
    Prepaid expenses and other current assets            265                103                 (20)
    Decrease in deposits                                --                   93                  82 
    Accounts payable                                    (306)               633                 924 
    Accrued expenses and other current liabilities     4,930              2,827               1,314 
    Net cash provided by (used in) discontinued                                                     
      operations                                       2,356                175              (1,824)
                                                     ---------------------------------------------- 

Net cash provided by (used in) operating activities    3,857             (3,621)             (7,625)
                                                     ---------------------------------------------- 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                               
  Purchase of property and equipment                  (1,042)              (792)               (630)
  Proceeds from affiliates                              --                 --                   443 
  Proceeds from sale of property and equipment            61                135                  22 
  Proceeds from sale of equity method investments       --                  295                 419 
  Proceeds from sale of other investments                                                           
    previously impaired                                 --                 --                   224 
  Decrease (increase) in restricted cash               1,791               (770)               (665)
  Increase in other assets                              (185)              --                   (14)
  Net cash provided by discontinued operations          --                   55                --   
                                                     ---------------------------------------------- 

Net cash provided by (used in) investing activities      625             (1,077)               (201)

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

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
 (US $ and (euro) in thousands, except per share data)

                                                        [Enlarge/Download Table]

                                                                  Year Ended December 31,            
                                                     ----------------------------------------------- 
                                                       2008                2007                2006  
                                                     ----------------------------------------------- 
                                                                                                     
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                
  Repayments of other liabilities                        (91)               (195)               (144)
  Net increase (decrease) in notes payable - bank     (1,824)              1,562               1,224 
  Net proceeds (repayments of) convertible notes                                                     
     payable to related party                           (234)              3,991               2,652 
  Net cash from discontinued operations to                                                           
     financing activities                               --                  (373)               --   
                                                     ----------------------------------------------- 

Net cash provided by (used in) financing activities   (2,149)              4,985               3,732 
                                                     ----------------------------------------------- 

EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE                                                       
  RATES ON CASH AND CASH EQUIVALENTS                    (678)                 65                 (90)
                                                     ----------------------------------------------- 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       1,655                 352              (4,184)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR           2,095               1,743               5,927 
                                                     ----------------------------------------------- 

CASH AND CASH EQUIVALENTS, END OF YEAR               $ 3,750             $ 2,095             $ 1,743 
                                                     =============================================== 

                                                                  Year Ended December 31,            
                                                     ----------------------------------------------- 
                                                       2008                2007                2006  
                                                     ----------------------------------------------- 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES                                                     
  Cash paid during the year for:                                                                     
  Interest                                           $   565             $   624             $   667 
                                                     =============================================== 

  Income taxes                                       $   270             $   226             $   110 
                                                     =============================================== 

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

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 1 - ORGANIZATION                                                           

Description of Business                                                         

ICTS International N.V. and its subsidiaries (collectively referred to herein as
"ICTS"  or  the  "Company")  is  a  provider  of  aviation  security  and  other
aviation-related  services  through service  contracts with airlines and airport
authorities mainly in Europe and the United States of America.                  

Liquidity and Financial Condition                                               

The Company has a history of recurring losses and working capital  deficiencies.
The Company incurred net losses of $1,969,  $2,558, and $14,070 during the years
ended December 31, 2008, 2007, and 2006, respectively.  As of December 31, 2008,
the  Company  had a working  capital  deficit and  shareholders'  deficiency  of
$15,298 and $22,965, respectively. In addition, as further described in Notes 13
and 16, the Company is subject to potential material contingencies in connection
with:  (a) an audit of the Company's  operations in the United States of America
by the Internal Revenue Service (b) the September 11, 2001 terrorist  attacks in
the United  States of America,  (c) unpaid rent  obligations  related to certain
non-core  businesses  which  have  been  discontinued  in the  United  States of
America,  and (d)  certain  claims made  against the Company  made by the United
States Transportation Security  Administration.  These factors raise substantial
doubt about the Company's ability to continue as a going concern.               

Management  believes that the Company's  operating  cash flows and related party
financing  activities  will  provide  it  with  sufficient  funds  to  meet  its
obligations  and execute its business plan for the next twelve months.  However,
there are no assurances that management's  plans to generate  sufficient cash to
continue  to  operate  the  Company  will  be   successful.   The   accompanying
consolidated  financial  statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.              

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES                                        

The  consolidated  financial  statements  have been prepared in accordance  with
accounting  principles  generally  accepted  in the  United  States  of  America
("U.S.GAAP"). The significant accounting policies are as follows:               

Functional Currency                                                             

The  accompanying  consolidated  financial  statements  are  presented in United
States dollars in accordance  with Statement of Financial  Accounting  Standards
("SFAS") No 52, "Foreign Currency  Translation." The Company has determined that
the functional currency of its foreign subsidiaries is the local currency, which
is  predominantly  the Euro. For financial  reporting  purposes,  the assets and
liabilities of such subsidiaries are translated into United States dollars using
exchange  rates in effect at the balance sheet date. The revenue and expenses of
such  subsidiaries  are  translated  into United  States  dollars  using average
exchange  rates in effect during the  reporting  period.  Resulting  translation
adjustments  are presented as a separate  category in  shareholders'  deficiency
called accumulated other comprehensive loss.                                    

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Use of Estimates                                                                

The  preparation  of financial  statements in  conformity  with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the dates of the financial  statements  and the reported  amounts of revenue and
expenses  during the  reporting  periods.  The most  significant  estimates  and
assumptions  relate  to the  (a)  calculation  of  the  allowance  for  doubtful
accounts, (b) recognition of contingent  liabilities,  (c) calculation of income
taxes,  (d)  impairment  evaluation of marketable  equity  securities and equity
method  investments  and (e) calculation of stock-based  compensation  for stock
option grants. Actual results could differ from those estimates.                

Principles of Consolidation                                                     

The  consolidated  financial  statements  include  the  accounts of ICTS and its
wholly-owned  subsidiaries.  All  significant  intercompany  balances  have been
eliminated in consolidation.                                                    

Cash and Cash Equivalents                                                       

The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash and cash equivalents.            

Restricted Cash                                                                 

During  2007,  the  Company won a bid to provide  security  services to Schiphol
International  Airport  in  the  Netherlands.  Pursuant  to  the  terms  of  the
arrangement,  the Company provided the airport with a guarantee of approximately
$1,800 through a commercial  bank to guarantee the  performance of its services.
The Company  secured such guarantee by depositing cash collateral of $1,800 with
this commercial  bank. As of December 31, 2007, the cash collateral is reflected
as restricted cash on the  accompanying  balance sheet. In 2008, the Company was
released from the cash collateral requirement.                                  

The Company has a $3,500 time deposit with a commercial bank that serves as cash
collateral to secure a loan and security  agreement for one of its  subsidiaries
(See Note 7). As of December 31, 2008 and 2007, the cash collateral is reflected
as restricted cash on the accompanying balance sheet.                           

Accounts Receivable                                                             

Accounts receivable  represent amounts due to the Company for services rendered.
The Company provides an allowance for doubtful  against  accounts  receivable to
estimate losses  resulting from  customers'  inability to pay. The allowance for
doubtful accounts is based on historical collection experience,  factors related
to a specific  customer  and current  economic  trends.  The Company  writes off
accounts receivable against the allowance for doubtful accounts when the balance
is  determined  to be  uncollectible.  As of  December  31,  2008 and 2007,  the
allowance for doubtful accounts is $328 and $507, respectively.                 

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Marketable Equity Securities                                                    

The Company  accounts for marketable  equity  securities in accordance with SFAS
No. 115,  "Accounting  for Certain  Investments  in Debt and Equity  Securities"
("SFAS 115"). All of the Company's  marketable  equity securities are classified
as available for sale securities.  Available for sale securities are reported at
fair  value  (which is  determined  based upon the  quoted  market  price of the
underlying  securities)  with unrealized  gains (losses) being reported,  net of
related  income  taxes,  as  a  separate   component  of  shareholders'   equity
(deficiency)  called  accumulated other  comprehensive  income (loss).  Realized
gains (losses) are included in the consolidated statement of operations upon the
sale of the securities. As of December 31, 2007, the Company determined that the
decline  in fair  value of its  marketable  equity  securities  was  other  than
temporary and that the marketable equity securities were impaired.  Accordingly,
the Company  recognized  an impairment  charge of $600.  The  impairment  charge
represents the carrying value of the marketable equity securities as of December
31, 2007 of $103 and cumulative  unrealized  losses through December 31, 2007 of
$497 which were previously recognized in accumulated other comprehensive loss.  

Investments in Affiliates                                                       

The Company  accounts for investments in equity  securities in which it holds an
ownership  interest of 20% or more and has the  ability to exercise  significant
influence,  provided  it does not have  control,  using  the  equity  method  as
prescribed by Accounting  Principles Board Opinion No. 18, "The Equity Method of
Accounting  for  Investments  in Common  Stock." The equity method  requires the
Company to recognize  its share of the net income (loss) of its investees in the
consolidated  statement of operations until the carrying value of the investment
is zero.                                                                        

Property and Equipment                                                          

Equipment  and  facilities  and  vehicles  are  stated at cost less  accumulated
depreciation.  Depreciation is computed using the straight-line  method over the
estimated  useful  lives of the  assets.  The  estimated  useful  lives  used in
determining depreciation are as follows:                                        

Years         
-----         
Equipment and facilities          3-20                                          
Vehicles                          3-7                                           

Leasehold  improvements  are amortized using the  straight-line  method over the
shorter of the term of the lease or the estimated useful lives of the assets.   

Customer Relationship                                                           

The customer relationship represents the fair value of an airport contract of an
acquired   business.   The  customer   relationship   is  amortized   using  the
straight-line  method over the life of the contract of six years. As of December
31, 2008, the customer relationship is fully amortized.                         

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Goodwill                                                                        

Goodwill  represents the excess purchase price over the fair value of the net of
tangible and intangible assets of an acquired business. Goodwill is reviewed for
impairment  at least  annually  by  reporting  unit using the  two-step  process
outlined  in  Financial  Accounting  Standards  No.  142,  "Goodwill  and  Other
Intangible  Assets." If the carrying value of the reporting  unit's  goodwill is
not recoverable  based upon a discounted cash flow analysis,  then an impairment
charge is recorded for the  difference  between the carrying  value and the fair
value of the  reporting  unit's  goodwill.  During the years ended  December 31,
2008, 2007 and 2006, the Company has not recorded any impairment  charges on its
goodwill.                                                                       

Long-Lived Assets                                                               

The Company  reviews  long-lived  assets,  other than  goodwill,  including  the
customer   relationship,   for   impairment   whenever   events  or  changes  in
circumstances  indicate  that  the  carrying  value  of  the  asset  may  not be
recoverable.  The Company assesses recoverability by determining whether the net
book  value  of the  related  asset  will be  recovered  through  the  projected
undiscounted  future cash flows of the asset. If the Company determines that the
carrying value of the asset may not be  recoverable,  it measures any impairment
based on the projected  future  discounted cash flows as compared to the asset's
carrying  value.  During the years ended December 31, 2008,  2007, and 2006, the
Company has recorded  impairment charges on its long-lived assets of $4, $48 and
$40, respectively.                                                              

Convertible Debt Instruments                                                    

The Company  evaluates  and  accounts  for  conversion  options  embedded in its
convertible  debt  instruments in accordance with SFAS No. 133,  "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), and Emerging Issues
Task Force  ("EITF")  Issue No.  00-19,  "Accounting  for  Derivative  Financial
Instruments  Indexed to, and  Potentially  Settled  in, a  Company's  Own Stock"
("EITF 00-19"). SFAS 133 generally provides three criteria that, if met, require
companies  to  bifurcate  conversion  options  from their host  instruments  and
account for them as free standing derivative financial instruments in accordance
with EITF 00-19.  These three criteria  include  circumstances in which: (a) the
economic characteristics and risks of the embedded derivative instrument are not
clearly and closely  related to the  economic  characteristics  and risks of the
host  contract,  (b) the  hybrid  instrument  that  embodies  both the  embedded
derivative  instrument  and the host contract is not  re-measured  at fair value
under  otherwise  applicable  accounting  principles  generally  accepted in the
United States of America with changes in fair value reported in earnings as they
occur  and (c) a  separate  instrument  with  the  same  terms  as the  embedded
derivative instrument would be considered a derivative instrument subject to the
requirements  of SFAS 133.  SFAS 133 and EITF 00-19 also provide an exception to
this rule when the host instrument is deemed to be conventional (as that term is
described in the  implementation  guidance to SFAS 133 and further  clarified in
EITF Issue No. 05-2, "The Meaning of Conventional Convertible Debt Instrument in
Issue No. 00-19."                                                               

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Convertible Debt Instruments (Continued)                                        

The Company accounts for convertible  debt  instruments  (when it has determined
that the embedded  conversion  options should not be bifurcated  from their host
instruments)  in  accordance  with  the  provisions  of  EITF  Issue  No.  98-5,
"Accounting for Convertible  Securities  with  Beneficial  Conversion  Features"
("EITF 98-5"),  and EITF Issue No. 00-27,  "Application  of EITF 98-5 to Certain
Convertible  Instruments."  Accordingly,  the Company  records,  when necessary,
discounts to convertible  debt instruments for the intrinsic value of conversion
options  embedded in convertible  debt  instruments  based upon the  differences
between the fair value of underlying  common stock at the commitment date of the
debt  instrument  and  the  effective  conversion  price  embedded  in the  debt
instrument.                                                                     

Comprehensive Loss                                                              

The  Company  reports  comprehensive  loss in  accordance  with  SFAS  No.  130,
"Reporting  Comprehensive Income" ("SFAS 130"). SFAS 130 requires the disclosure
of  comprehensive  income  (loss) to  reflect  changes in  shareholders'  equity
(deficiency)  that result from  transactions  and economic events from non-owner
sources. The Company's comprehensive loss for the years ended December 31, 2008,
2007, and 2006 consists of its net loss, foreign currency translation adjustment
and unrealized gain (loss) on marketable equity securities.                     

Stock-Based Compensation                                                        

Effective  January 1,  2006,  the  Company  adopted  the fair value  recognition
provisions of SFAS No.123(R),  and began to recognize  compensation  expense for
share-based  awards,  including  stock option grants,  based upon the grant date
fair value over the  requisite  service  period,  which is generally the vesting
period of the award.                                                            

As  permitted  under SFAS  123(R),  the  Company  elected to adopt the  modified
prospective   transition   method  and  continue  to  account  for   stock-based
compensation  granted prior to January 1, 2006 using the intrinsic  value method
prescribed  under Accounting  Principles  Board Opinion No. 25,  "Accounting for
Stock Issued to Employees."                                                     

Revenue Recognition                                                             

Revenue is recognized as services are rendered,  based on the terms contained in
the contractual  arrangements,  provided the fee is fixed and determinable,  the
services  have been  rendered,  and  collection  of the  related  receivable  is
reasonably assured.                                                             

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Cost of Revenue                                                                 

Cost of revenue  represents  primarily payroll and related costs associated with
employees  who provide  services  under the terms of the  Company's  contractual
arrangements. Such costs are recognized as services are provided.               

Advertising Costs                                                               

Advertising  costs are expensed as incurred.  Advertising costs during the years
ended December 31, 2008, 2007 and 2006 are $235, $111 and $115, respectively.   

Income Taxes                                                                    

The Company  accounts for income taxes using the liability  method as prescribed
by SFAS No.109,  "Accounting for Income Taxes". Under this method,  deferred tax
assets  and  liabilities   are  recognized  for  the  future  tax   consequences
attributable to temporary  differences  between the financial statement carrying
amounts of  existing  assets and  liabilities  and their  respective  tax bases.
Deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes  the  enactment  date.   Valuation   allowances  are  established  when
realization of net deferred tax assets is not considered more likely than not.  

On January 1, 2007, the Company  adopted  Financial  Accounting  Standards Board
Interpretation  No.48,  "Accounting for Uncertainty in Income Taxes" ("FIN 48").
FIN 48, which interprets  Statement of Financial  Accounting  Standards No. 109,
"Accounting for Income Taxes," prescribes a recognition threshold or measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position  taken or  expected  to be taken in an income tax  return.  FIN 48 also
provides  guidance or  de-recognition,  classification,  interest and penalties,
accounting  in  interim  periods,  disclosure  and  transition.  On the  date of
adoption,  there was no impact on beginning retained earnings  pertaining to FIN
48  as a  liability  was  already  recorded  for  the  Company's  uncertain  tax
positions.                                                                      

The Company  recognizes  interest related to uncertain tax positions in interest
expense.  The Company recognizes penalties related to uncertain tax positions in
selling, general and administrative expenses.                                   

Earnings (Loss) Per Share                                                       

Basic  earnings  (loss) per share is  computed  by  dividing  net income  (loss)
available to common  stockholders  by the weighted  average  number of shares of
common stock outstanding during the period. Diluted earnings (loss) per share is
determined in the same manner as basic  earnings  (loss) per share,  except that
the number of shares is increased  to include  potentially  dilutive  securities
using the treasury stock method.  Because the Company incurred a net loss in all
periods presented,  all potentially  dilutive  securities were excluded from the
computation of diluted earnings (loss) per share because the effect of including
them is anti-dilutive.                                                          

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Earnings (Loss) Per Share (Continued)                                           

The  following  table  summarizes  the number of common shares  attributable  to
potentially  dilutive securities  outstanding for each of the periods which were
excluded in the calculation of diluted earnings (loss) per share:               

                                                        [Enlarge/Download Table]

                                                     Year Ended December 31,              
                                    ------------------------------------------------------
                                      2008                   2007                  2006   
                                    ---------              ---------             ---------
                                                                                          
Stock Options                       1,632,000              1,723,000             1,920,000
Shares Issuable upon Conversion of                                                        
   Convertible Notes Payable to                                                           
   Related Party                    2,208,000              1,865,000                --    
                                    ---------              ---------             ---------

Total                               3,840,000              3,588,000             1,920,000
                                    =========              =========             =========

Fair Value of Financial Instruments                                             

The  fair  values  of cash  and  cash  equivalents,  restricted  cash,  accounts
receivable,  accounts payable,  accrued expenses and other current  liabilities,
and notes  payable-bank  approximate their carrying values due to the short-term
nature of the  instruments.  The carrying  value note  payable to related  party
approximates  its fair value due to the variable rate of interest being charged.
The  fair  value  of  other  liabilities  is not  readily  determinable  because
comparable instruments do not exist.                                            

Concentration of Credit Risk                                                    

Financial instruments which are subject to concentrations of credit risk consist
primarily of cash and cash equivalents, restricted cash and accounts receivable.

The Company  maintains cash and cash equivalents and restricted cash in accounts
with high  quality  financial  institutions  in the  United  States of  America,
Europe,  and Israel.  Bank  accounts at  financial  institutions  located in the
United  States  of  America  are  insured  by  the  Federal  Deposit   Insurance
Corporation  ("FDIC") for up to $250 per institution  through December 31, 2013.
As of December 31, 2008,  the cash  balances  being held in the United States of
America do not exceed the FDIC limit. Bank accounts located in Europe and Israel
which hold $3,602 as of December 31, 2008 are uninsured.                        

The Company  renders  services  to a limited  number of  airlines  and  airports
through service contracts and provides credit without collateral.  Some of these
airlines  and  airports  may  have   difficulties  in  meeting  their  financial
obligations which can have a material adverse effect on the Company's  financial
position,  cash flows and  results of  operations.  To mitigate  this risk,  the
Company  regularly  reviews the credit  worthiness of its customers  through its
credit evaluation process.                                                      

Revenue from two customers  represented 55%, 29% and 25% of total revenue during
the  years  ended  December  31,  2008,  2007 and 2006,  respectively.  Accounts
receivable  from  two  customers  represented  41%  and  23% of  total  accounts
receivable as of December 31, 2008 and 2007, respectively.                      

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Risks and Uncertainties                                                         

The Company is currently engaged in direct operations in numerous  countries and
is  therefore  subject  to  risks  associated  with   international   operations
(including economic and/or political  instability and trade restrictions).  Such
risks can cause the Company to have significant  difficulties in connection with
the sale or  provision  of its  services  in  international  markets  and have a
material impact on the Company's financial  position,  results of operations and
cash flows.                                                                     

Furthermore, as a result of its international operations, the Company is subject
to market risks associated with foreign currency exchange rate fluctuations. The
Company does not utilize  derivative  instruments to manage its exposure to such
market risk. As such significant foreign currency exchange rate fluctuations can
have  a  material  impact  on  the  Company's  financial  position,  results  of
operations and cash flows.                                                      

Reclassifications                                                               

Certain amounts in the prior year  consolidated  financial  statements have been
reclassified to conform to the current year presentation.                       

Recently Issued Accounting Pronouncements                                       

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value  Measurements"  ("SFAS 157").  This Statement  defines fair
value,  establishes a framework for measuring fair value and expands  disclosure
of  fair  value   measurements.   SFAS  157  applies   under  other   accounting
pronouncements  that require or permit fair value  measurements and accordingly,
does not require any new fair value  measurements.  The Company adopted SFAS 157
as of January 1, 2008.  The adoption of SFAS 157 did not have a material  effect
on the Company's consolidated financial position, results of operations, or cash
flows.                                                                          

In  February,  2007,  the FASB  issued SFA No. 159,  "The Fair Value  Option for
Financial  Assets and Financial  Liabilities"  ("SFAS  159").  SFAS 159 provides
companies with an option to report selected  financial assets and liabilities at
fair value.  SFAS 159's objective is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related
assets and liabilities  differently.  SFAS 159 also establishes presentation and
disclosure  requirements  designed to facilitate  comparisons  between companies
that choose  different  measurement  attributes  for similar types of assets and
liabilities.  SFAS 159 requires companies to provide additional information that
will help  investors  and other  users of  financial  statements  to more easily
understand the effect of the company's choice to use fair value on its earnings.
It also  requires  entities  to  display  the fair  value of  those  assets  and
liabilities  for which a company has chosen to use fair value on the face of the
balance  sheet.  The Company  adopted SFAS 159 as of January 1, 2008 and elected
not to report any of its assets and  liabilities at fair value.  The adoption of
SFAS 159 did not have a material effect on the Company's  consolidated financial
position, results of operations, or cash flows.                                 

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Recently Issued Accounting Pronouncements (CONTINUED)                           

In  December  2007,  the FASB issued SFAS No.  141(R),  "Business  Combinations"
("SFAS  141(R)"),   which  replaces  SFAS  No.  141,  "Business   Combinations,"
establishes  principles  and  requirements  for  determining  how an  enterprise
recognizes  and  measures  the fair  value of  certain  assets  and  liabilities
acquired  in  a  business  combination,   including  non-controlling  interests,
contingent consideration,  and certain acquired contingencies.  SFAS 141(R) also
requires  acquisition-related  transaction  expenses and restructuring  costs be
expensed as incurred  rather than  capitalized  as a component  of the  business
combination.   SFAS  141(R)  will  be  applicable   prospectively   to  business
combinations  for which the acquisition date is on or after the beginning of the
first annual  reporting  period  beginning on or after  December 15, 2008.  SFAS
141(R) would have an impact on the accounting for any businesses acquired by the
Company after the effective date of the pronouncement.                          

In December  2007, the FASB issued SFAS No. 160,  "Non-controlling  Interests in
Consolidated  Financial  Statements -- An Amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes  accounting and reporting standards for the non-controlling
interest in a subsidiary  (previously referred to as minority  interests).  SFAS
160  also   requires   that  a  retained   non-controlling   interest  upon  the
deconsolidation  of a subsidiary be initially  measured at its fair value.  Upon
adoption   of  SFAS  160,   the   Company   would  be  required  to  report  any
non-controlling  interests as a separate component of stockholders'  equity. The
Company  would also be required to present any net income  (loss)  allocable  to
non-controlling interests and net income (loss) attributable to the shareholders
of the Company separately in its consolidated statements of operations. SFAS 160
is effective for fiscal years,  and interim  periods  within those fiscal years,
beginning  on or after  December  15,  2008.  The  Company  does not  expect the
adoption  of SFAS 160 to have a material  effect on its  consolidated  financial
position, results of operations, or cash flows.                                 

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments  and Hedging  Activities -- an amendment of FASB  Statement No. 133"
("SFAS  161").  SFAS 161  changes the  disclosure  requirements  for  derivative
instruments and hedging  activities.  Entities are required to provide  enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations,  and (c) how derivative instruments and related
hedged items affect an entity's financial  position,  financial  performance and
cash flows.  The  guidance in SFAS 161 is  effective  for  financial  statements
issued for fiscal years and interim  periods  beginning after November 15, 2008,
with early  application  encouraged.  This  Statement  encourages,  but does not
require,  comparative  disclosures for earlier periods at initial adoption.  The
Company has  determined at this time that this  pronouncement  does not apply to
any of its transactions.                                                        

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                            

Recently Issued Accounting Pronouncements (CONTINUED)                           

In April 2008, the FASB issued FASB Staff Position SFAS 142-3, "Determination of
the Useful Life of Intangible Assets" ("FSP SFAS 142-3").  FSP SFAS 142-3 amends
the  factors  that  should be  considered  in  developing  renewal or  extension
assumptions  used to determine the useful life of a recognized  intangible asset
under FASB  Statement  No. 142,  "Goodwill  and Other  Intangible  Assets."  The
objective of this guidance is to improve the consistency between the useful life
of a recognized  intangible asset under SFAS 142 and the period of expected cash
flows used to measure  the fair value of the asset  under SFAS  141(R) and other
U.S. GAAP  principles.  FSP SFAS 142-3 is effective  for fiscal years  beginning
after  December 15,  2008.  The Company does not expect the adoption of FSP SFAS
142-3 to have a material impact on its consolidated financial position,  results
of operation, or cash flows.                                                    

In June 2008,  the FASB ratified EITF 07-5,  "Determining  Whether an Instrument
(or an Embedded  Feature) is Indexed to an Entity's  Own Stock"  ("EITF  07-5").
EITF 07-5 provides framework for determining whether an instrument is indexed to
an entity's own stock.  EITF 07-5 is effective for fiscal years  beginning after
December 15, 2008. The Company does not expect the adoption of EITF 07-5 to have
a material impact on its consolidated financial position, results of operations,
or cash flows.                                                                  

In October 2008, the FASB issued FASB Staff Position  157-3,  "Determining  Fair
Value of a Financial  Asset in a Market that is Not Active" ("FSP  157-3").  FSP
157-3  classified  the  application  of  SFAS  157  in an  inactive  market.  It
demonstrated  how the fair value of a  financial  asset is  determined  when the
market  for that  financial  asset is  inactive.  FSP 157-3 was  effective  upon
issuance,  including prior periods for which  financial  statements had not been
issued.  The  adoption  of FSP  157-3  did not  have a  material  impact  on the
Company's consolidated financial position, results of operations, or cash flows.

In May 2009,  the FASB issued SFAS No. 165,  "Subsequent  Events"  ("SFAS 165").
SFAS 165 provides  general  standards of accounting for and disclosure of events
that occur  after the balance  sheet date but before  financial  statements  are
issued or are available to be issued.  SFAS No. 165 is applicable for interim or
annual  periods after June 15, 2009. The Company does not expect the adoption of
SFAS 165 to have a  material  impact  on its  consolidated  financial  position,
results of operation, or cash flows.                                            

In June 2009, the FASB issued SFAS No. 167,  "Amendments to FASB  Interpretation
No.  46(R)"  ("SFAS  167").  SFAS 167 seeks to improve  financial  reporting  by
enterprises involved with variable interest entities. SFAS 167 is applicable for
annual  periods  after  November  15,  2009  and  interim  periods  therein  and
thereafter.  The  Company  does not  expect the  adoption  of SFAS 167 to have a
material impact on its consolidated financial position, results of operation, or
cash flows.                                                                     

NOTE 3 - DISCONTINUED OPERATIONS                                                

In December 2005, the Company committed to a plan to cease the operations of its
entertainment segment in the United States of America.  Accordingly,  as of that
date,  the assets,  liabilities  and results of  operations of such segment were
classified as discontinued  operations in the Company's  consolidated  financial
statements.  The nature of the ongoing  discontinued  operations reflected below
represents the costs associated with ongoing  litigation  related to outstanding
rent obligations (See NOTE 16).                                                 

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  ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)                                    

A summary of the Company's assets and liabilities from  discontinued  operations
as of December 31, 2008 and 2007 are as follows:                                

                                                        December 31,
                                                       -------------------------
                                                       2008               2007
                                                       -------------------------
Income tax refund receivable                           $   --            $ 2,873
                                                       -------------------------
Total current assets from                                               
      discontinued operations                          $   --            $ 2,873
                                                       =========================

Accrued expenses and other current liabilities         $ 1,898           $ 2,089
                                                       -------------------------
Total current liabilities from discontinued                             
      Operations                                       $ 1,898           $ 2,089
                                                       =========================

Other liabilities (See Note 16)                        $ 7,276           $ 8,530
                                                       -------------------------
Total non-current liabilities from                                      
      discontinued operations                          $ 7,276           $ 8,530
                                                       =========================

A summary of the Company's  results from  discontinued  operations for the years
ended December 31, 2008, 2007 and 2006 are as follows:                          

                                                December 31,
                                                 -------------------------------
                                              2008        2007        2006
                                                 -------------------------------
Operating income (expense)                       $ 932     $ 2,634     $ (1,774)
Impairment loss                                    --          (55)        --   
Other income (expense), net                         (2)        373            2 
Income tax benefit (expense)                        (2)      2,470       (2,476)
                                                 -------------------------------

Income (loss) from discontinued operations       $ 928     $ 5,422     $ (4,248)
                                                 ===============================

NOTE 4 - INVESTMENTS IN AFFILIATES                                              

ICTS Netherlands Airport Services VOF                                           

The Company has a 50% ownership  interest in ICTS  Netherlands  Airport Services
VOF ("NAS"), a joint venture with an unrelated third party. NAS provided airport
services at the  Amsterdam  Schiphol  Airport in the  Netherlands  pursuant to a
long-term service contract. On February 1, 2008, the service contact expired and
NAS ceased  its  operations.  The  Company  does not expect to receive  any cash
distributions  upon the final  liquidation  of NAS. As of December  31, 2008 and
2007, the Company's investment in NAS is $0.                                    

The  Company  recognized  equity  income  (loss) in  affiliates  related  to its
investment in NAS of $0, $(2,003) and $1,303 during the years ended December 31,
2008, 2007 and 2006, respectively.                                              

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 4 - INVESTMENTS IN AFFILIATES (CONTINUED)                                  

The Company recorded an impairment charge of $192 during the year ended December
31, 2007 and  discontinued its use of the equity method to account for its joint
venture in NAS.  The $192  impairment  charge  consists of $332  relating to the
carrying amount of the investment in NAS as of December 31, 2007, net of $140 in
accumulated other comprehensive income previously recognized. As of December 31,
2008,  the  Company's  share of the  underlying  net assets of NAS  exceeds  the
carrying  value  of its  investment  in NAS by  $47.  The  market  value  of the
Company's investment in NAS as of December 31, 2008 is not determinable.        

Balance sheet data for NAS is summarized below:                                 

                                                           December 31
                                                            --------------------
                                                           2008         2007
                                                            --------------------
Current assets                                              $1,637       $ 9,962
Non-current assets                                            --              44
                                                            --------------------
   Total assets                                             $1,637       $10,006
                                                            ====================

Current liabilities                                         $1,544       $ 9,341
Shareholders' equity                                            93           665
                                                            --------------------
   Total liabilities and shareholders' equity               $1,637       $10,006
                                                            ====================

Statement of operations data for NAS is summarized below:                       

                                                 For the Year Ended December 31,
                                                --------------------------------
                                                2008        2007          2006
                                                --------------------------------
Revenue                                         $5,931      $62,684      $57,742
Gross profit                                       625          873        3,644
Net income (loss)                                 (565)      (4,006)       1,422

Inksure Technologies Inc.                                                       

The Company has an ownership interest in Inksure  Technologies Inc.  ("Inksure")
of 27.5% and 28.3% as of  December  31,  2008 and  2007,  respectively.  Inksure
develops,  markets  and sells  customized  authentication  systems  designed  to
enhance the security of documents and branded products.                         

The  Company  recognized  equity  income  (loss) in  affiliates  related  to its
investment in Inksure of $0, $(284) and $(1,435) during the years ended December
31, 2008, 2007 and 2006, respectively.  During the year ended December 31, 2007,
the Company's  investment in Inksure was reduced to $0 and the use of the equity
method was suspended. The market value of the Company's investment in Inksure as
of December 31, 2008 is $542.                                                   

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 4 - INVESTMENTS IN AFFILIATES (CONTINUED)                                  

Balance sheet data for Inksure is summarized below:                             

                                                         December 31
                                                        ------------------------
                                                        2008            2007
                                                        ------------------------
Current assets                                          $ 3,090         $ 2,282 
Non-current assets                                          288             640 
                                                        ------------------------
  Total assets                                         $ 3,378         $ 2,922
                                                        ========================

Current liabilities                                     $ 8,093         $ 6,541 
Shareholders' deficiency                                 (4,715)         (3,619)
                                                        ------------------------
Total liabilities and                                                     
  shareholder's deficiency                             $ 3,378         $ 2,922
                                                        ========================

Statement of operations data for Inksure is summarized below:                   

                                                December 31,
                                              --------------------------------
                                              2008        2007        2006
                                              --------------------------------
Revenue                                        $ 2,158     $ 2,890     $ 2,002  
Gross profit                                     1,654       1,782       1,139  
Net loss                                        (3,528)     (3,078)     (3,112) 

NOTE 5 - PROPERTY AND EQUIPMENT                                                 

Property and equipment is as follows:                                           

                                                        December 31,
                                                        ------------------------
                                                        2008              2007
                                                        ------------------------
Equipment and facilities                                $3,694            $3,659
Vehicles                                                   693               817
Leasehold improvements                                     304               299
                                                        ------------------------
                                                         4,691             4,775
Less: accumulated depreciation and amortization          2,963             3,256
                                                        ------------------------
                                                        $1,728            $1,519
                                                        ========================

Depreciation  expense is $728,  $570 and $481 for the years ended  December  31,
2008, 2007 and 2006, respectively.                                              

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 6 - CUSTOMER RELATIONSHIP                                                  

As of December 31, 2008 and 2007, the customer relationship is as follows:      

                                                        [Enlarge/Download Table]

                    December 31, 2008                                     December 31, 2007            
-------------------------------------------------------------------------------------------------------

Gross carrying         Accumulated         Net book      Gross carrying       Accumulated      Net book
    Amount            amortization           Value           Amount          amortization        value 
-------------------------------------------------------------------------------------------------------
                                                                                                       
    $ 1,785              $ 1,785             $ --           $ 1,785             $ 1,732           $ 53 
-------------------------------------------------------------------------------------------------------

    $ 1,785              $ 1,785             $ --           $ 1,785             $ 1,732           $ 53 
=======================================================================================================

Amortization  expense is $53,  $648 and $648 for the years  ended  December  31,
2008, 2007 and 2006, respectively.                                              

NOTE 7 - NOTES PAYABLE - BANK                                                   

In  April  2005,  one of the  Company's  subsidiaries  entered  into a loan  and
security  agreement  with  a  commercial  bank.  Pursuant  to the  terms  of the
arrangement,  the commercial  bank committed to providing the subsidiary with up
to $8,000 in  revolving  loans,  including  a maximum  of $3,500 in  letters  of
credit.  Borrowings  issued under the arrangement are limited to 85% of eligible
accounts receivable and 95% of the subsidiary's required cash collateral.  As of
December  31,  2008 and 2007,  the  subsidiary  has  $3,500  in cash  collateral
deposited  with the  commercial  bank (See Note 2). The term of the  arrangement
extends through March 10, 2010.  Loans made under the arrangement are designated
as either  prime  based or LIBOR  based  loans at the option of the  subsidiary.
Prime based loans bear interest,  which is payable monthly,  at the bank's prime
rate  plus 1% per  annum  (4.25%  and  8.25% at  December  31,  2008  and  2007,
respectively).  LIBOR based loans bear interest,  which is payable  monthly,  at
LIBOR plus 350 basis  points  (5.50% and 8.38% at  December  31,  2008 and 2007,
respectively).  The subsidiary is also assessed commitment fees of 3% per annum.
The arrangement is secured by the cash collateral  deposited with the commercial
bank and the assets of the  subsidiary.  As of December  31, 2008 and 2007,  the
subsidiary has $4,848 and $5,662,  respectively,  in outstanding  borrowings and
$575 and  $1,021,  respectively,  in  outstanding  letters  of credit  under the
arrangement.  The  arrangement  subjects  the  subsidiary  to various  financial
covenants,  including  interest  coverage,  minimum  tangible net worth,  and an
annual capital  expenditure  limitation.  The subsidiary was in compliance  with
these covenants as of December 31, 2008.                                        

In  November  2004,  one of the  Company's  subsidiaries  entered  into a credit
agreement with a commercial  bank to provide it with a borrowing  arrangement of
up to  (euro)650.  Borrowings  under  the  arrangement  were  limited  to 60% of
eligible  accounts  receivable,  secured  by the assets of the  subsidiary,  and
guaranteed by the Company. Loans made under the arrangement bear interest, which
were payable  monthly at the commercial  bank's euro base rate plus 2% per annum
(7.3% at December 31, 2007). As of December 31, 2007, the subsidiary had $680 in
outstanding  borrowings and under the arrangement.  The credit agreement expired
in February 2008.                                                               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 7 - NOTES PAYABLE - BANK (CONTINUED)                                       

In February  2008,  two of the  Company's  subsidiaries  jointly  entered into a
credit  agreement  with a  commercial  bank to  provide  them  with a  borrowing
arrangement  of up to  (euro)2,150.  The available  capacity under the borrowing
arrangement  automatically reduces to (euro)1,650 on May 1, 2008, (euro)1,150 on
August  1,  2008  and  (euro)650  on  January  1,  2009.  Borrowings  under  the
arrangement  bear interest,  which is payable  monthly,  at the bank's euro base
rate (subject to a floor of 3.5%) plus 2% per annum (7.4% at December 31, 2008).
Borrowings  under the arrangement are secured by the assets of the  subsidiaries
and guaranteed by the Company. As of December 31, 2008, there are no outstanding
borrowings and (euro)1,200 in outstanding guarantees under the arrangement.  The
arrangement subjects the subsidiaries to various financial covenants,  including
minimum  tangible  net worth.  As of  December  31,  2008,  the  Company  was in
violation of certain  financial  covenants  specified  in the credit  agreement,
including the payment of dividends  without the approval of the commercial  bank
and the  maintenance of a minimum  tangible net worth  threshold.  However,  the
commercial bank accepted these violations with no penalty to the Company. On May
1, 2009, the credit agreement expired.                                          

The Company is indebted to a commercial bank for bank overdrafts of $13 and $377
as of December 31, 2008 and 2007,  respectively.  These  amounts bear  interest,
which is payable monthly, at 7% per annum.                                      

NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES                         

Accrued expenses and other current liabilities are as follows:                  

                                                            December 31,
                                                           ---------------------
                                                          2008        2007
                                                           ---------------------
Accrued payroll and related                                 $ 4,774     $ 3,013 
Accrued vacation                                              2,287       1,071 
Accrued value added taxes payable                             1,756         242 
Income taxes payable                                          9,614       9,306 
Other                                                         2,592       2,549 
                                                           ---------------------
Total accrued expenses and other current liabilities        $21,023     $16,181 
                                                           =====================

NOTE 9 - CONVERTIBLE NOTES PAYABLE TO RELATED PARTY                             

In  September  2006,  the Company  entered  into an  arrangement  with an entity
related to its main  shareholder  to  provide it with up to $3,050 in  revolving
loans through April 2007.  Loans received under the  arrangement  bear interest,
which is payable at maturity,  at LIBOR plus 1.5% per annum. The arrangement was
secured by 2,157,894 shares of Inksure Technologies, Inc. common stock (See Note
4).                                                                             

In January 2007, the borrowing  capacity under the  arrangement was increased to
$6,263  and the  term  was  extended  to  April  2008.  In  connection  with the
extension,  the related party was granted an option to convert outstanding notes
payable  under the  arrangement  into the  Company's  common stock at a price of
$3.50 per share.  The Company  determined  that the  conversion  feature did not
qualify as a free standing derivative  instrument or contain any intrinsic value
which would be considered beneficial.                                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 9 - CONVERTIBLE NOTES PAYABLE TO RELATED PARTY (CONTINUED)                 

In April 2008, the Company entered into a new arrangement with an entity related
to its main shareholder, which replaced all previous arrangements, to provide it
with up to $6,644 in revolving  loans through  November  2010.  All  outstanding
borrowings from previous  arrangements were applied to the borrowing capacity of
the new arrangement.  Loans received under the arrangement bear interest,  which
is payable at maturity, at LIBOR plus 1.5% per annum. The arrangement is secured
by a 26% interest in one of the Company's  subsidiaries.  In connection with the
arrangement,  the  related  party was  granted an option to convert  outstanding
notes payable under the arrangement  into the Company's  common stock at a price
of $2.75 per share. The Company  determined that the conversion  feature did not
qualify as a free standing derivative  instrument or contain any intrinsic value
which would be considered beneficial.                                           

At December 31, 2008 and 2007,  notes  payable to the related  party  consist of
$5,501 and $6,155,  respectively,  in principal and $571 and $373, respectively,
of accrued  interest.  Interest expense related to these notes is $297, $280 and
$113 for the years ended December 31, 2008, 2007 and 2006, respectively.        

In May 2009,  the Company  entered  into a new  financing  arrangement  with the
related party (See Note 17).                                                    

NOTE 10 - OTHER LIABILITIES                                                     

Other liabilities are as follows:                                               
                                                        December 31,
                                                        ------------------------
                                                       2008           2007
                                                        ------------------------
Liability to the Department of Labor (Note 16)           $ 3,000        $ 3,000 
Other                                                        144            234 
                                                        ------------------------
Total other liabilities                                  $ 3,144        $ 3,234 
                                                        ========================

NOTE 11 - STOCK-BASED COMPENSATION                                              

In 1999, the Company adopted a share option plan and reserved  600,000 shares of
common stock for future issuance. The plan expires in 2009.                     

In February  2005,  the  Company  adopted  the 2005  Equity  Incentive  Plan and
reserved 1,500,000 shares of common stock for future issuance.  The plan expires
in 2015.                                                                        

In  December  2008,  the  Company  adopted  the  2008  Employees  and  Directors
Commitment  Stock Option Plan and reserved  1,500,000 shares of common stock for
future  issuance.  No stock  options have been issued under this plan.  The plan
expires in 2018.                                                                

As of December 31, 2008, the Company has stock options  outstanding  under these
plans to  purchase  1,632,000  shares of  common  stock  and  1,968,000  options
available for future grants.                                                    

Under the  Company's  stock  option  plans,  stock  options  may be  granted  to
employees,  officers,  directors and  consultants  of the Company at an exercise
price equivalent to at least the fair market value of the Company's common stock
on the date of grant with expiration  terms of not more than ten years.  Options
granted under the plans generally vest over a period of three years.            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 11 - STOCK-BASED COMPENSATION (CONTINUED)                                  

The Company uses the Binomial  Lattice Model to estimate the fair value of stock
option grants.  This method incorporates  calculations for expected  volatility,
risk-free interest rates,  employee exercise patterns and post-vesting  employee
termination behavior. These factors affect the estimate of the fair value of the
Company's  stock options.  There were no stock options  awarded during the years
ended December 31, 2008 and 2007. The weighted-average  assumptions reflected in
the chart below are used in estimating  the fair value of stock  options  awards
during the year ended December 31, 2006.                                        

Expected life of options                                 5 years                
Expected volatility                                       75.0%                 
Risk-free interest rate                                    5.1%                 
Expected dividend yield                                    0.0%                 
Forfeiture rate - executives                               4.2%                 
Forfeiture rate - employees                                3.0%                 

The Company  calculates  the expected  volatility  for stock option awards using
comparable industry data because sufficient historical trading data does not yet
exist for the Company's  stock.  The Company  estimates the forfeiture  rate for
stock option  awards based on  historical  data.  The  risk-free  rate for stock
options  granted  during the period is determined  by using a  zero-coupon  U.S.
Treasury rate for the period that coincides with the expected option terms.  The
Company has elected to use the simplified  method  described in Staff Accounting
Bulletin  107,  "Share-Based  Payment",  to estimate the expected  term of stock
option awards.                                                                  

A summary of the Company's stock option activity is as follows:                 

                                                        [Enlarge/Download Table]

                                                                          Weighted                 
                                                      Weighted       Average Remaining             
                                                      Average         Contractual Term    Intrinsic
                                       Number      Exercise Price        (in years)         Value  
                                       ------      --------------    -----------------    ---------
                                                                                                   
Outstanding as of January 1, 2008    1,723,000          $1.19                2.80           $ --   
Granted                                   --             --                  --               --   
Exercised                                 --             --                  --               --   
Forfeited / Expired                    (91,000)         $1.19                1.80             --   
                                     -----------------------------------------------------------   

Outstanding as of December 31, 2008  1,632,000          $1.19                1.80           $ --   
                                     -----------------------------------------------------------   

Exercisable as of December 31, 2008  1,632,000          $1.19                1.80           $ --   
                                     ===========================================================   

There were no stock options granted during the years ended December 31, 2008 and
2007. The weighted average grant date fair value of stock options granted during
the year ended December 31, 2006 is $0.62.                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 11 - STOCK-BASED COMPENSATION (CONTINUED)                                  

A summary of the status of the Company's non-vested stock options is as follows:

                                                                Weighted Average
                                                                Grant Date
                                                   Number       Fair Value
                                                      ------    ----------------
Non-vested stock options as of January 1, 2008        192,667         $0.62     
Granted                                                  --             --      
Vested                                               (115,334)         0.62     
Forfeited/expired                                     (77,333)         0.87     
                                                --------         -----

Non-vested stock options as of December 31, 2008         --             --      
                                                ========         =====

As of December 31, 2008, the Company did not have any unrecognized  compensation
cost related to stock options  granted under the stock option plans.  During the
years ended December 31, 2008, 2007 and 2006, the Company  recognized $101, $373
and $511 in compensation  expense related to the issuance of stock options under
the stock option plans.                                                         

NOTE 12 - OTHER INCOME (EXPENSES)                                               

Other income (expense) is as follows:                                           

                                              2008         2007         2006
                                             ---------------------------------
Interest expense                              $(1,660)     $(3,537)     $(1,137)
Interest income                                   228          325          327 
Foreign currency gain (loss)                      141         (122)          96 
Recovery of guarantee from related                                              
 party (Note 16)                                 421         --            665
Gain from the sale of marketable                                                
 equity securities                              --            349          576
Impairment of marketable equity                                                 
securities                                     --           (600)        -- 
Other                                              14            5         --   
                                             ---------------------------------

 Total other income (expense)                $  (856)     $(3,580)     $   527
                                             =================================

NOTE 13 - INCOME TAXES                                                          

The  components  of  income  (loss)  before  equity  loss  from  investments  in
affiliates and income taxes are as follows:                                     

                                                        [Enlarge/Download Table]

                                                            Year Ended December 31,            
                                               ----------------------------------------------- 
                                                 2008                2007               2006   
                                               ----------------------------------------------- 
                                                                                               
The Netherlands                                $ 2,383             $(1,764)            $  (373)
Subsidiaries outside of the Netherlands         (4,878)             (2,771)             (8,471)
                                               ----------------------------------------------- 

Total income (loss) before equity loss from                                                    
   investments in affiliates and income taxes  $(2,495)            $(4,535)            $(8,844)
                                               =============================================== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 13 - INCOME TAXES (CONTINUED)                                              

The components of income tax benefit (expense) are as follows:                  

                                                        [Enlarge/Download Table]

                                                           Year Ended December 31,            
                                            ------------------------------------------------- 
                                              2008                 2007                2006   
                                            ------------------------------------------------- 
                                                                                              
Current:                                                                                      
   The Netherlands                          $   (19)             $  (268)             $   223 
   Subsidiaries outside of the Netherlands     (383)                (740)              (1,027)
                                            ------------------------------------------------- 
                                               (402)              (1,008)                (804)
Deferred:                                                                                     
   The Netherlands                             --                   --                   --   
   Subsidiaries outside of the Netherlands     --                     42                  (42)
                                            ------------------------------------------------- 
                                               --                     42                  (42)
                                            ------------------------------------------------- 

Total income tax expense                    $  (402)             $  (966)             $  (846)
                                            ================================================= 

The components of deferred tax assets are as follows:                           

                                          December 31,
                                        ------------------------
                                        2008            2007
                                        ------------------------
Operating loss carry-forwards                   $ 21,968        $ 20,987        
Depreciation on property & equipment                 (43)            (22)       
Allowance for doubtful accounts                       96             193        
Accrued expenses                                     761             674        
                                        ------------------------

Total deferred tax assets                         22,782          21,832        
Less: valuation allowance                         22,782          21,832        
                                        ------------------------

Total net deferred tax assets                   $   --          $   --          
                                        ========================

As of December 31, 2008,  the Company has net operating loss  carry-forwards  of
$40,570  in the  Netherlands  which  will  expire in 2011  through  2016.  As of
December 31, 2008, the Company has net operating loss  carry-forwards of $30,887
in the United  States of America  which will expire in 2025  through  2028.  The
ultimate  utilization  of such net operating loss  carry-forwards  is limited in
certain situations.                                                             

During the year ended  December 31, 2008, the valuation  allowance  increased by
$950.                                                                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 13 - INCOME TAXES (CONTINUED)                                              

The Company's effective income tax rate differs from the Netherlands'  statutory
rate of 25.5% (29.6% in 2006) as follows:                                       

                                               Year Ended December 31,
                                             ---------------------------------
                                            2008         2007         2006
                                             ---------------------------------
Effective income tax at statutory rate        $ 399       $   404       $ 3,142 

Rate differential                               149          (287)          737 
Disallowable expenses                          (541)        1,102          (162)
Non-taxable (expense) income                   --              75           170 
Prior year tax assessments                     (251)         (747)        2,846 
Changes in valuation allowance and other       (158)       (1,513)       (7,579)
                                             ---------------------------------

Income taxes benefit (expense)                $(402)      $  (966)      $  (846)
                                             =================================

A reconciliation of the beginning and ending amounts of unrecognized  income tax
benefits is as follows:                                                         

                                                          December 31,
                                                         -----------------------
                                                          2008            2007
                                                         -----------------------
Balance at January 1                                     $ 5,449          $4,790
Additions related to prior period tax positions            4,091             659
Reductions related to prior period tax positions          (3,888)           --  
                                                         -----------------------

Balance at December 31                                   $ 5,652          $5,449
                                                         =======================

A  reconciliation  of the beginning and ending amounts of accrued interest is as
follows:                                                                        
                                                          December 31,
                                                         -----------------------
                                                          2008            2007
                                                         -----------------------
Balance at January 1                                     $ 2,179          $ --  
Additions charged to expense                               1,964           2,179
Reductions charged to expense                             (1,430)           --  
                                                         -----------------------

Balance at December 31                                   $ 2,713          $2,179
                                                         =======================

A reconciliation of the beginning and ending amounts of accrued tax penalties is
as follows:                                                                     
                                                          December 31,
                                                         -----------------------
                                                          2008            2007
                                                         -----------------------
Balance at January 1                                     $ 1,150          $ --  
Additions charged to expense                                 818           1,150
Reductions charged to expense                               (778)           --  
Reductions related to tax authorities notice                (243)           --  
                                                         -----------------------

Balance at December 31                                   $   947          $1,150
                                                         =======================

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 13 - INCOME TAXES (CONTINUED)                                              

The total amount of unrecognized tax benefits, including interest and penalties,
is $9,312 and $8,778 as of  December  31,  2008 and 2007,  respectively,  and is
included in accrued  expenses and other current  liabilities in the accompanying
consolidated  balance  sheets.  Such  unrecognized  tax benefits would favorably
impact the Company's effective tax rate, if recognized.                         

The  Company  files  income tax  returns in the  Netherlands  and other  foreign
jurisdictions.  Income tax returns for the tax years 2004 to 2008 are subject to
examination  in the  Netherlands.  Income tax  returns for the tax years 2002 to
2008 are subject to examination in foreign jurisdictions.                       

The Company is subject to an ongoing tax examination of its  subsidiaries in the
United  States of America by the Internal  Revenue  Service  ("IRS") for the tax
years 2002 to 2004. In connection with this  examination,  the subsidiaries were
required to provide information regarding their treatment of certain expenses.  

In August  2006,  the Company was advised that a criminal  investigation  by the
United States  Department  of Justice,  Tax  Division,  was commenced  regarding
possible  criminal tax violations by these  subsidiaries  for the tax years 2002
and 2003 with respect to certain royalty payments made to the Company.  In 2008,
the Company was advised that the criminal investigation was dismissed.          

However,  in  connection  with the ongoing tax  examination,  the IRS proposed a
number of  adjustments  to the  Company's  filed  income tax returns for the tax
years  2002  to  2004  which  collectively  result  in an  assessed  income  tax
liability, including penalties, of $7,325.                                      

Management is vigorously  contesting  the proposed  adjustments  and has filed a
protest with the IRS. This matter will be heard by the Appellate Division of the
IRS, at which time  management  will have an opportunity to present its position
on the various issues raised.                                                   

Based on the issues raised and the tax  authorities'  position,  the Company has
included a provision in its consolidated  financial  statements,  based upon the
advice of its tax advisors,  which the Company  considers  adequate to cover the
potential liability related to such assessments.                                

NOTE 14 - RELATED PARTY TRANSACTIONS                                            

The Company had an outstanding  guarantee with respect to certain  related party
debt obligations of $2,515, which were fully reserved.  In 2007, the Company was
released from $665 of the guarantee.  In 2008, the Company paid $1,429 to settle
certain  outstanding  obligations  under the guarantee and was released from its
remaining  guarantee of $421. The Company recognized other income related to the
recovery of its guarantee of $421,  $0, and $665 during the years ended December
31, 2008, 2007 and 2006, respectively (See Note 12).                            

Entities related to two of the Company's board members provide legal services to
the Company.  Legal expense  related to these services is $93, $138 and $107 for
the years ended  December 31,  2008,  2007 and 2006,  respectively.  Included in
accounts payable on the accompanying consolidated balance sheet is $106 and $182
due for these services as of December 31, 2008 and 2007, respectively.          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)                                

During the year ended  December  31, 2007,  the Company  engaged the services an
entity  owned by a related  party as a  subcontractor  for one of the  Company's
subsidiaries.  The  Company  incurred  expenses  of  $176,  $91 and $0 for  such
services for the years ended December 31, 2008 and 2007 and 2006, respectively. 

As of December 31, 2008 and 2007, the Company has  convertible  notes payable to
an entity related to its main shareholder (See Note 9).                         

NOTE 15 - GEOGRAPHICAL INFORMATION                                              

The Company  operates in one  reportable  segment,  airport  security  and other
aviation  services,  and has its  primary  operations  in the  United  States of
America and various countries in Europe.                                        

Revenue by country is summarized as follows:                                    

                                               Year ended December 31,
                                             -----------------------------------
                                              2008          2007          2006
                                             -----------------------------------
United States of America                     $40,421       $46,745       $46,844
Netherlands                                   44,173         7,619         7,200
Other                                         14,215        10,416         6,747
                                             -----------------------------------

Total                                        $98,809       $64,780       $60,791
                                             ===================================

Property and equipment,  net of accumulated  depreciation and  amortization,  by
country is summarized as follows:                                               

                                                            December 31,
                                                           ---------------------
                                                           2008           2007
                                                           ---------------------
United States of America                                   $  521         $  689
Netherlands                                                   933            434
Other                                                         274            396
                                                           ---------------------

                                                           $1,728         $1,519
                                                           =====================

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 16 - COMMITMENTS AND CONTINGENCIES                                         

Operating Leases                                                                

The Company leases certain equipment and premises under non-cancelable operating
leases. Future minimum lease payments under non-cancelable  operating leases are
as follows:                                                                     

Year Ending                                         
December 31,                                        
------------                                        
2009                     $ 1,213            
2010                         822            
2011                         453            
2012                         134            
2013                           5            
             -------

             $ 2,627
             =======

Rent expense for the years ended  December  31,  2008,  2007 and 2006 is $1,521,
$1,191 and $1,217, respectively.                                                

Legal Proceedings                                                               

United States Transportation Security Administration                            

In  February  2002,  one of the  Company's  subsidiaries  was awarded a security
services  contract  (the "TSA  Contract")  by the United  States  Transportation
Security  Administration ("TSA") to continue to provide security services in all
of its  current  airport  locations  until the  earlier of either the  completed
transition of these  security  services on an airport basis to the U.S.  Federal
Government or November  2002. In accordance  with the terms of the TSA Contract,
the U.S.  Federal  Government  provided the Company with a non-interest  bearing
advance of $26,000  which was  payable  to the TSA in  monthly  installments  of
$1,300  commencing in April 2002.  Through December 31, 2008, the subsidiary has
repaid $11,700 of the advance.  As of December 31, 2008, the amount due from the
TSA with respect to services  provided  under the TSA  Contract is $17,300.  The
Company has reflected  the amount due from the TSA, net of the remaining  unpaid
advance,  of  $3,000  as  other  receivable-United   States  government  on  the
accompanying consolidated balance sheet as of December 31, 2008 and 2007.       

The TSA filed a  contract  dispute  with the Office of  Dispute  Resolution  for
Acquisition  ("ODRA") in connection with the TSA Contract seeking  reimbursement
of an alleged  overpayment  of  principal  in the amount of $59,200.  This claim
follows a lawsuit which the Company's  subsidiary  had already filed against the
TSA for repeated  breach of contract.  The  Company's  subsidiary  is vigorously
challenging  the TSA's  claim which it asserts is devoid of any factual or legal
merit. The TSA's filing comes on the heels of a recent decision by ODRA granting
the subsidiary's  motion for partial summary judgment against the TSA for breach
of  contract  by failing to give  appropriate  notice for the  transitioning  of
airport  locations.  A separate  hearing will be held to determine the amount of
damages due to the  subsidiary on this claim.  With respect to the claim for the
$59,200  overpayment,  the  subsidiary  has filed a motion to dismiss the action
which  has  been  denied.  Both  claims  are now in  mediation.  At this  stage,
Management is unable to determine the outcome of the dispute or estimate a range
of  potential  loss.  Accordingly,   no  provision  has  been  included  in  the
accompanying consolidated balance sheet related to this matter.                 

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED)                             

Legal Proceedings (Continued)                                                   

United States Department of Labor                                               

During 2003, the United States  Department of Labor ("DOL")  finalized its audit
of the pay rates used to compensate  employees for services rendered pursuant to
the TSA Contract. The DOL concluded that in certain instances, employees had not
been paid the correct base rate,  fringe  benefits,  vacation and holiday pay. A
long-term  liability of $7,300 was  recognized  for the DOL claim as of December
31,  2006.  The DOL claim was settled  during 2007 for $3,000,  payable with the
proceeds  received  from  any  settlement  with  the  TSA.  As a  result  of the
settlement  with the DOL, the Company  recorded income of $4,300 during the year
ended  December 31, 2007,  which is reflected as a reduction in cost of revenue.
As of December 31, 2008 and 2007, a long-term  liability to the DOL of $3,000 is
reflected in accompanying consolidated balance sheet (See Note 10).             

September 11, 2001 Terrorist Attacks                                            

As a result of the  September  11, 2001  terrorist  attacks,  numerous  lawsuits
charging the Company with wrongful death and/or  property  damage were commenced
in the United States District Court,  Southern  District of New York,  resulting
from certain airport security  services  provided by one of its subsidiaries for
United  Flight 175 out of Logan  Airport in Boston,  Massachusetts.  A number of
these cases have been settled,  are in the process of being settled or have been
dismissed at no cost to the Company.                                            

The Company may be  indemnified  by the airlines if the Company is found to have
followed  the  procedures  specified  by the  Federal  Aviation  Administration.
However,  if the Company is found to have violated these screening  regulations,
it could be liable for  damages.  Based on an  internal  review of this  matter,
Management  has not found any  evidence of  non-compliance  with  respect to the
security services provided at Boston's Logan International  Airport on September
11, 2001.                                                                       

The Company maintains an aviation  insurance  policy,  which may provide limited
coverage for liabilities that may be assessed against the Company as a result of
the events of September  11,  2001.  The  liabilities  under these cases may, by
statute,  be limited to the policy coverage.  After the September 11th terrorist
attacks,  the  Company's  insurance  carriers  canceled all war risk  provisions
contained in the Company's insurance policies.                                  

Management is unable to determine the  likelihood of an  unfavorable  outcome or
estimate a range of loss with respect to the remaining  open claims  against the
Company. Accordingly, no provision has been included in the accompanying balance
sheet related to these matters.                                                 

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED)                             

Legal Proceedings (Continued)                                                   

The United States Government                                                    

The Company had commenced an action  against the United States  Government  with
respect to its Fifth Amendment rights relating to the taking of its business. In
December  2004,  the United States  Government's  motion to dismiss the case was
denied. A motion for reconsideration was also filed by the defendant and denied.
The trial for this  action was held and in March 2007,  the court ruled  against
the Company's  action.  The Company  appealed the decision and in May 2008,  the
United  States  Court of Appeals  for the  Federal  Circuit  affirmed  the lower
court's ruling. In addition,  the Company appealed the case to the United States
Supreme Court, which refused to here it.                                        

Audiovisual-Washington, Inc.                                                    

In  September  2005,  Avitecture,  Inc.  (a/k/a  Audiovisual-Washington,   Inc.)
("Avitecture")  filed a Demand for Arbitration and Mediation  against one of the
Company's  subsidiaries with the American  Arbitration  Association in Somerset,
New  Jersey.  The  Demand  for  Arbitration  alleges  that the  subsidiary  owes
Avitecture  $222 for audio,  video and  control  systems.  The case was  decided
against the Company's subsidiary in an arbitration proceeding, which resulted in
an award to Avitecture of $200.  The  arbitrator's  decision was affirmed by the
Superior  Court of New Jersey in May 2007 and the  Appellate  Court in  February
2008.  The Company has $200 in accrued  expenses and other  current  liabilities
related to this matter as of December 31, 2008 and 2007.                        

Turner Construction Company                                                     

In November 2005,  Turner  Construction  Company  ("Turner")  filed a Demand for
Arbitration  and Mediation  against one of the Company's  subsidiaries  with the
American  Arbitration  Association  in  Somerset,  New  Jersey.  The  Demand for
Arbitration  alleges that pursuant to a written agreement dated in October 2003,
the  subsidiary  owes  Turner  $948 for work and/or  services  performed.  In an
arbitration  proceeding,  the arbitrator awarded Turner $956 plus interest. This
award was affirmed on appeal.  In October 2007, the subsidiary  filed a petition
of bankruptcy  with the New Jersey  Superior  Court,  which dismissed the action
again the subsidiary  without prejudice as a result of the bankruptcy filing. In
anticipation  of Turner  attempting to reinstate or reopen the case, the Company
elected not to release the $956 previously  established in accrued  expenses and
other current  liabilities related to this matter. To date, Turner has not moved
to reinstate or reopen the case.                                                

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED)                             

Legal Proceedings (Continued)                                                   

Landlord Claims                                                                 

Two of the Company's subsidiaries have been sued by their landlord (which is the
same entity for both properties) alleging breach of their respective leases. One
suit is in the Circuit Court of Baltimore and the other is in the Superior Court
of New Jersey.  The landlord is seeking  unpaid rent for the entire terms of the
leases  for  $2,600 in  Atlantic  City,  New  Jersey  and  $3,700 in  Baltimore,
Maryland,  plus legal fees. The Company filed a bankruptcy  petition for both of
the subsidiaries. However, the landlord was able to prevail in one of the claims
because of a guarantee  given by the Company in connection with the lease in one
of the  locations.  In  January  2008,  a  judgment  in the amount of $2,600 was
awarded  in favor of the  landlord.  The  subsidiary  has  filed  an  appeal  to
challenge the judgment. As of December 31, 2008 and 2007, the Company has $7,276
and $8,530,  respectively in other liabilities from discontinued operations (See
Note 3). The  reduction in the  Company's  reserve for these matters is based on
changes  in  the  claims  against  the  Company  and is  presented  as  part  of
discontinued operations.                                                        

Fraport A.G. International Airport Services Worldwide                           

The Company was in a dispute with Fraport A.G.  International  Airport  Services
Worldwide over the alleged unlawful use of the letter  combination "ICTS" by the
Company.  Fraport initiated  proceedings before the district court of Amsterdam.
The principal amount claimed was (euro)57,700 ($80,800 as of December 31, 2008).
This dispute was settled in 2008 without any liability to the Company.          

General                                                                         

The Company is subject to various  investigations,  claims and legal proceedings
covering  a wide  range of  matters  that  arise in the  ordinary  course of its
business  activities.  These claims are primarily related to grievances filed by
current and former employees for unfair labor practices or  discrimination,  and
for passenger aviation claims.  Management recognizes a liability for any matter
when the likelihood of an  unfavorable  outcome is deemed to be probable and the
amount is able to be reasonably  estimated.  Management  has concluded that such
claims,  in the  aggregate,  would  not have a  material  adverse  effect on the
Company's consolidated financial position, results of operations, or cash flows.

Bonus Contingency                                                               

The  Managing  Director  of one of the  Company's  subsidiaries  is  entitled to
receive a bonus payment equivalent to 8% of the proceeds received by the Company
upon the successful sale of the subsidiary.                                     

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ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (US $ and (euro) in thousands, except per share data)

NOTE 17 - SUBSEQUENT EVENTS                                                     

In April 2009,  the Company  entered  into a new  borrowing  arrangement  with a
related party which replaced all previous  arrangements between the parties. The
new  arrangement  provides  the Company  with the ability to borrow up to $6,310
from the related party and is  convertible  at the option of the holder into the
Company's  common  stock at $2.10 per share.  All  outstanding  borrowings  from
previous  arrangements  were  applied  to the  borrowing  capacity  of  the  new
arrangement. Borrowings under the arrangement bear interest, which is compounded
semi-annually,  at rates equivalent to those charged by the Company's commercial
bank. Principal and interest under the arrangement are payable in November 2011.
The Company has the option to extend the  arrangement  for four  additional  six
month  periods.  The  arrangement  is  secured by a 26%  interest  in one of the
Company's subsidiaries.                                                         

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  Financial Statement Schedule - Valuation and Qualifying Accounts
(in thousands)

                                                        [Enlarge/Download Table]

                                                       Credits to    Charges to                        Balance  
                                         Beginning      Costs and      Other                            as of   
                                         of Period      Expenses      Accounts     Deductions (1)    December 31
----------------------------------------------------------------------------------------------------------------
                                                                                                                
Allowance for doubtful accounts:                                                                                
    Year Ended December 31, 2006            1,237           --            --           (243)              994   
    Year Ended December 31, 2007              994         (299)           --           (188)              507   
    Year Ended December 31, 2008              507          (51)           --           (128)              328   

                                                                                      Balance                   
                                         Beginning                                     as of                    
                                         of Period      Additions    Deductions      December 31                
------------------------------------------------------------------------------------------------                
Allowance for deferred tax assets:                                                                              
    Year Ended December 31, 2006           27,077           --          (914)          26,163                   
    Year Ended December 31, 2007           26,163           --        (4,300)          21,832                   
    Year Ended December 31, 2008           21,832          950            --           22,782                   

(1) Write-offs, net of recoveries                                               

F-36

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘DEF 14A’ Filing		Date		First		Last			Other Filings
		12/31/13		113					20-F,  NT 20-F
		3/10/10		63		120
		12/31/09		8					20-F,  NT 20-F
For Period End:		12/23/09		1		26
Filed on / Effective on:		11/18/09
		11/17/09		1
		11/16/09		2		8			4
		11/15/09		116
		6/26/09		100					20-F,  4
		6/24/09		98					4
		6/15/09		116
		5/31/09		74		83
		5/1/09		64		121			4
		4/22/09		97					6-K
		1/8/09		96					6-K,  6-K/A
		1/1/09		64		121
		12/31/08		2		132			20-F,  4
		12/17/08		39		83			DEF 14A
		12/15/08		115		116
		11/15/08		115
		8/1/08		64		121
		6/30/08		101					6-K
		5/1/08		64		121
		2/1/08		59		117
		1/1/08		89		114
		12/31/07		34		132			20-F,  NT 20-F
		7/17/07		96					20-F
		1/1/07		89		112
		12/31/06		34		130			20-F,  NT 20-F
		10/16/06		71					6-K
		8/15/06		92
		1/1/06		111
		12/31/05		34		61			20-F,  NT 20-F
		2/12/05		69
		2/1/05		67
		12/31/04		34		55			20-F,  20-F/A,  NT 20-F
		11/30/04		69					3,  4
		1/1/04		88
		12/31/03		36					20-F,  20-F/A,  NT 20-F
		12/23/03		41
		12/31/02		92					20-F,  NT 20-F
		9/11/01		34		130
		4/27/01		91
		1/1/99		41					6-K
		1/1/96		40
		1/1/94		40
		10/9/92		80
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