Icts International NV – ‘20-F’ for 12/31/07

On:  Monday, 6/30/08, at 9:35pm ET   ·   As of:  7/1/08   ·   For:  12/31/07   ·   Accession #:  891092-8-3340   ·   File #:  0-28542

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

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

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer             93    547K 
 2: EX-12.1     Certifications                                         2±     9K 
 3: EX-13.1     Annual or Quarterly Report to Security Holders         1      6K 

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

20-F
1st Page of 93
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 20-F

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

OR

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

 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

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)

20-F
2nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 2nd
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 

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: 6,672,980                                                               
---------                                                       

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 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 [_]

      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.           

-2- 

20-F
3rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 3rd
 Table of Contents

Part I                                                                         4
------                                                                          
Item 1            Identity of Directors, Senior Management and Advisers        4
Item 2            Offer Statistics and Expected Timetable                      4
Item 3            Key Information                                              4
Item 4            Information on the Company                                  10
Item 5            Operating and Financial Review and Prospects                16
Item 6            Directors, Senior Management and Employees                  27
Item 7            Major Shareholders and Related Party Transactions           33
Item 8            Financial Information                                       35
Item 9            The Offer and Listing                                       37
Item 10           Additional Information                                      38
Item 11           Quantitative and Qualitative Disclosures about Market Risk  46
Item 12           Description of Securities other than Equity Securities      47

Part II                                                                       47
-------                                                                         
Item 13           Defaults, Dividend Arrearages and Delinquencies             47
Item 14           Material Modifications to the Rights of Security Holders      
                  and the Use of Proceed                                      47
Item 15           Controls and Procedures                                     47
Item 16A          Audit Committee Financial Expert                            48
Item 16B          Code of Ethics                                              48
Item 16C          Principal Accountant Fees and Services                      48
Item 16D          Exceptions from Listing Standards for Audit Committees      48

Part III                                                                      48
--------                                                                        
Item 17           Financial Statements                                        48
Item 18           Financial Statements                                        48
Item 19           Exhibits                                                    49

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

Exhibit 13.1      Certification                                                 

-3- 

20-F
4th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 4th
PART I

Item 1. Identity of Directors, Senior Management and Advisers                   

Not Applicable

Item 2. Offer Statistics and Expected Timetable                                 

Not Applicable

Item 3. Key information.                                                        

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. In 2002, one of the     
company's subsidiaries, Huntleigh USA Corporation ("Huntleigh") derived a       
substantial portion of its revenues from providing aviation security services to
the United States Transportation Security Administration ("TSA"). Commencing    
November 2002, the Company ceased providing such services to the TSA but        
continues to provide such services to aviation companies and others outside the 
U.S.                                                                            

Discontinued Operations                                             

  In December 2005, the Company's management decided to cease two of its
segments operations and to focus on the main core business of the company; the  
aviation security activities and aviation related services.                     

    Following the decision, the Company ceased its operations in the Leasing
and Entertainment segments. The leased equipment was sold to the lessee and the 
entertainment sites were closed as of December 31, 2005.                        

Selected Financial Data                                             

     Selected Consolidated Statements of Income Data set forth below have been
derived from ICTS Consolidated Financial Statements which were prepared in      
accordance with 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          2007      2006      2005       2004      2003    
---------------------          ----      ----      ----       ----      ----    
Cash and cash equivalents     $2,095    $1,743    $5,927     $3,224    $7,404   
Current Assets                15,771    17,444    24,962     23,529    30,002   
Total Assets                  24,230    26,425    31,676     37,507    55,914   
Current Liabilities           28,216    29,249    25,435     20,395    24,747   
Shareholders Equity                                                             
 (Deficiency)             (20,610)  (19,002)   (5,148)    21,506    46,961
Discontinued Operations                                                         
-----------------------                                                         
Total Assets                  $2,873      $130      $537    $17,455   $28,586   
Total Liabilities             10,619    13,441    11,424      8,786     8,601   
--------------------------------------------------------------------------------

-4- 

20-F
5th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 5th
Selected Financial Data Statement of Operations                                 
         The following table summarizes certain statement of operations data for
ICTS for the years ended December 31, 2007, 2006, 2005, 2004, and 2003:         

                                                        [Enlarge/Download Table]

                                                         (U.S Dollars in thousands except per share data)            
                                                                       Year ended December 31,                       
                                                ---------------------------------------------------------------------
                                                  2007            2006          2005           2004           2003*  
                                               ---------      ---------      ---------      ---------      --------- 
                                                                                                                     
REVENUES                                         $64,780        $60,791        $57,713        $57,993        $67,933 
COST OF REVENUES                                  52,397         55,284         53,721         52,825         52,557 
                                               ---------      ---------      ---------      ---------      --------- 
GROSS PROFIT                                      12,383          5,507          3,992          5,168         15,376 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES      13,338         14,878         11,690         12,201          9,344 
                                               ---------      ---------      ---------      ---------      --------- 
OPERATING INCOME (LOSS)                             (955)        (9,371)        (7,698)        (7,033)         6,032 

FINANCIAL INCOME (EXPENSES) - net                 (3,334)          (714)          (908)          (452)         4,118 
OTHER INCOME (EXPENSES) - net                       (246)         1,241            147         (2,907)          (353)
                                               ---------      ---------      ---------      ---------      --------- 
INCOME (LOSS) BEFORE TAXES                        (4,535)        (8,844)        (8,459)       (10,392)         9,797 
INCOME TAXES BENEFIT (EXPENSE)                      (966)          (846)        (2,387)         1,529         (3,910)
SHARE IN LOSSES OF ASSOCIATED COMPANIES - net     (2,479)          (132)          (486)        (1,625)        (6,661)
                                               ---------      ---------      ---------      ---------      --------- 
LOSS FROM CONTINUING OPERATIONS                   (7,980)        (9,822)       (11,332)       (10,488)          (774)

DISCONTINUED OPERATIONS:                                                                                             
Profit (Loss) from discontinued                                                                                      
  operations, net of tax expenses                                                                                    
  (Benefit) of $(2,470), $2,476,                                                                                     
  $(2,525), $(1,655) and $(795)                                                                                      
  in 2007, 2006, 2005, 2004 and                                                                                      
  2003, respectively, includes                                                                                       
  loss of $4,774 on sale of assets                                                                                   
  to a related party in 2005, and                                                                                    
  after share in loss of associated                                                                                  
  company of $36 and $81 in 2005 and                                                                                 
  2004, respectively                               5,422         (4,248)       (13,548)       (15,474)       (18,130)
                                               ---------      ---------      ---------      ---------      --------- 
LOSS FOR THE YEAR                                 (2,558)       (14,070)       (24,880)       (25,962)       (18,904)
                                               =========      =========      =========      =========      ========= 
OTHER COMPREHENSIVE INCOME (Loss):                                                                                   
Translation adjustments                               80           (399)        (1,560)         1,043          3,456 
Unrealized gains (losses) on marketable                                                                              
  securities                                         497            104           (214)          (616)           794 
Reclassification adjustment for losses                                                                               
  for available for sale securities                                                                                  
  included in net income                                                                                         237 
                                               ---------      ---------      ---------      ---------      --------- 
                                                     577           (295)        (1,774)           427          4,487 
                                               ---------      ---------      ---------      ---------      --------- 
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                    
FOR THE YEAR                                     $(1,981)      $(14,365)      $(26,654)      $(25,535)      $(14,417)
                                               =========      =========      =========      =========      ========= 
PROFIT (LOSS) PER SHARE:                                                                                             
Loss from continued operations:                                                                                      
Loss per common share - basic                     $(1.22)        $(1.51)        $(1.74)        $(1.61)        $(0.12)
                                               =========      =========      =========      =========      ========= 
(Loss) per common share - diluted                 $(1.22)        $(1.51)        $(1.74)        $(1.61)        $(0.12)
                                               =========      =========      =========      =========      ========= 
Profit (Loss) from discontinued operations:                                                                          
Profit (Loss) per common share - basic             $0.83         $(0.65)        $(2.07)        $(2.37)        $(2.78)
                                               =========      =========      =========      =========      ========= 
Profit (Loss) per common share - diluted           $0.83         $(0.65)        $(2.07)        $(2.37)        $(2.78)
                                               =========      =========      =========      =========      ========= 
NET LOSS:                                                                                                            
Loss per common share - basic                     $(0.39)        $(2.16)        $(3.81)        $(3.98)        $(2.90)
                                               =========      =========      =========      =========      ========= 
Loss per common share - diluted                   $(0.39)        $(2.16)        $(3.81)        $(3.98)        $(2.90)
                                               =========      =========      =========      =========      ========= 
Weighted average shares of common                                                                                    
  stock outstanding                            6,528,100      6,528,100      6,528,100      6,524,250      6,513,100 
Adjusted diluted weighted average                                                                                    
  shares of Common stock outstanding           6,528,100      6,528,100      6,528,100      6,524,250      6,513,100 
                                               =========      =========      =========      =========      ========= 

*     Some numbers of 2003 were reclassified to match 2004-2007 presentations.  

-5- 

20-F
6th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 6th
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 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.  

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

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

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

  In connection with payments made by the TSA to Huntleigh USA, a wholly
owned subsidiary of the Company, for aviation security services provided in     
2002, the Defense Contract Management Agency has indicated that it believes that
Huntleigh should not have been paid on a fixed 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 about $59 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.                             

Claim for Loss of Business.                                         

     The Security Act provides that all aviation security services in the U.S.
will be handled by the Federal Government through the TSA. As a result of the   
passage of the Security Act the TSA took over aviation security in the U.S.     
since the end of 2002. Our failure to be able to meet the TSA's requirements or 
to secure contracts from the TSA will have a material adverse affect on our     
business.                                                                       

     As a foreign corporation, the Company is not eligible to bid for security
service contracts with the TSA.                                                 

Huntleigh's main business was providing airport security services to
airlines and airports but as a result of the creation of the TSA and the        
requirement that the TSA take over airport security, Huntleigh has lost its     
principal business. Huntleigh has commenced legal action against the U.S.       
Government for the "Taking" of its business and to protect its rights under the 
Fifth Amendment of the U.S. Constitution. Huntleigh seeks to recover the going  
concern value of the lost business. The suit was brought in the U.S Court of    
Federal Claims. The Court has decided against the Company. The Company appealed 
this decision and the U.S. Court of Appeals for the Federal Circuit affirmed the
lower court's ruling against the Company.                                       

We face significant 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. In addition, to
the present claims, additional claims may be asserted. The outcome of these or  
additional cases is uncertain. If there is an adverse outcome with respect to   
any of these claims which is not covered by insurance, then there may be a      
significant adverse impact on us.                                               

We have incurred major losses in recent years.                      

 We incurred net losses of approximately $2.6, $14.1, $24.9, $26.0 and
$18.9 million in 2007, 2006, 2005, 2004 and 2003 respectively. We cannot assure 
you that we can achieve profitability. The losses were accompanied by net cash  

-6- 

20-F
7th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 7th
used in operating activities of $3.6, $7.6, $5.2, $1.2 and $19.3 million in     
2007, 2006, 2005, 2004 and 2003, respectively, and at December 31, 2007 the     
Company had a working capital deficiency of $11.7 million and negative equity of
20.6 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.                                                                        

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

In its 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 December 31, 
2007, the Company had revenue of $64.8 million and a total loss of $2.6 million 
as well as a net working capital deficiency and negative equity.                

We are reliant on loans made by our 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 Subsidiary is currently undergoing an IRS audit for the
years ended December 31, 2002, 2003 and 2004. Should the audit conclude that the
Company owes significant funds to the IRS this could have an adverse effect on  
the financial condition of the Company.                                         

We are dependent on our key personnel.                              

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

We will be dependent on major customers.                            

   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 or financial condition. There is a material contract that will expire
in 2009 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  
affect 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 may suffer because of 
the increase in oil prices which has affected also our situation as service     
provider. If such airlines encounter financial difficulty this may have a       
material adverse impact on our business.                                        

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

   As part of our new business strategy we intend to develop technological
solutions and systems for the aviation security industry, develop or acquire    
security activities other than aviation security, 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.                                                              

-7- 

20-F
8th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 8th
Our failure to change our business strategy or implement it successfully will   
have a material adverse affect on our financial condition and results of        
operations.                                                                     

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

Competition in the aviation security industry as well as in the     
non-security related aviation services industry is intense. Many of our         
competitors have greater financial, technical and marketing resources. We expect
that our competitors will develop and market alternative systems and            
technologies that may have greater functionality or be more cost effective than 
the services we provide or the systems that we may develop. If our competitors  
develop such systems we may not be able to successfully market our systems. Even
if we are able to develop systems with greater functionality which are more cost
effective than those developed by our competitors, we may not be able to achieve
market acceptance of our systems because our competitors have greater financial 
and marketing resources.                                                        

The aviation security industry is subject to extensive 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 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 expected loss of revenues is approximately
$5 million.                                                                     

  The markets for our products and services may be adversely affected by
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   
the grounds that personal information and these technologies may be used to     
diminish personal privacy rights. In the event that such initiatives result in  
restrictive legislation, the market for our products may be adversely affected. 

Our operations are dependent upon obtaining required licenses.      

A license to operate is required from the airport authority in the  
airports in which we currently operate. 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 plaintiff and defendant in several significant   
lawsuits, the outcome of which could have a material adverse effect on the      
Company.                                                                        

Our financial condition is subject to currency risk.                

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

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

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

As of December 31, 2007, three groups of shareholders, officers and 
directors own approximately 81.5% of our shares (including options that are in  
the money and immediately exercisable). 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. As a result of such             

-8- 

20-F
9th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 9th
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. In      
addition, sales of significant amounts of shares controlled by the Atzmon Family
Trust or any other main shareholder, or the prospect of these sales, could      
adversely affect the market price of our common stock.                          

We cannot assure you that we will pay dividends.                    

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

We are subject to the laws of the Netherlands.                      

    As a Netherlands "Naamloze Vennootschap" (N.V.) public limited 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 6, 2006, 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.                  

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     

-9- 

20-F
10th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 10th
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 consolidated       
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 Biesboch 225, 1181 JC        
Amstelveen, The Netherlands and its telephone number is +31-20-347-1077.        

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

As of January 1, 1999, the Company acquired 80% of the issued and   
outstanding capital stock of Huntleigh and in January 2001 the Company exercised
its option to acquire the remaining 20% at an agreed upon price formula making  
Huntleigh a wholly owned subsidiary. Huntleigh is a provider of aviation        
services 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 may be unable 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. carriers. Following these contracts I-SEC 
established new subsidiaries throughout Europe, in the Netherlands, France,     
England, Spain, Hungary, Germany and other countries.                           

Leasing Business.                                                   

 In the second quarter of 2002, the Company purchased equipment in the
amount of $23.5 million and leased it back to the sellers, an affiliated private
Dutch company, for 7 years in an operating lease agreement.                     

 In December 2004, ICTS determined that the future cash flows from the
leased equipment will not recover its investment and as a result recorded an    
impairment loss of $2.2 million, in addition to an impairment loss of $6 million
that was recorded in 2003.                                                      

-10-

20-F
11th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 11th
  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 on 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") (a company  
under the control of one of ICTS's shareholders) certain assets owned by ITA and
used by it in the development, establishment and operation of motion-based      
entertainment theaters. The assets purchased consist primarily of intangible    
property and certain equipment. ITA 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. The purchase price for the assets purchased was $5.4 million. The
purchase price was paid by set-offs against certain debts owed by ITA to the    
Company, cash and notes. As a part of the transaction, certain agreements made  
between the Company and ITA in 2001 were terminated, with the result that the   
Company was no longer committed to involve ITA in its existing and future       
entertainment projects. Prior to entering into the transaction the Company      
obtained a fairness opinion as to the fairness of the consideration and the     
transaction to the Company.                                                     

    Shortly after the 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
segment. 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. No discussion has been 
made as to whether the Niagara Falls location should be closed as well.         

Business Overview                                                   

General                                                             

 ICTS had specialized until 2002 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 engages primarily in non-security related       
activities in the USA. In addition, ICTS provides non-security related aviation 
services and develops technological systems and solutions for the security      
market.                                                                         

ICTS, through I-SEC International Security B.V., supplies aviation  
security services at airports in Europe. Through Huntleigh it supplies aviation 
services and limited security services in the USA.                              

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 International Security B.V., supplies aviation  
security at airports, airlines and governments in Europe. During 2007, I-SEC was
hired to provide and extend the security services it provides to Schiphol       
Airport in Amsterdam. This contract is for a period of five years and is an     
important breakthrough for the Company. ICTS NAS had a contract serving one     
customer which expired in February 2008. ICTS NAS is being liquidated.          

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                                                              

-11-

20-F
12th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 12th
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 International Security B.V. 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 new subsidiaries   
and the provision of services at international airports in London, UK; Paris,   
France; Cologne, Germany; Barcelona, Spain; Budapest, Hungary; Edinburgh,       
Scotland and more. 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 16 locations in     
Europe. Additionally, I-SEC is providing aviation security consulting services  
at airports in the Asia-Pacific region.                                         

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 32 airports in 25 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     Ticket Checks - check of the boarding authorization of
               passenger and compares them to passenger ID before allowing
                  the passenger to pass through the checkpoint. This service was
                provided until the end of 2007 and then it was taken away by
the TSA.                                    

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

    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 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.  

Huntleigh provides cleaning services for aircraft cabins.           

Maintenance.                                                        

Huntleigh provides that workers maintain equipment in one airport.  

Aircraft Search.                                                    

Search of the entire aircraft to detect dangerous objects.          

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.                                      

-12-

20-F
13th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 13th
Shuttle Service.                                                    

  Huntleigh shuttles airline crews from their hotels to the aircraft and
vice versa in one airport.                                                      

Skycap Services Provider.                                           

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

     A skycap also may 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.                                              

Aviation Security Services.                                         

     ICTS, through its subsidiary I-SEC International Security, B.V., provides
pre-departure screening services at airports in the Netherlands and Russia, as  
well as London, UK and Paris, France. It also provides aviation security        
consulting services in the Asia-Pacific region, and has signed new contracts    
with carriers to supply aviation security services at additional locations.     
Prior to the enactment of the Security Act, Huntleigh provided such services in 
the U.S. Such services are designed to prevent or deter the carriage of any     
explosive, incendiary device, weapon or other dangerous objects into the sterile
area of an airport concourse and aboard the aircraft. In 2002 Huntleigh provided
such services in the United States exclusively to the TSA.                      

Technological Systems and Solutions.                                

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

Technology Initiatives.                                             

I-BOX.                                                              

      I-BOX, a unique technological platform developed by the Company, comprises
one of the main contributors to operational efficiency. 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.                                                            

IP@SS.                                                              

   ICTS, through its subsidiaries, ICTS Technologies USA, Inc., launched a
trial phase of its IP@SS project in 2003. IP@SS is a technological system       
integrating various components (Smart Document Reader, biometric unit, smart    
card unit, rule engine, watch lists and more), which enhances security while    
accelerating security check processes, thus improving operational efficiency and
customer service to passengers. IP@SS operates in compliance with strict        
confidentiality and privacy standards. Basic and technologically upgraded IP@SS 
systems were tested within the framework of pilot trials, which were carried out
at several airports, including London Gatwick (UK), Newark Liberty (USA),       
Amsterdam Airport Schiphol (the Netherlands) and Ezeria (Buenos Aires,          
Argentina).                                                                     

Automated Travel Check.                                             

      Automated Travel Check is a technologically upgraded version of Travel Doc
offered either as software only, or as a complete software and hardware package.
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.               

-13-

20-F
14th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 14th
APIS+.                                                              

APIS+ is a technologically upgraded version of APIS. It facilitates 
compliance with all requirements of Advance Passenger Information programs      
implemented by various countries worldwide (USA, Australia, Mexico and more),   
including the new mandatory Arrival-Departure Record data (Address in the USA). 
The required data is extracted from passports and a handwritten US address is   
extracted from the relevant form - through use of advanced proprietary          
performance-enhancing algorithms. The data is then prepared for transmission to 
the relevant authorities in the specified format. ICTS's subsidiary, ICTS       
Technologies USA, Inc. has been authorized to submit APIS data in UN/EDIFACT    
format to the USA's Bureau of Customs and Border Protection (CBP). APIS+ is     
offered as software only, or a complete software and hardware package.          

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 ICTS through its subsidiary, ICTS Technologies USA, such as  
IP@SS, Automated Travel Check, APIS+, the Company's solution for banks, and     
more.                                                                           

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. 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 numerous years of experience in the detection  
of suspicious signs and in advanced document checks.                            

Consulting, Auditing and Training.                                  

      ICTS, through its subsidiary, I-SEC International Security, B.V., provides
consulting services to airlines and airports. ICTS recommends the adoption of   
specified security procedures, develops recruitment and training programs for   
clients to hire necessary security personnel and works with airport authorities 
to ensure that they comply with applicable local requirements. ICTS trains      
airline employees to screen passengers and to perform other security measures   
through extensive courses and written training manuals.                         

Airline and Airport Customers.                                      

  In 2007 ICTS had eight main clients, which accounted for 75% of ICTS's
aviation services revenues, in over 50 locations worldwide.                     

Leasing Operation.                                                  

     In June 2002, ICTS purchased equipment for an aggregate purchase price of
$23.5 million. Pursuant to an operating lease, the equipment was leased related 
party, a private Dutch company. The lease payments provided for in 2005 totaled 
2.3 million Euro (as of December 31, 2005 - $2.8 million) and an option to      
purchase the equipment after five or seven years based upon the then fair market
value.                                                                          

 In 2003 and 2004, ICTS determined that the future cash flows from the
leased equipment will not recover its investment, and as a result recorded in   
2004 and 2003 impairment losses totaling $8 million. The value of the equipment 
at the option exercise date was based on an external assessment.                

  In June 2005, the Company granted the lessee an option to purchase the
leased equipment for an amount of $5 million plus an amount equal to the related
loan balance at the exercise date thus providing for the possibility of the     
early termination of the leasing agreement. As consideration for granting the   
option, the lessee paid to ICTS advanced lease installments of $1 million. The  
payment of the purchase price should have been reduced by advance payments on   
lease installments of $1 million received in July 2005 and an additional advance
payment of $500 due in January 2006 covering the lease periods from June 2005   
forward. On December 28, 2005, the lessee exercised the option and paid the     
Company $5 million. As part of the agreement the Company loaned to the lessee 1 
million Euro that was repaid by May 2006. The selling of the leasing equipment  
terminated the leasing activities of ICTS.                                      

-14-

20-F
15th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 15th
Sales.                                                              

Sales in the U.S.                                                   

In 2007, 72% of the revenues of ICTS from continuing operations were
derived in the U.S. compared to 77% in 2006.                                    

Sales in Europe.                                                    

In 2007, 26% of the revenues of ICTS from continuing operations were
derived in Europe compared to 23% in 2006. Contracts for aviation security      
services in various locations are obtained through competitive bids that are    
issued by the applicable airport authorities, airlines or agencies. The Company 
expects that in the next few years, the European activities will grow.          

Marketing of Security Systems and Technology.                       

 ICTS intends to market its technologies by establishing projects with
airports and airlines.                                                          

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, was          
responsible for adherence to such regulations relating to certain security      
aspects of their activities. ICTS is also responsible to prevent passengers     
without proper travel documentation from boarding a flight, thereby avoiding    
fines otherwise imposed on its clients by immigration authorities.              

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

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

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

Organizational Structure.                                           

     The following are the significant subsidiaries of ICTS as of December 31,
2007. (Exhibit 8):                                                  

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%).                                    

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, 2007, 2006 and 2005 were $1,191, $1,217 and $849,      
respectively.                                                                   

-15-

20-F
16th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 16th
Future minimum lease payments under long-term leases from continued 
operations are as follows:                                                      

Year                      
--------                      
         2008                            697
         2009                            699
         2010                            653
         2011                            305
         2012                             78
                                      ------
                                      $2,432
                                      ======

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, 2007 and 2006 totaled $8,530 and $10,125, 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 cause
management's expectations to change. However, while ICTS may elect to update    
these forward-looking statements, ICTS specifically disclaims any obligation to 
do so, even if its expectations change.                                         

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

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

      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.                                   

      In February 2005, as the non-competition restrictions expired, 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 preparation of ICTS's consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires     
management to make estimates and assumptions in certain circumstances that      
affect                                                                          

-16-

20-F
17th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 17th
amounts reported in the accompanying consolidated financial statements and      
related footnotes. ICTS bases its judgments on its experience and various other 
assumptions that it believes to be reasonable under the circumstances. Actual   
results may differ from these estimates. Please refer to Note 2 to ICTS's       
consolidated financial statements included in this Annual Report on Form 20-F   
for the year ended December 31, 2007 for a summary of ICTS's significant        
accounting policies.                                                            

Discontinued Operations:                                            

  1)    On December 28, 2005 the Company sold its lease equipment to the
         lessee and terminated its business in the Lease segment. The loss
       associated with the selling of the equipment totaled to $4,774.

     2)    After reviewing the financial results of the Entertainment segment,
      the Company decided in December 2005 to cease operations. As a
      result of this decision, as of December 31, 2007 and 2006, the
         Company accrued $8,530 and $10,125, 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 2(u) 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.                                  

Goodwill                                                            

    As of January 1, 2002, pursuant to FAS No.142 of the FASB, "Goodwill and
Other Intangible Assets", goodwill is no longer amortized but rather is tested  
for impairment annually. The Company has designated December 31 of each year as 
the date on which it will perform its annual goodwill impairment test.          

     On December 31, 2003, an impairment test was conducted on the unamortized
goodwill pursuant to which it was determined that, as of the date of the        
impairment test, an impairment existed concerning Demco of $797,000.            

 In 2004, as a result of the impairment of the Entertainment projects,
management wrote-off the goodwill related to the Entertainment acquisition of   
$5.3 million.                                                                   

 At December 31, 2007 goodwill was $314 and reflects the excess of the
purchase price of subsidiaries acquired over the fair value of net assets       
acquired and liabilities assumed. During 2007, 2006 and 2005, there were no     
additional goodwill write-offs. Changes in the fair value of the reporting units
following material changes in the assumptions as to the future cash flows and/or
discount rates could result in an unexpected impairment charge to goodwill.     

Functional and reporting currency                                   

As of January 1, 2002, the functional currency of ICTS and its U.S. 
operations is the U.S. Dollar because substantial revenues and operating costs  
are in dollars. Prior to January 1, 2002, the functional currency was primarily 
the Euro. The financial statements of subsidiaries whose functional currency is 
not the Dollar are translated into Dollars in accordance with the principles set
forth in FAS No. 52 of the FASB. Assets and liabilities are translated from the 
local currencies to dollars at year-end exchange rates. Income and expense items
are translated at average exchange rates during the year.                       

Revenue recognition                                                 

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

Impairment in value of long-lived assets                            

    ICTS has adopted FAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", effective January 1, 2002. FAS 144 requires that         
long-lived assets, held and used by an entity, be reviewed for impairment       
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. Under FAS 144, if the sum of the expected    
future cash flows (undiscounted and without interest charges) of the long-lived 
assets is less than                                                             

-17-

20-F
18th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 18th
the carrying amount of such assets, an impairment loss would be recognized, and 
the assets would be written down to their estimated fair values.                

  On December 31, 2003, an impairment test was conducted on the carrying
value of long-lived assets of the Company pursuant to which it was determined   
that, as of the date of the impairment test, the impairment existed in          
connection with equipment at Explore's facilities in Baltimore, Maryland and    
Atlantic City, New Jersey in the amount of $7.5 million and leased equipment of 
$6 million (all of which are discontinued operations). As a result, an          
impairment loss totaling $13.5 million was recognized.                          

      During 2004, impairment tests were conducted on the carrying amount of the
long-lived assets of the Company pursuant to which it was determined that, as of
the date of the impairment test, an impairment existed in connection with the   
leased equipment in an amount of $2 million and with the entertainment sites in 
the amount of $8.1 million (all of which are discontinued operations). As a     
result, an impairment loss totaled to $10.1 million was recognized.             

Contract with the TSA                                               

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

  In connection with payments made by the TSA to Huntleigh USA, a wholly
owned subsidiary of the Company, for aviation security services provided in     
2002, the Defense Contract Management Agency has indicated that it believes that
Huntleigh should not have been paid on a fixed price basis as believed by       
Huntleigh, but on an actual costs plus what the TSA would consider a reasonable 
profit. On that later basis, Huntleigh may be required to repay to the TSA the  
difference between such amount and the actual amounts paid to it. Huntleigh,    
however, has various claims for additional amounts it considers are due to it   
for the services provided to the TSA. As of December 31, 2006, the accounts     
receivable trade included $2.9 million due from the TSA. As of December 31,     
2007, this amount was re-classified as long term receivable.                    

 The Company estimates that if the TSA will claim such difference from
Huntleigh and will prevail in all of its contentions, and none of Huntleigh's   
claims will be recognized, then the Company may suffer a loss in an amount of   
about $59 million. In view of the nature of the above potential claims and      
counter-claims, management could not determine if, or to what extent, the TSA   
may be successful in any claim it may assert. Therefore, no provisions have been
made by the Company with respect to the above potential claims.                 

Labor Department Issue                                              

     In a letter dated November 21, 2003, the U.S. Department of Labor ("DOL")
advised Huntleigh that it had failed to comply with a clause included in its    
contract with the TSA under which Huntleigh had supposedly been required to pay 
its employees certain minimum wages. In March 2006, the DOL filed a complaint   
against Huntleigh stating that the underpayments amounted to $7.1 million. This 
complaint was amended to $17.5 million by adding fringe benefits. During 2007,  
the claim of the DOL has been settled for $3 million payable out of any         
settlement with the TSA. A long term receivable of $2.9 million and a long term 
liability of $3 million regarding this settlement are shown in the 2007         
consolidated financials.                                                        

Legal Proceedings                                                   

  As a result of the September 11th terrorist attacks, numerous lawsuits
have commenced against Huntleigh and ICTS. Huntleigh and ICTS have been named in
approximately 64 and 61 lawsuits, respectively. All of the cases were filed in  
the United States District Court, Southern District of New York. The cases arise
out of Huntleigh's airport security service for United Flight 175 out of Logan  
Airport in Boston, Massachusetts. All of the cases involve wrongful death except
16 which involve property damage. The cases are in their early stages with      
depositions having begun on September 12, 2006. A number of these cases have    
been settled or are in the process of being settled or dismissed at no cost to  
the Company.                                                                    

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

Under current legislation Huntleigh has its liability limited to the
amount of insurance coverage that it carries. The legislation applies to        
Huntleigh, but not ICTS.                                                        

The Company has commenced an action against the U.S. Government with
regard to the Fifth Amendment rights relating to the taking of its business. In 
December 2004 the Court denied the Government's motion to dismiss the case. A   

-18-

20-F
19th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 19th
motion for reconsideration was filed by the defendant and denied. The trial for 
this action has been held and the court has decided against the Company. The    
Company appealed the decision. In May 2008 the U.S. Court of Appeals for the    
Federal Circuit has affirmed the lower court's ruling against the Company.      

The Company was in dispute with Fraport A.G. International Airport  
Services Worldwide in relation to alleged unlawful use of the letter combination
"ICTS" by the Company. Fraport initiated proceedings before the district court  
of Amsterdam. The principal amount claimed is 57.65 million Euros ($68.1 million
as of December 31, 2005). During 2008, this dispute has been settled without any
liability to the Company.                                                       

    In September 2005, Avitecture, Inc, (f/k/a Audiovisual-Washington, Inc.)
("Avitecture"), filed a Demand for Arbitration and Mediation against            
ITA-Atlantic City, LLC ("ITA") with the American Arbitration Association in     
Somerset, NJ. The Demand for Arbitration alleges that pursuant to a written     
agreement dated March 20, 2003, ITA owes Avitecture $222 for audio, video and   
control systems it provided for ITA's use in a tourist attraction in Atlantic   
City, New Jersey, but for which Avitecture claims it has not been paid. The case
was decided against the Company in an arbitration proceeding awarding Avitecture
$194 plus arbitration costs of $6.                                              

   In November 2005, Turner Construction Company ("Turner") filed a Demand
for Arbitration and Mediation against Explore Atlantic City, LLC ("Explore")    
with the American Arbitration Association in Somerset, NJ. The Demand for       
Arbitration alleges that pursuant to a written agreement dated October 28, 2003,
Explore owes Turner $948 for work and/or services performed pursuant to the     
contract, but for which Explore has not paid Turner. The arbitrator awarded     
Turner $956 plus interest and costs, which award was affirmed on appeal. As of  
December 31, 2007 and 2006, $956 and $970 were accrued, respectively. On or     
about October 9, 2007, Explore filed a suggestion of bankruptcy with the New    
Jersey Superior Court. The Court thereafter stayed the proceedings and dismissed
the action without prejudice as a result of the bankruptcy filing. To date,     
Turner has not moved to re-instate or reopen the case.                          

In December 2005, Barlo & Associates ("Barlo") filed a Demand for   
Arbitration and Mediation against Explore with the American Arbitration         
Association in Somerset, NJ. The Demand for Arbitration alleges that pursuant to
a written agreement dated April 16, 2002, Explore owes Turner $21 for           
architectural work and/or services performed pursuant to the contract, but for  
which Explore has not paid Barlo. This matter has been settled for $10.         

The TSA filed with the Office of Dispute Resolution for Acquisition 
("ODRA") a contract dispute in connection with the contract entered into in     
February 2002 by Huntleigh seeking reimbursement of an alleged overpayment of   
principal in the amount of $59.2 million. This claim follows the lawsuit which  
Huntleigh has already filed against the TSA for its breaches of its contract    
with Huntleigh. Both claims are now pending in mediation.                       

      Huntleigh intends to vigorously challenge 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 Huntleigh's motion for partial summary       
judgment against the TSA. ODRA has granted Huntleigh's motion for partial       
summary judgment on Huntleigh's claim that the TSA breached the contract by     
failing to give appropriate notice for transitioning airport locations. A       
separate hearing will be held to determine the amount of damages due to         
Huntleigh on this claim. With regards to the claim for the $59.2 million        
overpayment, Huntleigh has filed a motion to dismiss the action which has been  
denied.                                                                         

     In 2005 the Company's subsidiary ICTS USA, Inc. filed a refund claim with
the Internal Revenue Service ("IRS") in an amount in excess of $2.4 million     
which was to be reflected on the December 31, 2005 year end financial statements
as a receivable. The refund had not been received by the Company. The Company   
made a demand to the IRS for the refund. Thereafter, by letter dated August 15, 
2006, the Company was advised that a criminal investigation by the United States
Department of Justice, Tax Division is 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 January 2008, the
Company was advised that the current investigation was withdrawn, and the       
Company received the $2.5 million refund and $373 of interest.                  

    In January 2008 a judgment in the amount of $2,559, was awarded in favor
of the landlord and against ITA Baltimore and ICTS International, N.V. The      
Company has filed an appeal against this judgment.                              

    The Atlantic City litigation was reopened in state court in January 2008
and is still on-going. The amount claimed against ITA is $5,970. Deposition     
discovery is about to commence.                                                 

-19-

20-F
20th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 20th
Selected Financial Data Statement of Operations                                 
         The following table summarizes certain statement of operations data for
ICTS for the years ended December 31, 2007, 2006, 2005, 2004, and 2003:         

                                                        [Enlarge/Download Table]

                                                           (U.S Dollars in thousands except per share data)          
                                                                       Year ended December 31,                       
                                               --------------------------------------------------------------------- 
                                                  2007           2006          2005            2004           2003*  
                                               ---------      ---------      ---------      ---------      --------- 
                                                                                                                     
REVENUES                                         $64,780        $60,791        $57,713        $57,993        $67,933 
COST OF REVENUES                                  52,397         55,284         53,721         52,825         52,557 
                                               ---------      ---------      ---------      ---------      --------- 
GROSS PROFIT                                      12,383          5,507          3,992          5,168         15,376 

SELLING, GENERAL AND                                                                                                 
  ADMINISTRATIVE EXPENSES                         13,338         14,878         11,690         12,201          9,344 
                                               ---------      ---------      ---------      ---------      --------- 
OPERATING INCOME (LOSS)                             (955)        (9,371)        (7,698)        (7,033)         6,032 
FINANCIAL INCOME (EXPENSES) - net                 (3,334)          (714)          (908)          (452)         4,118 
OTHER INCOME (EXPENSES) - net                       (246)         1,241            147         (2,907)          (353)
                                               ---------      ---------      ---------      ---------      --------- 
INCOME (LOSS) BEFORE TAXES                        (4,535)        (8,844)        (8,459)       (10,392)         9,797 
INCOME TAXES BENEFIT (EXPENSE)                      (966)          (846)        (2,387)         1,529         (3,910)
SHARE IN LOSSES OF ASSOCIATED COMPANIES - net     (2,479)          (132)          (486)        (1,625)        (6,661)
                                               ---------      ---------      ---------      ---------      --------- 
LOSS FROM CONTINUING OPERATIONS                   (7,980)        (9,822)       (11,332)       (10,488)          (774)

DISCONTINUED OPERATIONS:                                                                                             
Profit (Loss) from discontinued                                                                                      
  operations, net of tax expenses                                                                                    
  (Benefit) of $(2,470), $2,476,                                                                                     
  $(2,525), $(1,655) and $(795) in                                                                                   
  2007, 2006, 2005, 2004 and 2003,                                                                                   
  respectively, includes loss of                                                                                     
  $4,774 on sale of assets to a                                                                                      
  related party in 2005, and after                                                                                   
  share in loss of associated company                                                                                
  of $36 and $81 in 2005 and 2004,                                                                                   
  respectively                                     5,422         (4,248)       (13,548)       (15,474)       (18,130)
                                               ---------      ---------      ---------      ---------      --------- 
LOSS FOR THE YEAR                                 (2,558)       (14,070)       (24,880)       (25,962)       (18,904)
                                               =========      =========      =========      =========      ========= 
OTHER COMPREHENSIVE INCOME (Loss):                                                                                   
Translation adjustments                               80           (399)        (1,560)         1,043          3,456 
Unrealized gains (losses) on                                                                                         
  marketable securities                              497            104           (214)          (616)           794 
Reclassification adjustment for                                                                                      
  losses for available for sale                                                                                      
  securities included in net income                                                                              237 
                                               ---------      ---------      ---------      ---------      --------- 
                                                     577           (295)        (1,774)           427          4,487 
                                               ---------      ---------      ---------      ---------      --------- 
TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                    
FOR THE YEAR                                     $(1,981)      $(14,365)      $(26,654)      $(25,535)      $(14,417)
                                               =========      =========      =========      =========      ========= 

PROFIT (LOSS) PER SHARE:                                                                                             
Loss from continued operations:                                                                                      
Loss per common share - basic                     $(1.22)        $(1.51)        $(1.74)        $(1.61)        $(0.12)
                                               =========      =========      =========      =========      ========= 
(Loss) per common share - diluted                 $(1.22)        $(1.51)        $(1.74)        $(1.61)        $(0.12)
                                               =========      =========      =========      =========      ========= 
Profit (Loss) from discontinued operations:                                                                          
Profit (Loss) per common share - basic             $0.83         $(0.65)        $(2.07)        $(2.37)        $(2.78)
                                               =========      =========      =========      =========      ========= 
Profit (Loss) per common share - diluted           $0.83         $(0.65)        $(2.07)        $(2.37)        $(2.78)
                                               =========      =========      =========      =========      ========= 
NET LOSS:                                                                                                            
Loss per common share - basic                     $(0.39)        $(2.16)        $(3.81)        $(3.98)        $(2.90)
                                               =========      =========      =========      =========      ========= 
Loss per common share - diluted                   $(0.39)        $(2.16)        $(3.81)        $(3.98)        $(2.90)
                                               =========      =========      =========      =========      ========= 
Weighted average shares of                                                                                           
  common stock outstanding                     6,528,100      6,528,100      6,528,100      6,524,250      6,513,100 
Adjusted diluted weighted average                                                                                    
  shares of Common stock outstanding           6,528,100      6,528,100      6,528,100      6,524,250      6,513,100 
                                               =========      =========      =========      =========      ========= 

*     Some numbers of 2003 were reclassified to match 2004-2007 presentations.  

-20-

20-F
21st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 21st
The following table sets forth, for the annual periods indicated, certain       
statement of operations data as a percentage of revenues:                       

                                                     Year Ended December 31,
                                                   ---------------------------
                                                      2007      2006      2005
                                                      ----      ----      ----
Revenues ........................................      100%      100%      100% 
Cost of revenues.................................     80.9%     90.9%     93.1% 
Gross profit.....................................     19.1%      9.1%      6.9% 
Selling, general and administrative expenses.....     20.6%     24.5%     20.3% 
Operating loss...................................    (1.5)%   (15.4)%   (13.3)% 
Loss from continuing operations..................   (12.3)%   (16.2)%   (19.6)% 
Income (Loss) from discontinued operations.......      8.4%    (7.0)%   (23.5)% 
Loss for the year................................    (3.9)%   (23.1)%   (43.1)% 

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

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

Revenues. Revenues for the year ended December 31, 2007 were $64,780
(2006: $60,791), 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.       

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

    Financial Expenses. 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       

-21-

20-F
22nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 22nd
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.                                                                        

   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.                                                                    

      Other Income (Expenses), Net. Other income for the year ended December 31,
2007 totaled $(246) compared to $1,241 in 2006. Gain from sale of investments   
totaled $349 in 2007 compared to $576 in 2006. During 2007 the Company has fully
impaired its investment in Plan Graphics which totaled $600. 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 audit.                                                                      

     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 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 19 
in the financial statement.                                                     

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

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

      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                                                                    

-22-

20-F
23rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 23rd
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 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.                                                              

    Financial Expenses. 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.                                    

     Other Income (Expense), Net. Other income for the year ended December 31,
2006 was $1,241 compared to $147 for the year ended December 31, 2005. Other    
income in 2006 increased because of gains from sales of investments totaling an 
amount of $576. 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 were 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.                                           

   As to the geographical segments, please see note 19(a) in the financial
statements.                                                                     

 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
(U.S. Dollars in thousands unless otherwise indicated)                          

     The following information represents only the results of the company from
continuing operations (not including the results of the discontinued            
operations), unless mentioned otherwise.                                        

      Revenues. Revenues for the year ended December 31, 2005 were $57.7 million
(2004: $58 million), and consisted of $48.3 million (2004: $48.2 million) from  
U.S. operations, and $9.4 million (2004: $9.8 million) from other operations.   

  Almost all revenues in the U.S. ($48.3 million) are derived from other
than aviation security services.                                                

-23-

20-F
24th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 24th
 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, 2005 was $4 million, 7% as a
percentage of revenue (2004: $5.2 million, 9% as a percentage of revenue). The  
decrease in gross profit as a percentage of revenues is primarily attributable  
to the fact that the gross profit for the year 2005 included expenses of $1.1   
million regarding the new activities of operations in the aviation field by     
I-SEC and its subsidiaries, mainly establishing costs.                          

Selling, General and Administrative Expenses. Selling, general and  
administrative expenses were $11.7 million for the year ended December 31, 2005,
20.3% as a percentage of revenues, as compared to $12.2 million, 21% as a       
percentage of revenues for the year ended December 31, 2004. The expenses as a  
percentage of revenues were similar to the previous year. The improvement was a 
result of efforts done by management to reduce the company expenses.            

   Operating Loss. Operating loss for the year ended December 31, 2005 was
$7.7 million as compared to an operating loss of $7 million for the year ended  
December 31, 2004.                                                              

     Financial Expenses. Financial expenses in 2005 were $908 compared to $452
in 2004. The increase was mainly with regards to new loans that were taken by   
one of the subsidiaries to purchase new operating equipment interest expenses   
from short-term bank credit and one-time loans from securities.                 

     Other Income (Expense), Net. Other income for the year ended December 31,
2005 was $147 compared to expense of $2.9 million for the year ended December   
31, 2004. $2.7 million in 2004 were attributable to a write-off of the Company's
investment in Bilu. The other income in 2005 was due mainly to one time payments
in the amount of $110 received from investments that were written off in the    
past.                                                                           

Taxes On Income. In 2005 the Company recorded tax expenses of $2,387
attributable mainly to tax accruals regarding tax years 2002 and 2003.          

      Share in Losses of Associated Companies. $486 thousand in 2005 as compared
to a loss of $1.6 million for the year ended December 2004. The high loss is    
according to our investments in Inksure (loss of 1.2 million during 2005        
compared to $1 million in 2004) and NAS (profit of $705 during 2005 compared to 
$1.2 million profit in 2004). During 2004, a $1.8 million write-off of Bilu was 
also included in the loss of associated companies.                              

 Loss from Continuing Operations. ICTS loss from continuing operations
totaled $11.3 million in 2005, compared to $10.5 million in 2004.               

     Loss from Discontinued Operations. ICTS loss from discontinued operations
in 2005 totaled $13.5 million compared to $15.5 million in 2004. The loss of    
2005 includes a capital loss of $4,774 from the selling of the leasing          
equipment. The loss in 2004 includes write off losses of $15,422. During 2005 an
expense of $9.7 million was recognized regarding rent contract that should be   
paid until 2019.                                                                

Net loss. As a result of the foregoing, ICTS's loss amounted to $25 
million for the year ended December 31, 2005, as compared to $26 million loss   
for the year ended December 31, 2004.                                           

   As to the geographical segments, please see note 19(a) 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, 2007, we had cash
and cash equivalents of $2.1 million as compared to $1.7 million on December 31,
2006, and short-term restricted cash of $1.8 million as compared to $0.7 million
on December 31, 2006.                                                           

During the years ended December 31, 2007 and 2006, the Company has  
incurred $2.6 million and $14.1 million net losses, respectively, which were    
accompanied by net cash used in operating activities of $3.6 million and $7.6   
million, respectively. As of December 31, 2007 the Company had a working capital
deficiency of $11.7 million and negative equity of $20.6 million. During 2005   
management has ceased its operations in non-core business and has successfully  
accomplished its penetration to the European security market. Management        
anticipates that continuing these resources will provide the Company with the   
sufficient funds to operate its business in 2008 together with funds received   
from operations and some bridging loans provided by a related party. The        
Company's activity, for the long term, depends on entering into additional      
service contracts.                                                              

-24-

20-F
25th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 25th
 During 2007 and 2006, the Company received loans from a related party
which amount to $6.5 and $2.7, respectively, which were used to cover part of   
the Company's obligations.                                                      

  The Company's cash and cash equivalents increased in 2007 by $352 as a
result of the following:                                                        

      Net cash used in operating activities for the year ended December 31, 2007
was $3.6 million as compared to net cash used in operating activities of $7.6   
million for the year ended December 31, 2006 and net cash used by operating     
activities of $5.2 million for the year ended December 31, 2005. The net loss   
during 2007 totaled $2.6 million, offset by non-cash expenses of $373 relating  
to stock based compensation, $2.2 million to share in loss of associated        
companies, and $1.2 million in depreciation and amortization. Changes in        
operating assets and liabilities amounted to $310. The changes in operating     
assets and liabilities were primarily attributable to a $2.9 million increase in
accrued expenses and other liabilities, an increase of $634 in accounts payable 
based on the Company cash situation and an increase of $364 in accounts         
receivable. Net cash provided by discontinued operations totaled $175.          

     Net cash used by investing activities was $1.1 million for the year ended
December 31, 2007 as compared to net cash provided by investing activities of   
$262 for the year ended December 31, 2006 and net cash used in investing        
activities of $8.3 million for the year ended December 31, 2005. The increase   
this year is mainly because of the change in restricted cash which totaled $770.
Proceeds from selling of other investments totaled $295 and $419 in 2007 and    
2006, respectively. Total cash used in 2007 and 2006 for purchase of equipment  
totaled $940 and $630, respectively.                                            

Net cash financing activities were $4.9 million for the year ended  
December 31, 2007 as compared to net cash provided by financing activities of   
$3.7 for the year ended December 31, 2006 and $22 million for the year ended    
December 31, 2005. In 2007, net cash provided by financing activities was       
attributed primarily to related party loans of $4 million and net increase in   
short-term bank credit of $1.6 million.                                         

   On April 5, 2005, one of the company's subsidiaries entered into a Loan
and Security Agreement by establishing a replacement Revolving line of Credit.  
The Revolver provides a borrowing base up to $8 million based on 85% of defined 
Eligible Accounts Receivable and 95% of required Certificates of Deposit less   
Letter of Credit obligations. The interest rate is one percent (1%) per annum in
excess of the Prime Rate for loan balances in excess of the Libor Rate loans. As
of December 31, 2007 the restricted cash of 3.5 million held by the company     
serves as other collect recovery credit facility. On December 31, 2007, $5.7    
million was outstanding and $1.8 million was available under the revolving      
credit facility for additional borrowings. The borrowing agreement also provides
for a commitment guarantee of up to a maximum of $3.5 million for letters of    
credit and requires a per annum fee equal to 3%. The Company had letters of     
credit outstanding of approximately $1 million and $1.5 million at December 31, 
2007 and 2006, respectively.                                                    

Based on the revolving line of credit agreement, the subsidiary     
established a time deposit account, with the lender as cash collateral security.
The amount bears an annual interest of 4.25%. This deposit is being shown in the
balance sheet as restricted cash - long term.                                   

   On December 18, 2007, a fifth amendment was executed extending the term
from March 1, 2008 to March 31, 2009 with automatic one-year renewals at the    
election of either Lender or Borrower. The Company was in compliance with all   
loan covenants as of December 31, 2006 and 2007. However, as of March 31, 2008, 
the Company was in violation of its interest coverage ratio. In April 2008 a    
sixth amendment to the loan agreement was executed and the bank agreed to waive 
this covenant violation subject to the issuance of the stand-alone financial    
statement. The financial statements have not been issued as of the date of the  
filing and the debt is classified as current.                                   

In November 2004, a subsidiary of the Company entered into a credit 
agreement with a bank. During 2006 the agreement was extended and it provides a 
borrowing facility of up to (euro)650 (as of December 31, 2006 - $958), limited 
to 60% of certain pledged accounts receivable. The borrowing facility is also   
secured by the Company guaranty and is subject to certain covenants. At December
31, 2007, $610 was outstanding and $348 was available under the credit          
agreement. The Company is in compliance with the covenants. In February 2008 the
credit agreement was extended up to (euro)2.1 million.                          

 On February 17, 2002, ICTS entered into an aviation security services
contract with the TSA to continue to provide aviation security services in all  
of its current airport locations until the earlier of either the completed      
transition of these security services on an airport by airport basis to the U.S.
Federal Government or November 2, 2002. The TSA, in accordance with standard    
practices of auditing ICTS's billings pursuant to the contract, has sent the    
Company a notice indicating that it believes that the Company should not have   
been paid on fixed cost basis but on an actual cost plus what the TSA would     
consider a reasonable profit and thereof stated that the Company owed           
approximately $59 million. ICTS, however, has various claims for additional     
amounts it considers are due to it for the services provided to the TSA. The    

-25-

20-F
26th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 26th
Company estimates that if the TSA will prevail in all of its contentions, and   
none of the Company's claims will be recognized, then there may be a material   
adverse effect on ICTS's financial condition.                                   

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

The following table summarizes ICTS's obligations from continuing   
operations to make future payments under contracts as of December 31, 2007:     

                                                        [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                             3,276         126    3,150                    
Accrued severance pay                         84                                      84 
Operating lease obligations (1)            2,432         697    1,657       78           
Loan from related party                    6,528         884    5,644                    
Employment contracts                       1,082         541      541                    
Fees and interest regarding Credit Line      825         825                             
                                          ------      ------   ------   ------    ------ 
                                          14,227       3,073   10,992       78        84 

      As of December 31, 2007 and 2006 the Company created an accrual for future
rent regarding its discontinued operations of $8.5 million and $10.1 million    
which is supposed to be paid until 2019.                                        

     (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, 2007, 2006 and 2005 were $1,191, $1,217 and $849,      
respectively.                                                                   

ICTS's guarantees regarding Bilu                                    

Until 2006, the Company had outstanding bank guarantees to Bilu     
Investments, Ltd. ("Bilu") in the amount of $2,515. As collateral to these      
guarantees, the Company has long-term restricted deposits in equivalent amounts.
In December 31, 2004, as a result of continuing deterioration in the financial  
results of Bilu, the Company has determined to write-off its investment in Bilu 
and to fully provide its bank guarantees. In the beginning of 2007, the Company 
was released from its guarantee liability in total amount of $665 and the       
provision for the bank deposits was reduced by the same amount presented in 2006
results.                                                                        

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.             

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

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. 

-26-

20-F
27th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 27th
Item 6. Directors, Senior Management and Employees                              

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

Age     Position          
-----    ----------         
Menachem Atzmon            64      Chairman of the Supervisory Board            
Eytan Barak                64      Member of the Supervisory Board, Member of   
                      Compensation and Audit Committee
Elie Housman               71      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
David W. Sass              72      Member of the Supervisory Board              
Philip M. Getter           71      Member of the Supervisory Board, Chairman    
            of the Audit Committee
Avraham Dan                63      Managing Director and Chief Financial Officer
Ran Langer                 62      Managing Director                            
Alon Raich                 32      Controller                                   

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

    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., a company  
which arranges financial resources and management assistance to start-up        
companies. He is, and has been since the year 2003 to the present, a member of  
the Board of Directors of a public company owned by a Israeli Bank; a Provident 
Fund Company managed by "Bank Otsar Ha-Hayal" a subsidiary of Bank Hapoalim,    
where he is acting as the chairman of the investment committee and member of the
audit committee; and from the year 2000 to the year 2003 a member of the Board  
of Directors of seven Provident Companies managed by First International Bank of
Israel, where he was acting chairman of the audit committee and member of the   
investment committee. He is currently, and has been since 2004, a member of the 
board of directors and chairman of the finance committee of two companies owned 
by the Tel-Aviv Municipality. In addition, he is currently and a member of the  
board of directors and a member of the audit committee since the beginning of   
the year 2006 in Lumenis Ltd., a public company that was listed in Nasdaq. 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. He is the chairman 
of the board of "OTZMA," the Israel Center of Sport Clubs. Since 2006, he is a  
member of the Board of Directors of Surface Tech Ltd.                           

   Elie Housman has served as Chairman of Inksure Technologies, Inc. since
February 2002. Mr. Housman was a principal at Charterhouse Group International, 
a privately held merchant bank, from 1989 until June 2001. At Charterhouse, Mr. 
Housman was involved in the acquisition of a number of companies with total     
sales of several hundred million dollars. Mr. Housman was the Chairman of Novo  
Plc. in London, a leading company in the broadcast storage and services         
industry. He is also a director of EUCI Career Colleges, Incorporated, which is 
listed on the NASDAQ Small Cap Market and the Boston Stock Exchange and 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 25 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 47 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 a partner of DAMG Capital, LLC Investment Bankers.
Prior thereto he was most recently head of Investment Banking and a member of   
the board of directors of Prime Charter, Ltd. He has more than thirty years of  
corporate finance experience.                                                   

-27-

20-F
28th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 28th
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, 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. He writes         
frequently concerning the communications, education and entertainment           
industries. Mr. Getter received his B.S. in Industrial Relations from Cornell   
University. He is a member of several industry organizations and serves on      
various boards of both public and private organizations and is Chairman of the  
Audit Committees of EVCI Career Colleges, Inksure Technologies, Inc. as well as 
the Company.                                                                    

 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.                                                                 

 Alon Raich is a CPA (Isr), joined ICTS in September 2005 as Financial
Controller. 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.                                                                         

Compensation                                                        

Summary Compensation Table

The following table sets forth compensation earned by the executive officers and
the highest paid executive during 2007                                          

                                                        [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,    2007      180                     60                                                                   240   
Managing                                                                                                                     
Director        2006      180        60           60                                            45,000                 300   

                2005      180                     60                                                                   240   
-----------------------------------------------------------------------------------------------------------------------------
Ran Langer,     2007       No                                                                                                
Managing                 Salary                                                                                              
Director        2006                                                                            45,000                       

                2005                                                                                                         
-----------------------------------------------------------------------------------------------------------------------------
Doron Zicher,   2007      242       174           39                                                                   455   
Managing                                                                                                                     
Director        2006      221       217           32                                            55,000                 470   
Subsidiary                                                                                                                   
                2005      221       178           39                                                                   488   
-----------------------------------------------------------------------------------------------------------------------------

      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.                                                                       

-28-

20-F
29th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 29th
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, 2007.                       

                              Salaries, fees,            Pension, retirement
                           commissions                   and other
                               and bonuses                similar benefits
                              ---------------            -------------------
                            (in thousands)
All directors and officers      ----------------------------------------------  
as a group (14 persons)           $1,421                         $110     

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 or, in the case of members of the Supervisory Board, upon   
reaching the mandatory retirement age of 72.                                    

Employees                                                           

The number of employees in Europe is approximately 750.                         

The number of employees in the USA is approximately 2,760.                      

Share ownership                                                     

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

-29-

20-F
30th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 30th
Options to Purchase Securities.                                     

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

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

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

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

    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").                                                   

 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.                                               

-30-

20-F
31st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 31st
     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    
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. Udi Bechor (Key Employee) - 45,000 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. Mr. Bechor left the Company in 2007 and 
can no longer exercise his options.                                             

     6. Oded Shoam (Key Employee) - 50,000 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.                                         

  7. (Directors) - 30,000 options were granted to each of the Directors,
namely, Elie Housman, Philip Getter, Lynda Davey, 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. The options of Lynda   
Davey expired in 2007. Ms. Davey left the Company in 2007 and can no longer     
exercise her options.                                                           

      8. (Committee Chairs) 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. Udi Bechor (Key Employee) - 35,000 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. Mr. Bechor left the Company in 2007 and can  
no longer exercise his options.                                                 

   6. Oded Shoam (Key Employee) - 35,000 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.                                              

-31-

20-F
32nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 32nd
 7. Phillip 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.                        

     8. 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.                        

  9. 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.                                              

     10. 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.                                              

 11. 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.                                              

  12. 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.                                         

    13. 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, 2007 there were outstanding options to purchase  
1,723,000 shares, out of 2,100,000 that were approved and issued. All the       
options were granted to directors, executive officers and employees of the      
Company as a group 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 five years and no later than November 2011. Options available for grant under
the plans are 377,000. The plans expire by their terms at various dates to 2015.

All current executive officers (Managing Directors) (2 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 (8 persons) as a group: 283,000
Options                                                                         

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 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.                                                                           

-32-

20-F
33rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 33rd
    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 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 June 2, 2008 (including options exercisable   
within 60 days from June 2, 2008) 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 (b) (1)(2)                            4,497,226            60.95%          
-----------------------------------------------------------------------------------------------
Nicholas P. Monteban, Xalladio Holding B.V. and                                                
Galladio Capital Management B.V.                           688,000             10.54%          
-----------------------------------------------------------------------------------------------
Everest Special Situations Fund                                                                
 & Affiliates (c)                                            703,772           10.78%          
-----------------------------------------------------------------------------------------------
All officers and directors as a group including                                                
the Atzmon Family Trust                                                                        
(12 persons)                                              5,167,559            64.22%          
-----------------------------------------------------------------------------------------------

      (a) The amount includes common shares owned by each of the above, directly
or indirectly and options immediately exercisable or exercisable within 60 days 
from June 2, 2008.                                                              

     (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                                                                         

-33-

20-F
34th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 34th
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 shareholder.                                         

1. Harmony Ventures B.V., owns directly and indirectly approximately
60.95% 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 
90% of Harmony Ventures B.V. and the Estate of Ezra Harel owns 10% of the       
outstanding shares of Harmony Ventures BV and both may be deemed to control     
Harmony Ventures B.V. Mr. Atzmon disclaims any beneficial interest in the Atzmon
Family Trust. Harmony Ventures B.V. and the 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),
850,000 are currently exercisable with the remaining 50,000 vesting in 2008.    
With respect to the Options, 400,000 shares were granted in lieu of a current   
salary for Mr. Atzmon. 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.                                                    

   (c) The shares were purchased by such group during 2006, 2007 and 2008.

Related Party Transactions.                                         

     In August 1997, ICTS, as part of a group consisting of Leedan Systems and
Properties Enterprises (1993) Ltd. and Rogosin Development and Holdings Ltd.    
("Rogosin"), each at the time, an affiliate of Leedan, invested in a joint      
venture, Bilu Investments Ltd. ("Bilu"). Bilu is engaged in the financing of    
real estate projects in Israel, primarily in the residential market. In         
consideration for a 9.3% equity interest in Bilu, ICTS contributed $259 and has 
guaranteed $2,915 of debt obligations of Bilu. In 2000 Bilu issued 25% of its   
shares to an unaffiliated party in consideration for an equity investment of    
$2,000 and the provision of guarantees for debt obligations of Bilu in an amount
of $3,800. As a result, ICTS's equity interest in Bilu has been diluted to 7%   
and ICTS's guarantee was reduced to $2,515, of which $700 is on behalf of each  
of Leedan and Rogosin, respectively. Rogosin became an unaffiliated party in    
2002. In December 31, 2004, as a result of the continuing deterioration in the  
financial results of Bilu and the financial position of Leedan and Rogosin, the 
Company has determined to write off its investment in Bilu and to fully provide 
for its bank guaranties. In early 2007, the Company was released from its       
guarantee obligation for an amount of $665. The provision for the bank deposits 
was reduced by the same amount presented in 2006 results.                       

 In July 2000, each of ICTS and International Tourist Attractions Ltd.
("ITA"), a company under the control of ICTS's principal shareholders, purchased
16 common shares for $16 each of Ramasso Holding B.V. ("Ramasso") from Leedan,  
representing 40% each of the outstanding share capital of Ramasso. The remaining
20% shares in Ramasso are held by a company controlled by Leedan. ICTS provided 
loans to Ramasso from time to time until December 2003 aggregating approximately
$3 million bearing an annual interest rate of 4.25% which has no fixed          
repayment. Ramasso owns and operates, a Time Elevator in Rome, Italy.           

    Through December 31, 2002, ICTS has accounted for its share in Ramasso's
losses, in the total amount of $1.4 million, in view of these losses; the       
Company wrote-off the balance of the investment in Ramasso at December 31, 2002,
in the amount of $1 million. In April, 2003 the Company provided a financial    
institution that financed the Time Elevator in Rome, with a guaranty securing   
the repayment of such financing. At the time the guaranty was provided the      
amount of the financing provided by such financial institution to Time Elevator 
in Rome has been net 1,838,390 Euro. As of December 31, 2003, ICTS has fully    
provided for the guaranty in the amount of $1.1 million. Subsequent to December 
31, 2003 ICTS was required by the financial institution to cover its guaranty   
and the Company has reached an agreement with the financial institution for the 
repayment terms. All the debt was paid until December 31, 2005. Ramasso, which  
operated the Time Elevator in Rome filed for bankruptcy. In 2006 the receiver in
the bankruptcy has filed a proceeding against the financial institution which   
provided loans to Ramasso to recover a security deposit in the amount of 866    
Euro ($1.1 million as of December 31, 2006) which the financial institution held
as security and applied against its outstanding indebtedness as a result of     
Romasso's defaults. The financial institution has impleaded the company on its  
guarantee to the financial institution, and the financial institution is        
required to return the security deposit to the receiver in the bankruptcy. The  
financial institution has withdrawn its claim against the Company and has filed 
a Notice of Discontinuance against the Company.                                 

    During the period from April to September 2002, ICTS purchased 4,106,895
shares of Inksure Technologies Inc. ("Inksure"), which represents 34.3% of      
Inksure's outstanding shares for a purchase price of $5,986. In October 2002,   
Mr. Elie Housman, the Chairman of the Board of Inksure, was appointed to the    
ICTS Supervisory Board. Mr. Sass, a member of the ICTS Supervisory Board and one
of our directors was elected to the Board of Inksure. Mr. Getter 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                                                                         

-34-

20-F
35th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 35th
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 
June 2003 and April 2004 the Company participated in Inksure's private          
placements purchasing 174,542 and 544,118 additional shares, respectively at an 
aggregate purchase price of $192 and $370, respectively. During December 2006   
the Company sold 155,000 shares of Inksure at a price of $2.70 per share. In    
March 2007 another 155,000 shares were sold for $1.90 per share. As of December 
31, 2007 the Company owns approximately 28.1% of the outstanding shares of      
Inksure. In 2006 the supervisory board authorized the management to sell its    
investment in Inksure. The market value as of December 31, 2007 was             
approximately $2.1 million. As of June 1, 2008 the market value of the          
investment dropped to $1 million.                                               

On July 7, 2005, the Company has signed an agreement, with a related
party, to sell its rights of ownership in a long-term deposit, and to transfer  
the related long-term loan which was received as part of the arrangement with a 
bank, for consideration of $1.2 million. As of June 30, 2005 the net book value 
of the deposit and the long-term loan was $1.2 million. The total loss from the 
selling amounted to $316.                                                       

   In June 2002 equipment in the amount of $23.5 million was purchased and
leased back to the seller, an unaffiliated private Dutch company, for 7 years in
an operating lease agreement (with respect to equipment in an amount of $12.5   
million, the Company entered into a purchase and lease agreement that replaced a
predecessor acquirer, see below). The seller had the option to buy back the     
assets after 5 or 7 years, at their fair value, which would have been determined
by an appraiser. The Company has undertaken to repay the predecessor acquirer's 
liability to a bank, in an amount of $8.7 million, and issued him a promissory  
note. The loan was non-recourse.                                                

 In December 2004, ICTS determined that the future cash flows from the
lease equipment will not recover its investment, and as a result recorded an    
impairment loss of $2,247 in addition to an impairment loss of $6,042 that was  
recorded in 2003. The value of the equipment was based on a cash flow projection
that incorporated an external appraisal of the equipment terminal value at the  
option exercise date.                                                           

  In June 2005, the company granted the lessee an option to purchase the
leased equipment for an amount of $5 million plus an amount equal to the related
loan balance on the exercise date, thus providing for the possibility of the    
early termination of the leasing agreement. The validity of the option started  
on June 1, 2005 until September 30, 2006. As a consideration for granting the   
option fee the lessee had to pay ICTS an option fee of $20 per month, which will
be reduced from the $5 million in case of exercising the option.                

  In July 2005 the company received an advanced payment of $1 million on
lease installments which will be reduced from the purchase price of $5 million  
in case that the option will be exercised.                                      

      On December 28, 2005 the lessee exercised the option. The net value of the
equipment as of the purchase date was (euro)9,775 (equal to $11,554 on that     
date). The loss from the selling total was $4,774. On January 2006 the company  
signed a loan agreement with the owner of the lease company in which he received
a loan of (euro)1million ($1.2 million as of December 31, 2005) for 6 months    
bearing an interest of 5.45%. The entire loan was repaid by May 2006.           

As of December 31, 2007 and 2006 the company received loans in an   
aggregate amount of $6,528 and $2,652, respectively, from a related party as    
bridging finance. These loans are evidenced by a secured Promissory Note. All   
loans and accrued interest were due no later then April 1, 2008. Interest       
accrues at prime rate plus 1.5 percent and the obligations were secured by the  
pledge of 2,157,895 shares of common stock of Inksure Technologies Inc. The     
loans were, at the option of the lender, convertible into the company's common  
stock at a price of $3.50 per share. During 2008 the terms of the loan with     
related party were extended for 2 years up to April 1, 2010. Based on the new   
agreement, as collateral on the loan, 26% of the shares of I-SEC International  
Security B.V. a wholly owned subsidiary of the Company was pledged to the       
related party In addition, the loan is convertible to the Company' shares at a  
price of $2.75. Loans and accrued interest from related parties at June 30, 2008
amounted to $6.3 million.                                                       

    Following structural changes and continuous losses in Demco, a 100% held
subsidiary, it was decided to transfer the projects of Demco to "Amesco         
Emergency and Security Solutions" as a subcontractor. That company belongs to a 
related party. It will pay commissions to Demco based on the contracts it will  
operate until 2010.                                                             

Item 8. Financial Information                                                   

Consolidated Statements and Other Financial Information.            

See pages F-1 through F-43 incorporated herein by reference.        

Legal Proceedings                                                   

  As a result of the September 11th terrorists attacks numerous lawsuits
have commenced against Huntleigh and ICTS. Huntleigh and ICTS have been named in
approximately 64 and 61 lawsuits, respectively. All of the cases were filed in  
the United States District Court, Southern District of New York. The cases arise
out of Huntleigh's airport security service for United Flight 175 out of Logan  
Airport in Boston, Massachusetts. All of the cases involve wrongful death       

-35-

20-F
36th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 36th
except 16 which involve property damage. The cases are in their early stages    
with depositions having begun on September 12, 2006. A number of these cases    
have been settled or are in the process of being settled or dismissed at no cost
to the Company.                                                                 

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

Under current legislation Huntleigh has its liability limited to the
amount of insurance coverage that it carries. The legislation applies to        
Huntleigh, but not ICTS.                                                        

The Company has commenced an action against the U.S. Government with
regard to the Fifth Amendment rights relating to the taking of its business. In 
December 2004 the Court denied the Government's motion to dismiss the case. A   
motion for reconsideration was filed by the defendant and denied. The trial for 
this action has been held and the court has decided against the Company. The    
Company appealed the decision. In May 2008, the U.S. Court of Appeals for the   
Federal Circuit has affirmed the lower court's ruling against the Company.      

The Company was in dispute with Fraport A.G. International Airport  
Services Worldwide in relation to alleged unlawful use of the letter combination
"ICTS" by the company. Fraport initiated proceedings before the district court  
of Amsterdam. The principal amount claimed is 57.65 million Euros ($68.1 million
as of December 31, 2005). This dispute has been settled without any liability to
the Company.                                                                    

    In September 2005, Avitecture, Inc, (f/k/a Audiovisual-Washington, Inc.)
("Avitecture"), filed a Demand for Arbitration and Mediation against            
ITA-Atlantic City, LLC ("ITA") with the American Arbitration Association in     
Somerset, NJ. The Demand for Arbitration alleges that pursuant to a written     
agreement dated March 20, 2003, ITA owes Avitecture $222 for audio, video and   
control systems it provided for ITA's use in a tourist attraction in Atlantic   
City, New Jersey, but for which Avitecture claims it has not been paid. The case
was decided against the Company in an arbitration proceeding awarding Avitecture
$194 plus arbitration costs of $6. The arbitrator's decision was affirmed by the
Superior Court of New Jersey on or about May 4, 2007. The Company appealed this 
decision. In September 2007, ITA k/a Explore Atlantic City, LLC ("Explore")     
filed bankruptcy under Chapter 7 Bankruptcy Code. We filed a petition in        
bankruptcy with the court. The Appellate Court affirmed the arbitrator's ruling 
on February 18, 2008. In the interim, the bankruptcy case was closed.           

   In November 2005, Turner Construction Company ("Turner") filed a Demand
for Arbitration and Mediation against Explore Atlantic City, LLC ("Explore")    
with the American Arbitration Association in Somerset, NJ. The Demand for       
Arbitration alleges that pursuant to a written agreement dated October 28, 2003,
Explore owes Turner $948 for work and/or services performed pursuant to the     
contract, but for which Explore has not paid Turner. The arbitrator awarded     
Turner $956 plus interest and costs, which award was affirmed on appeal. As of  
December 31, 2007 and 2006, $956 and $970 were accrued, respectively. On or     
about October 9, 2007, Explore filed a petition in bankruptcy with the New      
Jersey Superior Court. The Court thereafter stayed the proceedings and dismissed
the action without prejudice as a result of the bankruptcy filing. To date,     
Turner has not moved to re-instate or reopen the case.                          

In December 2005, Barlo & Associates ("Barlo") filed a Demand for   
Arbitration and Mediation against Explore with the American Arbitration         
Association in Somerset, NJ. The Demand for Arbitration alleges that pursuant to
a written agreement dated April 16, 2002, Explore owes Turner $21,000 for       
architectural work and/or services performed pursuant to the contract, but for  
which Explore has not paid Barlo. This matter has been settled for $10,000.     

The TSA filed with the Office of Dispute Resolution for Acquisition 
("ODRA") a contract dispute in connection with the contract entered into in     
February 2002 by Huntleigh seeking reimbursement of an alleged overpayment of   
principal in the amount of $59.2 million. This claim follows the lawsuit which  
Huntleigh has already filed against the TSA for its breaches of its contract    
with Huntleigh. Both claims are now pending in mediation.                       

      Huntleigh intends to vigorously challenge 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 Huntleigh's motion for partial summary       
judgment against the TSA. ODRA has granted Huntleigh's motion for partial       
summary judgment on Huntleigh's claim that the TSA breached the contract by     
failing to give appropriate notice for transitioning airport locations. A       
separate hearing will be held to determine the amount of damages due to         
Huntleigh on this claim. With regards to the claim for the $59.2 million        
overpayment, Huntleigh has filed a motion to dismiss the action which has been  
denied.                                                                         

     In 2005 the Company's subsidiary ICTS USA, Inc. filed a refund claim with
the Internal Revenue Service ("IRS") in an amount in excess of $2.4 million     
which was to be reflected on the December 31, 2005 year end financial statements
as a receivable. The Company made a demand to the IRS for the refund.           
Thereafter, by letter dated August 15, 2006, the                                

-36-

20-F
37th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 37th
Company was advised that a criminal investigation by the United States          
Department of Justice, Tax Division is 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 January, 2008,   
the Company was advised that the current investigation was withdrawn, and the   
Company received the refund of $2.4 million and interest of $373.               

     Two of the Company's subsidiaries have been sued by their landlord (which
is the same entity for both properties) alleging breach of the respective       
leases. One suit is in Circuit Court for Baltimore City affecting the Company's 
Explore Baltimore facility, and the other is in the Superior Court of New Jersey
affecting the Company's Explore Atlantic City facility. Through legally         
defective service, the landlord was able to obtain orders for possession of both
of these locations. A petition to open the Atlantic City action has been filed  
and one is being prepared for the Baltimore action. In addition to seeking      
possession, in both the cases the landlord is seeking unpaid rent for the entire
term of the leases. In the Atlantic City case the amount sought is $5,970 and in
the Baltimore case, the amount is $ 4,444. As of December 31, 2007 and 2006, the
Company accrued an amount of $2.5 million and $10.1 million, respectively, for  
future rent. The Company filed a petition in bankruptcy for each of the Atlantic
City and Baltimore subsidiaries, which stayed the proceeding. However, the      
landlord was able to prevail against the Company with respect to a guarantee    
given by the Company with respect to the lease in Baltimore. The Company also   
rendered that the landlord could proceed to prove its damages with respect to   
the Baltimore lease. In January 2008, the Baltimore litigation was conducted. At
the end of the trial, a judgment in the amount of $2,559,343.67 was awarded in  
favor of the Landlord and against ITA Baltimore and ICTS International, N.V.,   
jointly and severally. The Company has filed an appeal in this litigation to    
challenge the judgment on behalf of ICTS International, N.V.                    

     The Atlantic City litigation was reopened in state court in January, 2008
and is still on-going. The amount claimed against ITA is $5,970,197. Deposition 
discovery is about to commence.                                                 

Significant Changes                                                 

    As of the management decision to cease the operations of the Leasing and
the Entertainment activities in 2005, the financial statements are presented    
according to FAS 144 which separates the financial information of the           
discontinued operations and the continuing operations.                          

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.                                                  

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

                    High               Low
----                                   -----             -----                  
2003                                   $6.14             $2.49                  
2004                                   $8.42             $1.35                  
2005                                   $3.23             $1.58                  
2006                                   $2.54             $0.10                  
2007                                   $2.79             $1.40                  

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

2005                                   High               Low                   
----                                   -----             -----                  
First quarter                          $3.23             $1.58                  
Second quarter                         $2.89             $1.81                  
Third quarter                          $3.08             $2.11                  
Fourth quarter                         $2.81             $2.39                  

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                  

-37-

20-F
38th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 38th
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                  

The reported  high and low closing  sales  prices per shares  during each of the
last six months were as follows:                                                

                     High              Low
------                                 -----             -----                  
January                                $2.20             $1.80                  
February                               $2.20             $1.95                  
March                                  $2.20             $2.00                  
April                                  $2.20             $2.00                  
May                                    $2.20             $2.10                  
June (until June 29, 2008)             $2.20             $2.05                  

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, 2007 and 2006,   
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.                     

-38-

20-F
39th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 39th
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 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 June 30, 2011. 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 of the  
common shares. Any such proposal is subject to general requirements of          
Netherlands law with respect to reduction of share capital.                     

-39-

20-F
40th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 40th
   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 6, 2006, 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 June 30, 2007 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 same detail or with attention to an investor's specific tax      
circumstances that would be provided by an investor's own tax adviser.          
Accordingly, prospective purchasers of shares are advised to consult their own  
tax advisers with respect to their particular circumstances and with respect to 
the effects of U.S. federal, state, local, or other laws to which they may be   
subject.                                                                        

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

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

Taxation of Dividends                                               

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

-40-

20-F
41st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 41st
  The declaration of dividends will be at the discretion of our board of
directors and will depend upon our earnings, capital requirements, financial    
position, general economic conditions, and other pertinent factors. We cannot   
assure you that dividends will be paid in the future.                           

Foreign Tax Credits                                                 

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

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

Taxation on Sale or Disposition of Shares                           

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

Gift and Estate Tax                                                 

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

Backup Withholding and Information Reporting                        

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

-41-

20-F
42nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 42nd
Foreign Personal Holding Companies                                  

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

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

Taxes in the Netherlands                                            

   The following is a general 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 2006 the standard corporate      
income tax rate was 25.5% applicable for taxable profits up to (euro)23 and     
29.6% for the excess. In 2007, these rates are 20% for profits up to (euro)25,  
23.5% for profits between (euro)25 and (euro)60 and 25.5% for profits in excess 
of (euro)60.                                                                    

      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 at arms length. In case transactions between such       
affiliates conditions are made or imposed (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:                                                             

(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; and                                             

(iii) ICTS does not hold the shares in the subsidiary company as inventory.     

     In case of a shareholding in a non-Dutch resident subsidiary company, the
following additional conditions are applicable:                     

(iv)  The subsidiary company is subject to a tax on profits in its state of     
residence; and                                                      

(v)   The shares in the subsidiary company are not held by ICTS as a portfolio  
     investment, including shareholdings in passive group financing companies.

Regardless of the above, a shareholding of 20% or more in a qualifying EU       
resident subsidiary company that can be considered as a portfolio investment in 
principle still falls within the scope of the participation exemption, provided 
that all other above conditions are met and subject to certain anti-abuse       
provisions.                                                                     

As from 2007 conditions (iii)-(v) above for the application of the  
participation exemption will be abolished. Further, the different treatment of  
shareholdings in Dutch and foreign and of EU and non-EU subsidiaries will       
disappear. Instead, the participation exemption will be applicable to           
shareholdings in subsidiary companies of at least 5%, unless                    

-42-

20-F
43rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 43rd
(1)   the subsidiary company can be considered as a low-taxed company; and      

(2)   the shareholding in the subsidiary company qualifies as a portfolio       
investment.                                                         

 A subsidiary company is considered as a low-taxed company 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 not a shareholding in a subsidiary company qualifies as a
portfolio investment 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 must be applied from the perspective of the subsidiary     
itself. The participation exemption will in principle be applicable by          
definition 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 grossed up and taxed in the hands of ICTS against  
ordinary corporate income tax rates, whilst a credit is allowed for underlying  
taxes. Income derived from totally exempt portfolio participations will not be  
grossed up, nor can a credit for underlying taxes be claimed.                   

 Costs related to the acquisition of qualifying participations are not
deductible. Other expenses relating to participations, regardless of whether    
they are resident in the Netherlands or abroad, are in principle fully          
deductible. As from 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 per 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 harbour, ICTS may from year to year      
decide to apply the average debt/equity ratio of the group of companies to which
it belongs as its maximum debt/equity ratio based on the statutory commercial   
(consolidated) accounts. 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).                     

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 a general rule, losses can be carried forward by ICTS indefinitely or
carried back to the three preceding book-years, subject to certain anti-abuse   
provisions in relation to the trade in compensable losses.                      

    Limitations on loss compensation may also apply in the case of so-called
"holding losses", being - shortly summarized - 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 (in) 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.                                                

    As of 2007, the term for carry-back of losses will be reduced from three
years to one year. Further, the term for carry-forward of losses will be limited
to nine years. Not yet compensated losses will vaporize 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.                                                                           

-43-

20-F
44th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 44th
Corporate Income Tax 2007 Act, other changes                        

  Based on the recently adopted Corporate Income Tax Act of 2007, as per
January 1, 2007, various other changes will be introduced to the Dutch corporate
income tax regime. Along with the changes already mentioned above, other changes
including, but not limited to an "interest box" and a "patent box" will be      
introduced in the Netherlands (subject to approval from the European Committee).

   In the interest box regime, 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, income from self-developed intangible assets
will be taxed against an effective tax rate of 10%. In general, the maximum     
amount of income to be taxed against this special rate is limited to 4 times the
total costs made in relation to the intangible assets. Application of the patent
box is only possible in relation 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 in principle still decide to apply 
the patent box regime.                                                          

  Further, as per January 1, 2007 restrictions will be introduced on the
depreciation period of goodwill and other business assets. The minimum          
depreciation period for goodwill will be 10 years. The minimum depreciation     
period for other business assets will be 5 years. It should still be possible to
value assets at lower going-concern value. Further, restrictions will be        
introduced on the depreciation of real estate property. Shortly summarized,     
depreciation of investment property will no longer be 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 will be 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 jurisdiction 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 25%. In 2007, the domestic Dutch dividend          
withholding tax rate will be reduced to 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 in principle 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. 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 reduced 
to a rate of 15% in the case of an individual shareholder or less in the case of
a corporate shareholder.                                                        

-44-

20-F
45th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 45th
     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 generally eligible for a reduction of Dutch dividend withholding tax to 15%,
provided that they are entitled to the benefits of the Treaty, 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.                      

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, 2001, in limited circumstances,
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 from April 27, 2001.

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 and 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 is in effect between the country of residence of the       
shareholder and the Netherlands.                                                

    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.                            

Special rules may apply to non-resident Shareholders who owned a    
substantial interest or deemed substantial interest under the rules applicable  
at any time in the past and to non-resident Shareholders who own a substantial  
interest or deemed substantial interest as a result of modifications of the tax 
regime for substantial interest holders.                                        

As of January 1, 2001, 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.                                                                

-45-

20-F
46th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 46th
Gift, Inheritance Tax and Transfer Tax Upon Gift or Death in the    
Netherlands                                                                     

  A gift or inheritance of Common Shares from a non-resident Shareholder
will 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 an ongoing tax examination, started in early 2005, by the U.S tax
authorities of the U.S. subsidiaries of the Company, through the years ended    
December 31, 2003, the U.S subsidiaries were required to provide information    
regarding their treatment of certain expenses. Based on the issues raised, the  
tax authorities' position and a professional opinion the Company has received,  
the Company has included a provision in its accounts based on its tax advisors  
calculations. The Company's management believes that the applicable provision in
its financial statements as of December 31, 2006 is adequate to cover probable  
costs arising from this tax examination if and when they will become to Tax     
assessments. The matter is under criminal investigation in the Justice          
Department.                                                                     

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 - Only applies to Company's operations
outside the USA. In 2007, about 72% of the Companies revenues were derived in   
the USA.                                                                        

      The Company is subject to changes in the primate 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 $150,000 in the year ended December 31, 2008.                  

See financial statements, note 19.                                  

-46-

20-F
47th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 47th
Item 12. Description of Securities Other than Equity Securities                 

Not applicable                                                

 PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies                        

    The Company was in compliance with all loan covenants as of December 31,
2007 and 2006. However, as of March 31, 2008, a US subsidiary was in violation  
of its interest coverage ratio. The bank agreed to waive this covenant violation
subject to the issuance of the stand-alone financial statements of the          
subsidiary. The financial statements have not been issued as of the date of the 
filing and the debt is classified as current.                                   

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, has evaluated the effectiveness of our disclosure controls and         
procedures as of December 31, 2007. 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 principal      
financial officer is 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 principal financial
officer assessed the effectiveness of our internal control over financial       
reporting as of December 31, 2007. 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, Huntleigh Corp USA, PI, I-SEC France.;         
collectively "Subsidiaries". Our management including our chief executive       
officer and our principal financial officer has concluded based on its          
assessment, that our internal control over financial reporting was effective as 
of December 31, 2007 based on these criteria.                                   

-47-

20-F
48th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 48th
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, 2007 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, Mahoney Cohen & Company, CPA, P.C. ("MC"), for services   
rendered to us for the years ended December 31, 2007 and 2006. No services were 
performed by, or fees incurred to, Goldstein, Golub and Kessler LLP ("GGK") in  
connection with financial information services design and implementation        
projects in 2007. The fees billed by MC, our independent registered public      
accounting firm, for audit and other professional services during 2007 and 2006,
respectively, are 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.                 

                              2007    2006
                             -----   -----
Audit fees:                                     
Audit fees                       300     400    
Audit related fees                              
Sub-total                        300     400    
Non-Audit services:                             
Tax fees                                        
Total fees                       300     400    

Goldsten, Golub and Kessler LLP were the 2005 auditors. In 2006 the Company     
changed its auditors to Mahoney Cohen & Company, CPA, P.C.                      

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.                                  

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                          

-48-

20-F
49th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 49th
Item 19. Exhibits                                                               

1. Articles of Association of the Company.*                         

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

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

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

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

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

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

-49-

20-F
50th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 50th
SIGNATURES

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

                    ICTS INTERNATIONAL, N.V.

               By: /s/ Avraham Dan
                         -----------------------------
             Name: Avraham Dan
                        Title: Managing Director and
                   Chief Financial Officer

Date: June 30, 2008                                                             

-50-

20-F
51st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 51st
 ICTS INTERNATIONAL N.V.

2007 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 Operations        F-6

   Consolidated Statements of Changes in Shareholders' Equity (Deficiency)   F-7

   Consolidated Statements of Cash Flows                                     F-8

Notes to consolidated financial statements                                  F-10

F-1 

20-F
52nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 52nd
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheet of ICTS 
International N.V. and Subsidiaries as of December 31, 2007 and 2006 and the    
related consolidated statements of operations and comprehensive operations,     
changes in shareholders' equity (deficit), and cash flows for the years 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 has         
determined that it is not required to have, nor were we engaged to perform, an  
audit of its internal control over financial reporting. 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 2006 and the    
results of their operations, changes in shareholder equity (deficit) and their  
cash flows for the years ended in conformity with accounting principles         
generally accepted in the United States of America.                             

      As disclosed in Notes 1, 14 and 17, the Company is involved in significant
litigation, certain of which relates to the September 11, 2001 terrorist attacks
in the United States and the Company's insurance carriers have canceled all its 
war risk policies. In addition, the Company is involved in other potential      
contingencies including but not limited to (a) a dispute between the Company and
the United States Transportation Security Administration ("TSA"), with respect  
to the basis of calculation of payments for security services rendered by the   
Company in 2002, in respect of which, the TSA might be claiming refund of       
material amounts, (b) potential lawsuits pertaining to the Company's            
discontinued operations of Explore USA, (c) the successful renewal of Procheck  
and NAS contracts.                                                              

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1, 14 and 17 to 
the financial statements, the Company has suffered recurring losses from        
operations, net working capital deficiency, negative equity, its U.S. subsidiary
is in default of its loan covenants 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 plan in
regard to these matters is also described in Note 1(b). The financial statements
do not include any adjustments that might result from the outcome of these      
uncertainties.                                                                  

Mahoney Cohen & Company, CPA, P.C.                                              
New York, New York                                                              

June 30, 2008                                                                   

F-2 

20-F
53rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 53rd
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
 ICTS INTERNATIONAL N.V.

We have audited the accompanying consolidated statements of operations and      
comprehensive operations, changes in shareholders' equity (deficiency) and cash 
flows of ICTS International N.V. and subsidiaries ("the Company") for the year  
ended December 31, 2005. 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. 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 consolidated financial position of the    
Company as of December 31, 2005 and the consolidated results of their           
operations, the changes in their shareholders' equity (deficiency) and their    
cash flows for the year then ended in conformity with United States generally   
accepted accounting principles.                                                 

As disclosed in Note 14, a multitude of lawsuits have been commenced against the
Company in connection with the September 11, 2001 terrorist attacks in the      
United States and the Company's insurance carriers have canceled all its war    
risk policies. Also, there is a dispute between the Company and the United      
States Transportation Security Administration ("TSA"), with respect to the basis
of calculation of payments for security services rendered by the Company in     
2002, in respect of which, the TSA might be claiming a refund of material       
amounts.                                                                        

The accompanying financial statements have been prepared assuming that the      
Company will continue as a going concern. As discussed in Notes 1(b) and 14 to  
the financial statements, the Company has suffered recurring losses from        
operations, and has a net working capital deficiency, and is subject to         
potential contingencies in connection with the U.S. Department of Justice matter
and the September 11, 2001 terrorist attacks, both discussed above. These       
matters raise substantial doubt about the Company's ability to continue as a    
going concern. Management's plan in regard to these matters is also described in
Note 1(b). The financial statements do not include any adjustments that might   
result from the outcome of these uncertainties.                                 

GOLDSTEIN GOLUB KESSLER LLP                                                     
New York, New York                                                              
April 8, 2006                                                                   

F-3 

20-F
54th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 54th
 ICTS INTERNATIONAL N.V.
 CONSOLIDATED BALANCE SHEETS
(US $ in thousands, except per share data)

                                                              December 31,
                                                              ------------

                                                             2007         2006
                                                             ----         ----
Assets                              
CURRENT ASSETS:                                                                 
Cash and cash equivalents                                    $ 2,095     $ 1,743
Restricted cash                                                1,795         665
Accounts receivable (net of allowance for                                       
doubtful accounts of $507 and $994 as of                                        
December 31, 2007 and 2006, respectively)                     10,200      13,316
Prepaid expenses                                                 690       1,309
Other current assets                                             991         411
Current assets from discontinued operations                    2,873          75
                                                             -------     -------
Total current assets                                          18,644      17,519
                                                             -------     -------
INVESTMENTS AND LONG TERM RECEIVABLES:                                          
Investments in associated companies                                        2,513
Other receivables and investments                              2,976         380
Restricted cash                                                3,500       3,500
                                                             -------     -------
                                                               6,476       6,393
                                                             -------     -------
PROPERTY AND EQUIPMENT                                                          

Cost                                                           4,775       4,933
Less - accumulated depreciation and amortization               3,256       3,548
                                                             -------     -------
                                                               1,519       1,385
                                                             -------     -------
GOODWILL                                                         314         314
                                                             -------     -------
OTHER ASSETS:                                                                   
Other assets net of accumulated Amortization                     150         889
Non current assets from discontinued operations                               55
                                                             -------     -------
Total other assets                                               150         944
                                                             -------     -------
Total assets                                                 $27,103     $26,555
                                                             =======     =======

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

F-4 

20-F
55th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 55th
 ICTS INTERNATIONAL N.V.
 CONSOLIDATED BALANCE SHEETS
(US $ in thousands, except per share data)

                                                            December 31,
                                                            ------------

                                                            2007        2006
                                                            ----        ----

Liabilities and shareholders' deficiency                          
CURRENT LIABILITIES:                                                            
Short-term bank credit                                     $  6,719    $  5,132 
Current maturities of long-term liabilities                     126         154 
Accounts payable - trade                                      4,432       3,749 
Accrued expenses and other liabilities                       16,055      20,214 
Loan from related party                                         884             
Current liabilities from discontinued operations              2,089       4,328 
                                                          --------    --------
Total current liabilities                                    30,305      33,577 
                                                          --------    --------
LONG-TERM LIABILITIES:                                                          
Accrued severance pay                                            84          55 
Loan from related party                                       5,644       2,652 
Other long-term liabilities, net of current maturities        3,150         160 
Non current liabilities from discontinued operations          8,530       9,113 
                                                          --------    --------
Total long-term liabilities                                  17,408      11,980 
                                                          --------    --------
Total liabilities                                            47,713      45,557 
                                                          --------    --------
COMMITMENTS AND CONTINGENT LIABILITIES                                          

SHAREHOLDERS' DEFICIENCY:                                                       
Share capital - shares of common stock,                                         
par value 0.45 Euro, December 31, 2007                                          
and 2006:                                                                       
Authorized - 17,000,000 shares;                                                 
issued - 6,672,980 shares                                     3,605       3,605 
Additional paid-in capital                                   20,554      20,181 
Accumulated Deficit                                         (36,858)    (34,300)
Accumulated other comprehensive loss                         (7,012)     (7,589)
                                                          --------    --------

                                                            (19,711)    (18,103)
                                                          --------    --------
Treasury stock at cost - December 31, 2007 and 2006-                            
144,880 shares                                                 (899)       (899)
                                                          --------    --------
Total shareholders' deficiency                              (20,610)    (19,002)
                                                          --------    --------
Total liabilities and shareholders' deficiency             $ 27,103    $ 26,555 
                                                          ========    ========

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

F-5 

20-F
56th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 56th
 ICTS INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(US $ in thousands, except per share data)

                                                        [Enlarge/Download Table]

                                                                                    Year ended December 31,       
                                                                                    -----------------------       

                                                                                2007         2006          2005   
                                                                                ----         ----          ----   

                                                                                                                  
REVENUES                                                                      $64,780      $ 60,791      $ 57,713 
COST OF REVENUES                                                               52,397        55,284        53,721 
                                                                              -------      --------      -------- 
GROSS PROFIT                                                                   12,383         5,507         3,992 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                   13,338        14,878        11,690 
                                                                              -------      --------      -------- 
OPERATING LOSS                                                                   (955)       (9,371)       (7,698)
FINANCIAL EXPENSES - net                                                       (3,334)         (714)         (908)
OTHER INCOME (EXPENSES), net                                                     (246)        1,241           147 
                                                                              -------      --------      -------- 
LOSS BEFORE TAXES                                                              (4,535)       (8,844)       (8,459)
INCOME TAXES EXPENSES                                                            (966)         (846)       (2,387)
SHARE IN LOSSES OF ASSOCIATED COMPANIES - net                                  (2,479)         (132)         (486)
                                                                              -------      --------      -------- 
LOSS FROM CONTINUING OPERATIONS                                                (7,980)       (9,822)      (11,332)
DISCONTINUED OPERATIONS:                                                                                          
Profit (Loss) from discontinued operations, net of tax expenses (benefit) of                                      
$(2,470), $2,476 and $(2,525) in 2007, 2006 and 2005, respectively.                                               
Includes loss of $4,774 on sale of assets to related party and share in loss                                      
of associated company of $36, both in 2005                                      5,422        (4,248)      (13,548)
                                                                              -------      --------      -------- 
LOSS FOR THE YEAR                                                              (2,558)      (14,070)      (24,880)
                                                                              =======      ========      ======== 
OTHER COMPREHENSIVE INCOME: (LOSS):                                                                               
Translation adjustments                                                            80          (399)       (1,560)
Unrealized gains (losses) on marketable                                                                           
Securities                                                                        497           104          (214)
                                                                              -------      --------      -------- 
                                                                                  577          (295)       (1,774)
                                                                              -------      --------      -------- 
TOTAL COMPREHENSIVE LOSS FOR THE YEAR                                         $(1,981)     $(14,365)     $(26,654)
                                                                              =======      ========      ======== 
PROFIT (LOSS) PER SHARE:                                                                                          
Loss from continuing operations:                                                                                  
Loss per common share-basic                                                   $ (1.22)     $  (1.51)     $  (1.74)
                                                                              =======      ========      ======== 
Loss per common share-diluted                                                 $ (1.22)     $  (1.51)     $  (1.74)
                                                                              =======      ========      ======== 
Profit (Loss) from discontinued operations:                                                                       

Profit (Loss) per common share-basic                                          $  0.83      $  (0.65)     $  (2.07)
                                                                              =======      ========      ======== 
Profit (Loss) per common share-diluted                                        $  0.83      $  (0.65)     $  (2.07)
                                                                              =======      ========      ======== 
Net Loss:                                                                                                         

Loss per common share-basic                                                   $ (0.39)     $  (2.16)     $  (3.81)
                                                                              =======      ========      ======== 
Loss per common share- diluted                                                $ (0.39)     $  (2.16)     $  (3.81)
                                                                              =======      ========      ======== 

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

F-6 

20-F
57th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 57th
 ICTS INTERNATIONAL N.V.
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(US $ in thousands, except per share data)

                                                        [Enlarge/Download Table]

                                            Shares of common Stock                                                             
                                            ----------------------              Accumulated   Accumulated                      
                                                                    Additional   (deficit)       other                         
                                               Number of              Paid-in    Retained    Comprehensive  Treasury           
                                                shares     Amount     capital    earnings    income (loss)    stock     Total  
                                               ---------   ------   ----------  -----------  -------------  --------    -----  

                                                                                                                               
BALANCE AT JANUARY 1, 2005                     6,528,100   $3,605     $19,670    $  4,650       $(5,520)     $(899)   $ 21,506 

CHANGES DURING 2005:                                                                                                           

Comprehensive loss:                                                                                                            
Loss                                                                              (24,880)                             (24,880)
Other comprehensive loss:                                                                                                      
Translation adjustments                                                                          (1,560)                (1,560)
Unrealized losses on marketable Securities                                                         (214)                  (214)
                                                                                                                      -------- 
Total comprehensive loss                                                                                               (26,654)
                                               ---------   ------     -------    --------       -------      -----    -------- 
BALANCE AT DECEMBER 31, 2005                   6,528,100    3,605      19,670     (20,230)      *(7,294)      (899)     (5,148)
                                               =========   ======     =======    ========       =======      =====    ======== 
CHANGES DURING 2006:                                                                                                           

Employees options according to FAS 123R                                   511                                              511 
Comprehensive loss:                                                                                                            
Loss                                                                              (14,070)                             (14,070)
Other comprehensive (loss):                                                                                                    
Translation adjustments                                                                             104                    104 
Unrealized losses on marketable Securities                                                         (399)                  (399)
                                                                                                                      -------- 
Total comprehensive loss                                                                                               (14,365)
                                               ---------   ------     -------    --------       -------      -----    -------- 
BALANCE AT DECEMBER 31, 2006                   6,528,100    3,605      20,181     (34,300)      *(7,589)      (899)    (19,002)
                                               =========   ======     =======    ========       =======      =====    ======== 
CHANGES DURING 2007:                                                                                                           

Employees options according to FAS 123R                                   373                                              373 
Comprehensive  Loss:                                                                                                           
Loss                                                                               (2,558)                              (2,558)
Other comprehensive income (loss):                                                                                             
Translation adjustments                                                                              80                     80 
Unrealized gains on marketable Securities                                                           497                    497 
                                                                                                                      -------- 
Total comprehensive loss                                                                                                (1,981)
                                               ---------   ------     -------    --------       -------      -----    -------- 
BALANCE AT DECEMBER 31, 2007                   6,528,100   $3,605     $20,554    $(36,858)     *$(7,012)     $(899)    (20,610)
                                               =========   ======     =======    ========       =======      =====    ======== 

                                                        [Enlarge/Download Table]

                                                                 December 31,           
                                                                 ------------           

                                                         2007        2006        2005   
                                                         ----        ----        ----   

                                                                                        
Cumulative translation adjustments                     $(7,012)     $(7,090)    $(7,194)
Cumulative unrealized gains on marketable securities                   (499)       (100)
                                                       -------      -------     ------- 
                                                      *$(7,012)    *$(7,589)   *$(7,294)
                                                       =======      =======     ======= 

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

F-7 

20-F
58th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 58th
 ICTS INTERNATIONAL N.V.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (US $ in thousands)

                                                        [Enlarge/Download Table]

                                                                                     Year ended December 31,       
                                                                                     -----------------------       

                                                                                 2007         2006          2005   
                                                                                 ----         ----          ----   

                                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                              
Loss for the period                                                            $(2,558)     $(14,070)     $(24,880)
Profit (Loss) on discontinued operations                                         5,422        (4,248)      (13,548)
                                                                               -------      --------      -------- 
Loss on continuing operations                                                   (7,980)       (9,822)      (11,332)
Adjustments to reconcile net income to net cash used in operating activities:                                      
Depreciation and amortization                                                    1,218         1,127           743 
Impairment of assets                                                                48            40               
Deferred income taxes                                                                             42          (177)
Increase (decrease) in accrued severance pay                                        24          (151)          128 
Loss (gain) on fixed assets                                                        (59)            6               
Realized gain in other investments                                                (295)         (575)              
Decrease (increase) in value of deposits                                            93           143          (541)
Write off of investments and impairment of investments                             855                       1,148 
Share in losses of associated companies                                          2,290           132           486 
Stock based compensation                                                           373           511               
Gain on settlement of liability                                                 (4,266)                            
Changes in operating assets and liabilities:                                                                       
Accounts receivable - trade, net                                                   364           438        (1,788)
Other current assets and prepaid expenses                                          103           (20)        1,239 
Accounts payable                                                                   633           924         1,704 
Accrued expenses and other liabilities                                           2,855         1,473         3,481 
Net cash provided by (used in) discontinued operations                             175        (1,824)         (254)
                                                                               -------      --------      -------- 
Net cash used in operating activities                                           (3,569)       (7,556)       (5,163)
                                                                               -------      --------      -------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                              
Purchase of equipment                                                             (792)         (630)         (330)
Other investments                                                                                (61)         (175)
Proceeds from affiliates                                                                         443           195 
Proceeds from sale of equipment                                                    135            22               
Proceeds from sale of other investments                                            295           419         2,185 
Decrease (increase) of time deposits and restricted cash                          (770)         (665)        1,273 
Proceeds from sale of short term investments                                                     224               
Decrease (increase) in other assets                                                              (14)         (133)
Net cash provided by (used in) discontinued operations                              55                       5,257 
                                                                               -------      --------      -------- 
Net cash provided by (used in) investing activities                             (1,077)         (262)        8,272 
                                                                               -------      --------      -------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                              
Long-term loan received                                                                                        124 
Repayments of long-term liabilities                                               (247)         (152)         (156)
Net increase (decrease) in short-term bank credit                                1,562         1,224            54 
Loan received from related party                                                 3,991         2,652               
Net cash from discontinued operations to financing activities                     (373)                            
                                                                               -------      --------      -------- 
Net cash provided by  financing activities                                       4,933         3,724            22 
                                                                               -------      --------      -------- 
EFFECT OF CHANGES IN FOREIGN CURRENCY                                                                              
EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                         65           (90)         (428)
                                                                               -------      --------      -------- 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   352        (4,184)        2,703 
BALANCE OF CASH AND CASH EQUIVALENTS                                                                               
AT BEGINNING OF YEAR                                                             1,743         5,927         3,224 
                                                                               -------      --------      -------- 
BALANCE OF CASH AND CASH EQUIVALENTS AT                                                                            
END OF YEAR                                                                    $ 2,095      $  1,743      $  5,927 
                                                                               =======      ========      ======== 

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

F-8 

20-F
59th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 59th
 ICTS INTERNATIONAL N.V.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (US $ in thousands)

                                                        [Enlarge/Download Table]

                                                              Year ended December 31,  
                                                              -----------------------  

                                                             2007     2006       2005  
                                                             ----     ----       ----  

                                                                                       
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:                                      
Cash from continued operations paid during the year for:                               
Interest                                                     $624     $667     $   450 
                                                             ====     ====     ======= 
Taxes on income                                              $226     $110     $   188 
                                                             ====     ====     ======= 
Cash from discontinued operations paid during the year for:                            
Interest                                                                       $   168 
                                                                               ======= 
Taxes on income                                                                $     2 
                                                                               ======= 
SUPPLEMENTAL DISCLOSURES OF NON-CASH                                                   
INVESTING AND FINANCING ACTIVITIES:                                                    

Settlement of debt upon sale of long term                                              
deposit - continuing operations                                                $ 4,196 
                                                                               ======= 
Purchase of equipment - continuing operations                                  $   455 
                                                                               ======= 
Purchase (sale) of equipment - discontinued operations                         $(2,116)
                                                                               ======= 

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

F-9 

20-F
60th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 60th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 1 - GENERAL                                                                

a.    Operations                                                    

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

      As mentioned in section c. below, in 2002 one of the Company's
        subsidiaries, Huntleigh USA Corporation ("Huntleigh"), derived a
            substantial portion of its revenues from providing aviation security
            services to the United States Transportation Security Administration
           ("TSA"). Commencing November 2002 the Company ceased providing such
     services to the TSA but continues to provide such services to
aviation companies and others.                          

   Other activities of the Company in the past were leasing of
        equipment and development of entertainment projects. In December
          2005, the Company decided to discontinue those activities. At that
         time all the equipment the Company leased was sold to the lessee.
See note 2(u) and 7(d).                                 

b.    The Company's financial position                              

            During the years ended December 31, 2007, 2006 and 2005, the Company
     has incurred $2.6 million, $14.1 million and $24.9 million of
        losses, respectively, which were accompanied by net cash used in
            operating activities of $3.6 million, $7.6 million and $ 5.2 million
       respectively. As of December 31, 2007 the Company had a working
     capital deficiency of $11.7 million, negative equity of $20.6
            million and its U.S. subsidiary is in default of its loan covenants.
         In addition, the Company is subject to potential contingencies in
            connection with the IRS audit (see note 17(g)) and the September 11,
         2001 terrorist attacks (see note 14(b)). During 2007 and 2006 the
           Company received material loans from related parties to finance its
          operations (see note 20(f)). These factors raise substantial doubt
   about the Company's ability to continue as a going concern.

        Subsequent to the end of the year 2004, the Company's management
         commenced liquidating its position in several long-term assets as
   described in Notes 5(a) and 7(d). In addition, during 2005,
    management has ceased its operations in non-core business as
            described in note 2(u) and accomplished successfully its penetration
          to the European security market. Management anticipates that those
       liquidations and the loans received from the related party will
    provide the Company with the resources necessary to meet its
            obligations and that entering into additional service contracts will
 contribute toward achieving profitability from continuing
            operations. The accompanying financial statements do not include any
       adjustments that might be necessary if the Company is unable to
continue as a going concern.                            

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

        On November 19, 2001, as a result of the events of September 11,
          2001, the Aviation and Transportation Security Act was signed into
      law. The Aviation and Transportation Security Act made airport
          security including security screening operations for passenger air
 transportation and intrastate air transportation a direct
            responsibility of the Federal government as administered by the TSA.
            As a result, in accordance with a contract signed with the TSA ("TSA
      Contract"), the Company has provided screening services in its
       airport locations during the transition period through November
         2002, when all such activities were transferred to the TSA. As to
the dispute with the TSA, see note 14(b)(3).            

            During 2003, the Department of Labor in the US ("DOL") finalized its
          audit of the Company's subsidiary concerning the pay rates used to
      compensate employees for services rendered pursuant to the TSA
            Contract. The DOL concluded that in certain instances, employees had
          not been paid the correct base rate, fringe benefits, vacation and
          holiday pay by the subsidiary. As of December 31, 2006 a liability
           relating to the audit of approximately $7.3 million was included in
            the consolidated financial statements based on the estimated maximum
            exposure according to the Company's legal advisors. The claim of the
          DOL has been settled during 2007 for $3 million payable out of any
           settlement with the TSA. A long-term receivable of $2.9 million and
         a long-term liability of $3 million are shown in the consolidated
            financial statements. As of the change in the liability, the Company
           recorded in 2007 income of $4.3 million which has been reflected as
a reduction of the cost of revenues.                    

F-10

20-F
61st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 61st
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 1 - GENERAL (continued)                                                    

The TSA Contract indicated that the Company will receive
         notification in writing at least 30 calendar days in advance of a
          location transition. Under the provisions of the Worker Adjustment
        and Retraining Notification Act (the "WARN Act"), the Company is
            required to give 60 days written notification to its employees of an
            involuntary termination. In 2003 the Company obtained a legal letter
    from an outside counsel indicating that the Company may have
            meritorious defenses against the payment of a substantial portion of
         this liability. Based on the points noted in the legal letter and
       given the fact that no claims have been filed to date by former
         employees seeking compensation under the WARN Act provisions, the
        Company reviewed its original estimate and reduced the estimated
liability to $0 and $100 at December 31, 2007 and 2006, 
  respectively, by recording a credit to cost of revenues of
  approximately $100 and $200, respectively, on those years.

As to other outstanding issues, see note 14.            

d.    Sale of ICTS Europe Holding B.V. ("ICTS Europe")              

     On October 5, 2000, the Company entered into a share purchase
  agreement (the "Share Purchase Agreement") with Fraport AG
         ("Fraport"), whereby Fraport was to acquire, in two stages of 45%
          and 55% in 2001 and 2002, respectively, the shares of ICTS Europe.

         As a result of the sale, the Company has fully divested itself of
          its European operations except for the operations of the Company's
           subsidiary in the Netherlands and countries that were formerly part
           of the Soviet Union republics, including Russia and Kazakhstan, and
       took upon itself certain restrictions on its operations. During
         2005, the restrictive covenant expired and since then the Company
            has successfully re-entered the aviation security business in Europe
with contracts with US carriers throughout Europe.      

e.    Renewal of material contracts                                 

      The Company's subsidiary Procheck has a material contract that
         expired in February 2008 and was extended until February 2009. If
        the contract will not be renewed it will have a material adverse
effect on the Company's financial results.              

         Through I-SEC Group, the Company participated in 2007 in a bid to
           provide security services for Schiphol International Airport in the
            Netherlands. The Company was chosen to provide such services for the
  next five years. This contract ended the activities of the
    partnership with NAS in which ICTS had 50% holding, see note
5(a)(2).                                                

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES                                        

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

The significant accounting policies are as follows:                 

a.    Functional currency                                           

         The major part of the Group's revenues and operations are carried
            out by the Company subsidiaries in the United States. The functional
           currency of these entities is the U.S. dollar ("dollar" or "$").The
        functional currency of the remaining subsidiaries and associated
      companies, mainly European companies, is their local currency,
           mainly Euro ("Euro" or "(euro)"). The financial statements of those
         companies are included in the consolidation, based on translation
         into dollars in accordance with Statement of Financial Accounting
            Standards ("FAS") 52, "Accounting for Foreign Exchange Exposure," of
     the Financial Accounting Standards Board of the United States
            ("FASB"). Assets and liabilities are translated at year-end exchange
         rates, while operating results are translated at average exchange
         rates during the year. Differences resulting from translation are
  presented in shareholders' equity, under accumulated other
comprehensive loss.                                     

F-11

20-F
62nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 62nd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

b.    Use of estimates in the preparation of financial statements   

          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 revenues and expenses during
            the reported years. As applicable to these financial statements, the
        most significant estimates and assumptions relate to allowances,
            income taxes, contingencies, liabilities and valuation impairment of
 assets. Actual results could differ from those estimates.

c.    Principles of consolidation                                   

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

d.    Cash equivalents                                              

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

e.    Concentration of cash risk                                    

    Most of the group's cash and cash equivalents and short-term
          investments as of December 31, 2007 were deposited with major U.S.
         and European banks. The Company is of the opinion that the credit
risk in respect of these balances is remote.            

f.    Marketable securities and other investments:                  

1) Marketable securities:                               

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

2) Other investments                                    

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

g.    Investments in associated companies                           

          Investments in companies in which the Company holds a 20% interest
      or more or in which it has the ability to exercise significant
          influence, provided it does not have control, are accounted for by
the equity method. See also note 5.                     

F-12

20-F
63rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 63rd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

h.    Property and equipment                                        

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

                                                                     Years
                                                                     -----

         Office furniture, equipment, and facilities                  3-16
        Vehicles                                                     3-7

        Leased equipment and leasehold improvements are amortized by the
          straight-line method over the period of the lease or the estimated
useful life of the improvements, whichever is shorter.  

i.    Goodwill                                                      

          Goodwill reflects the excess of the purchase price of subsidiaries
           acquired over the fair value of net assets acquired and liabilities
    assumed. Pursuant to FAS 142, "Goodwill and Other Intangible
           Assets," goodwill is not amortized but rather tested for impairment
at least annually, at December 31 of each year.         

            As of December 31, 2007, the Company has determined that there is no
         impairment with respect to goodwill based on expected future cash
           flow examination and based on the results of the acquired companies
compared to previous years.                             

j.    Other assets and intangible assets                            

          The intangible asset pertaining to customer relationships is being
    amortized until February 1, 2008, see note 4. Technology was
amortized over 3 years and was fully amortized at 2005. 

k.    Impairment in value of long-lived assets                      

    The Company tests long-lived assets, including definite life
       intangible assets for impairment, in the event an indication of
   impairment exists. If the sum of expected future cash flows
           (undiscounted and without interest charges) of these assets is less
            than the carrying amount of such assets, an impairment loss would be
           recognized, and the assets would be written down to their estimated
fair values.                                            

l.    Treasury stock                                                

            The treasury stock was acquired by the Company for issuance upon the
            exercise of options issued under employee option plans. The treasury
         stock is presented as a reduction of shareholders' equity, at its
      cost. Gains on the sale of these shares, net of related income
   taxes, will be recorded under "additional paid in capital."

m.    Revenue recognition                                           

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

n.    Earnings (Losses) per share ("EPS"):                          

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

       2) Diluted EPS is computed by dividing net income (loss) by the
          weighted average number of shares outstanding during the year, net
          of treasury stock, taking into account the potential dilution that
            could occur upon the exercise of options granted under stock options
      plan, using the treasury stock method. Exercisable Options for
           1,530, 1,262, and 616 thousand shares of common stock in 2007, 2006

F-13

20-F
64th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 64th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

           and 2005, respectively, were not included in computed fully-diluted
           EPS because their effects were anti-dilutive. The total outstanding
        options for the years 2007, 2006 and 2005 were 1,723, 1,920, and
          1,082 thousand, respectively (see note 22). In addition, for 2007,
         stock options to purchase 669,795 common shares, which would have
          been dilutive had net income available to common stockholders been
            positive, were excluded from the computation of diluted net loss per
common share because 2007 net income available to common
     stockholders was a loss; the inclusion of such dilutive stock
        options would have been anti-dilutive to the net loss per common
share computation.                                      

o.    Income taxes                                                  

  The provision for income tax is calculated based on ICTS's
        assumptions as to its entitlements to various benefits under the
     applicable tax laws in the jurisdiction in which it operates.
           Penalties regarding taxes are presented as part of selling, general
        and administrative costs while interest regarding taxes is being
presented as financial expenses.                        

           In June 2006, the FASB issued Interpretation No. 48, Accounting for
            Uncertainty in Income Taxes, an Interpretation of FASB Statement No.
          109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
       income taxes recognized in a company's financial statements and
            prescribes a recognition threshold and measurement attribute for the
         financial statement recognition and measurement of a tax position
         taken or expected to be taken in a tax return. The Interpretation
         also provides guidance on derecognition, classification, interest
    and penalties, accounting in interim periods, disclosure and
transition.                                             

           We adopted FIN 48 on January 1, 2007. On the date of adoption there
         was no impact on our financial statements pertaining to FIN 48 as
     our uncertain position pertained to the U.S. operations which
liability reserves were provided for.                   

      FIN 48 requires that tax benefits (expenses) recognized in the
            financial statements must be at least more likely than not sustained
            based on technical merits. The amount of benefits (expense) recorded
        for these positions is measured as the largest benefit (expense)
     more likely than not to be sustained. Significant judgment is
required in making these determinations.                

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

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

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

p.    Accounts receivable                                           

    Accounts receivable are reported at their outstanding unpaid
         principal balances reduced by an allowance for doubtful accounts.
       The Company estimates doubtful accounts based on historical bad
        debts, factors related to specific customers' ability to pay and
           current economic trends. The Company writes off accounts receivable
against the allowance when a balance is determined to be
uncollectible.                                          

   The allowance for doubtful accounts is composed of specific
           receivables doubtful of collection amounting to $507 and $994 as of
            December 31, 2007 and 2006, respectively. For net bad debts expenses
        (collection), see schedule of Valuation and Qualifying accounts,
attached to this report.                                

         As of December 31, 2006, the accounts receivable - trade included
          $2.9 million due from the TSA. As to the dispute with the TSA, see
            note 14(b)(3). As of December 31, 2007, the amount was classified as
 other receivables and investments, long term, see note 6.

  q.    Concentrations of credit risks - allowance for doubtful accounts

       The Company and its subsidiaries operate mostly in the aviation
           industry through service contracts. The Company renders services to
        a large number of airline companies to which it provides credit,
           with no collateral. Some airline companies may have difficulties in
       meeting their financial obligations. This could have a material
     adverse effect on the Company's business. The Company and its
   subsidiaries regularly review the creditworthiness of their
customers and determine the credit line, if any.        

F-14

20-F
65th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 65th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

r.    Advertising costs                                             

        These costs are expensed as incurred. Advertising costs in 2007,
2006 and 2005 were $111, $115 and $56, respectively.    

s.    Stock-based compensation                                      

1) Employee stock-based compensation                    

        Effective January 1, 2006, the Company adopted the provisions of
         Statement of Financial Accounting Standard No. 123 (revised 2004)
          ("FAS 123R"), "Share-Based Payment," and Staff Accounting Bulletin
           No. 107 ("SAB 107"), which was issued in March 2005 by the SEC. FAS
          123R addresses the accounting for share-based payment transactions
      in which the Company obtains employee services in exchange for
       equity instruments of the Company. This statement requires that
         employee equity awards be accounted for using the grant-date fair
           value method. SAB 107 provides supplemental implementation guidance
            on FAS 123R, including guidance on valuation methods, classification
          of compensation expense, income statement effects, disclosures and
other issues.                                           

     FAS 123R supersedes the Company's previous accounting for its
          employee stock option plans using the intrinsic value-based method
          of accounting prescribed under Accounting Principles Board Opinion
       No. 25 ("APB 25") and related interpretations. The Company also
        followed the disclosure requirements of FAS 123, "Accounting for
         Stock-Based Compensation," as amended by FAS 148, "Accounting for
           Stock-Based Compensation -Transition and Disclosure," for companies
           electing to apply APB 25. The Company elected to adopt the modified
       prospective transition method permitted by FAS 123R. Under such
        transition method, the new standard has been implemented as from
            January 1, 2006, with no restatement of prior periods to reflect the
fair value method of expensing share-based compensation.

     The Company has expensed compensation costs, net of estimated
          forfeitures, applying the accelerated vesting method, based on the
       grant date fair value estimated in accordance with the original
        provisions of FAS 123, and previously presented in the pro forma
     footnote disclosures. Results for prior periods have not been
          restated as explained above. During 2007, no options were granted.
           Options granted in 2006 were calculated based on the Lattice method
           as opposed to the 2004 options that were calculated using the Black
          - Scholes method. For the years ended December 31, 2007, and 2006,
       the Company recorded stock-based compensation costs of $373 and
           $511, respectively. Out of those expenses, $0 and $9, respectively,
were recorded under cost of revenues, and $373 and $502,
respectively, were recorded under selling, general and  
administration expenses.                                

           The fair value of options granted is estimated on the date of grant
with the following weighted-average assumptions:        

                                                    For options granted in
                                                    ----------------------

                                                    2006      2004
                                                    ----      ----

     Expected life of options (years)                  5         5
     Expected volatility                             75%       77%
     Risk free interest rate                        5.1%      3.5%
     Expected dividend yield                          0%        0%
     Forfeiture - Executives                        4.2%        0%
     Forfeiture - Employees                           3%        0%

            In 2002 options were issued that vested over a period of three years
           with an expiration date of January 1, 2007. The outstanding options
expired and were not exercised.                         

       The weighted-average fair value price per option granted during
       2006, using the Lattice method for 2006 and the Black - Scholes
        option-pricing model for 2004 was $0.68 and $1.03, respectively.
During 2007, 2005 and 2003 no options were granted.     

F-15

20-F
66th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 66th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

           The following table illustrates the effect on loss and earnings per
         share assuming the Company had applied the fair value recognition
           provisions of FAS 123 to stock-based employee compensation in prior
years.                                                  

                                                    Year ended December 31, 2005
                                                    ----------------------------
                                                    in thousands
                                                   (except per share data)
                                                    ----------------------------

   Net loss                                          $(24,880)
Deduct: stock based employee                            
compensation expenses determined                        
under fair value method for                             
    all awards                                             (241)
                                                      --------
    Pro-forma net loss                                 $(25,121)
                                                      ========
Losses per share:                                       

    Basic - as reported                                $  (3.81)
                                                      ========
    Basic - pro-forma                                  $  (3.85)
                                                      ========
    Diluted - as reported                              $  (3.81)
                                                      ========
    Diluted - pro-forma                                $  (3.85)
                                                      ========
See also note 21.                                       

2)    Non-employee stock based compensation             

                The Company accounts for options granted to non-employees in
              exchange for services received, using the fair value based
                method of accounting as prescribed by FAS 123R, based on the
                 fair value of the options granted. No options were granted to
non-employees in 2007.                      

t.    Comprehensive Income (Loss)                                   

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

u.    Costs Associated with Exit or Disposal Activities             

    In August 2001, the FASB issued FAS 144, "Accounting for the
      Impairment or Disposal of Long-Lived Assets." FAS 144 provides
  guidance on the financial accounting and reporting for the
impairment or disposal of long-lived assets.            

      During 2005 the Company decided to cease its entertainment and
leasing activities.                                     

          1)    On December 28, 2005 the Company sold its lease equipment to
         the lessee (a related party), see note 7(d). The loss
           associated with the selling of the equipment totaled to
$4,774.                                     

        2)    After reviewing the financial results of the entertainment
              segment, the Company decided in December 2005 to cease its
                 operations. As a result of this decision the Company recorded
                in 2007, 2006 and 2005 income (loss) of $1,962, $(1,415) and
                ($9,701) respectively, associated with claims regarding rent
                 expenses that the Company has to pay until the year 2019, see
also note 14(b)(8).                         

F-16

20-F
67th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 67th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

           3)    Balance Sheet for the years 2007 and 2006 and Profit and Loss
                 for discontinued operations for the years 2007, 2006 and 2005
are presented below:                        

                                                            December 31,
                                                           -----------------
                                                           2007         2006
                                                           ----         ----

Cash and cash equivalents                                               $    24 
Other current assets                                      *$ 2,873           51 
                                                          -------      -------
Total current assets from discontinued operations            2,873           75 
                                                          -------      -------
Investment in associated companies                                           55 

Short term bank credit                                                     (122)
Current maturities                                                       (1,012)
Accounts payable - trade                                                 (2,109)
Accrued expenses and other liabilities                      (2,089)      (1,085)
                                                          -------      -------
Current liabilities from discontinued operations            (2,089)      (4,328)
                                                          -------      -------
Long term liabilities                                      $(8,530)     $(9,113)
                                                          -------      -------

          During 2007 and 2006 there were no assets or liabilities regarding
the discontinued Leasing operations.                    

                                                        [Enlarge/Download Table]

                                                                    Year ended December 31,                         
                                                                    -----------------------                         

                                                          2007                                    2006              
                                                          ----                                    ----              

                                            Leasing  Entertainment    Total      Leasing     Entertainment   Total  
                                            -------  -------------    -----      -------     -------------   -----  

                                                                                                                    
Revenues                                                                                                            
Cost of revenues                                                                                                    
                                            ------      ------       ------      ------         -------     ------- 

Gross profit (loss)                                                                                                 
Selling, general and                                                                                                
Administrative income (expenses)                        $2,634       $2,634      $   (3)        $(1,771)    $(1,774)
Impairment of assets                                       (55)         (55)                                        
                                            ------      ------       ------      ------         -------     ------- 

Operating income (loss)                                  2,579        2,579          (3)         (1,771)     (1,774)
Financial income (expenses)                                373          373           2                           2 
Capital loss                                                                                                        
                                            ------      ------       ------      ------         -------     ------- 

Loss before taxes                                        2,952        2,952          (1)         (1,771)     (1,772)
Income taxes benefit (expenses)                         *2,470        2,470                      (2,476)     (2,476)
Equity in results of affiliates                                                                                     
                                            ------      ------       ------      ------         -------     ------- 

Income (Loss) from discontinued operations              $5,422       $5,422      $   (1)        $(4,247)    $(4,248)
                                            ======      ======       ======      ======         =======     ======= 

* In February 2008, the Company received a tax refund of $2.5 million and $373  
of interest for which the Company had a full valuation in 2006.                 

F-17

20-F
68th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 68th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

                                                                [Download Table]

                                                    Year ended December 31,        
                                                    -----------------------        
                                                             2005                  
                                                             ----                  

                                            Leasing       Entertainment     Total  
                                            -------       -------------     -----  

                                                                                   
Revenues                                    $ 2,814         $  1,171      $  3,985 
Cost of revenues                              2,497            1,905         4,402 
                                            -------         --------      -------- 
Gross profit (loss)                             317             (734)         (417)
Selling, general and                                                               
administrative expenses                          19           10,486        10,505 
Impairment of assets                                             110           110 
                                            -------         --------      -------- 
Operating income (loss)                         298          (11,330)      (11,032)
Financial income (expenses)                    (212)             (19)         (231)
Capital loss                                 (4,774)                        (4,774)
                                            -------         --------      -------- 
Loss before taxes                            (4,688)         (11,349)      (16,037)
Income taxes benefit (expenses)                                2,525         2,525 
Equity in results of affiliates                                  (36)          (36)
                                            -------         --------      -------- 
Income (Loss) from discontinued operations  $(4,688)        $ (8,860)     $(13,548)
                                            =======         ========      ======== 


During 2007 there was no income or expenses relating to the Leasing 
discontinued operations.                                            

v.    Recently issued accounting pronouncements                     

FAS 157                                                 

In September 2006, the FASB issued FAS 157, "Fair Value 
          Measurements." This standard establishes a framework for measuring
           fair value and expands related disclosure requirements; however, it
         does not require any new fair value measurement. As applicable to
       ICTS, this statement will be effective as of the year beginning
          January 1, 2008. ICTS does not expect that the adoption of FAS 157
   will have a significant impact on its financial statements.

FAS 159                                                 

         In February 2007, the FASB issued FAS 159, "The Fair Value Option
      for Financial Assets and Financial Liabilities." This standard
       permits entities to choose to measure many financial assets and
           financial liabilities at fair value. Unrealized gains and losses on
           items for which the fair value option has been elected are reported
            in earnings. As applicable to ICTS, this statement will be effective
           as of the year beginning January 1, 2008. ICTS does not expect that
     the adoption of FAS 159 will have a significant impact on its
financial statements.                                   

EITF 07-3                                               

        In June 2007, the FASB ratified Emerging Issues Task Force Issue
          07-3, "Accounting for Advance Payments for Goods or Services to Be
            Used in Future Research and Development Activities" ("EITF 07- 03").
            EITF 07-03 provides guidance on the capitalization of non-refundable
advance payments for goods                              

  and services to be used in future research and development
      activities until such goods have been delivered or the related
 services have been performed. As applicable to ICTS, this
           pronouncement will be effective as of the year beginning January 1,
            2008. The Company does not expect the adoption of this pronouncement
           to have a material effect on its consolidated financial statements.

F-18

20-F
69th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 69th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)                            

FAS 141R                                                

      In December 2007, the FASB issued FAS 141 (revised 2007) ("FAS
         141R"), "Business Combinations" FAS 141R will change how business
           acquisitions are accounted for and will impact financial statements
           both on the acquisition date and in subsequent periods. Key changes
            include: acquired in process research and development will no longer
          be expensed on acquisition, but capitalized and amortized over its
   useful life; fair value will be based on market participant
        assumptions; acquisition costs will be expensed as incurred; and
           restructuring costs will generally be expensed in periods after the
           acquisition date. Early adoption is not permitted. As applicable to
      ICTS this statement will be effective as of the year beginning
           January 1, 2009. The Company believes that the adoption of FAS 141R
      could have an impact on its consolidated financial statements;
           however, the impact would depend on the nature, terms and magnitude
of acquisitions it consummates in the future.           

FAS 160                                                 

            In December 2007, the FASB issued FAS 160, "Noncontrolling Interests
         in Consolidated Financial Statements - an amendment of Accounting
           Research Bulletin 51" ("FAS 160"), which establishes accounting and
         reporting standards for non-controlling interests in a subsidiary
  and deconsolidation of a subsidiary. Early adoption is not
          permitted. As applicable to ICTS, this statement will be effective
   as of the year beginning January 1, 2009. ICTS is currently
          evaluating the potential impact the adoption of FAS 160 would have
on its consolidated financial statements.               

           The Company does not believe that any other recently issued but not
            yet effective accounting standards, if currently applied, would have
   a material effect on the accompanying financial statements.

NOTE 3 - RESTRICTED CASH                                                        

                        December 31,
                        ------------

                       2007       2006
                       ----       ----

Restricted cash (a)                  $1,795                         

Other (b)                                        $665               
                      ------      ----
                      $1,795      $665
                      ======      ====

          (a) During 2007 the Company won a bid to provide security services
            to Schiphol International Airport in the Netherlands. As part of the
       terms it had to provide a guarantee of (euro) 1.2 million ($1.8
   million as of December 31, 2007). The Company provided such
        guarantee and at the same time had to deposit the same amount as
cash collateral security.                               

    (b) On December 31, 2004, management has decided to record a
          provision for amounts that the Company has deposited regarding its
            guarantees, provided as part of its investment in Bilu (a privately-
 held company). The provision was made based on continuing
           deterioration in Bilu's financial results. In May 2007, the Company
       was released from part of those guarantees and received back an
      amount of $441. In July 2007, the Company was released from an
         additional guarantee of $224. The provision for these amounts was
recorded in other income, see note 16 (a).              

F-19

20-F
70th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 70th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 4 - TRANSACTIONS REGARDING CERTAIN SUBSIDIARIES                            

    In September 2002, ICTS increased its percentage interest in
           Procheck International B.V. ("PI") to 100% for a cash consideration
      of $2,845. PI provides security services in the Netherlands at
            Schiphol Airport Amsterdam. The purchase price exceeded the acquired
            share of the fair market value of the identified net assets of PI by
      approximately $1,879, which was allocated to the contract with
          Schiphol Airport (customer relationship). This intangible asset is
        amortized by the straight-line method, over its estimated useful
        life of 10 years. During 2006 Management revaluated its previous
     estimation and decided to depreciate the intangible, which is
            included in other assets (see note 9), until the end of the contract
        with Schiphol, which ended on February 2008, based mainly on the
            high competition in the market. The total amortization for the years
2007 and 2006 was $648, compared to $188 in 2005.       

         In January 2008 PI got a one-year extension for the contract with
Schiphol until February 1, 2009.                        

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES                                    

Composed and presented as follows:                                              

                                                        [Enlarge/Download Table]

                                                                                 December 31,  
                                                                                 ------------  

                                                                               2007       2006 
                                                                               ----       ---- 

                                                                                               
Investment in 28.1% (2006 - 29.5%) interest of InkSure Technologies Inc. (1)             $  284
Investment in 50% interest in ICTS-NAS (2)                                                2,229
Investment in 42.5% interest in Rainbow Square Entertainment LLC(3)                          55
                                                                              ------     ------
                                                                                 -,-     $2,568
                                                                              ------     ------

The investments are presented in the balance sheets as follows:                                

Among investments                                                                        $2,513
Among non current assets from discontinued operations                                        55
                                                                              ------     ------
                                                                                 -,-     $2,568
                                                                              ======     ======

    a.    (1) During the period from April to September 2002, ICTS purchased
            4,106,895 shares, which represent 34.3% of InkSure Technologies Inc.
     ("Inksure") for a consideration of $5,986. The purchase price
      exceeded the fair market value of the net assets of Inksure by
           approximately $3,881, of which $660 was allocated to in-process R&D
  and was expensed immediately, and the remaining $3,221 was
      attributed to technology purchased and was amortized using the
straight-line method over 7 years.                      

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

 In July 2003, ICTS purchased another 174,542 shares for a
        consideration of $192. The amount exceeded the fair value of the
      tangible net assets by $143 which was attributed to technology
            purchased and is to be amortized using the straight-line method over
            5.75 years (the remaining life of the technology purchased in 2002).

          In April 2004, ICTS participated, proportionate to its share, in a
           private placement in the amount of $370. The amount was at the fair
value of the tangible net assets.                       

           Following a private placement in July 2004 in which the Company did
            not participate, the Company share in Inksure was reduced to 32.15%.
        In September 2005 Inksure completed another private placement in
          which ICTS did not participate and as a result of that the Company
            share in Inksure was reduced to 31.83%. In December 2006 the Company
           sold 155,000 shares of Inksure for $419, which reduced its interest
          in Inksure to 29.5%, and in March 2007 another 155,000 shares were
           sold for $295. As of December 31, 2007, ICTS holds 4,515,555 shares
of Inksure, representing 28.1% of Inksure shares.       

F-20

20-F
71st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 71st
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                        

          The investment in Inksure is being displayed by the Equity Method.
          Following Inksure losses in the last years the affiliate accrued a
          shareholders' deficiency. The Company's participation in Inksure's
        losses exceeding its investment were reduced from the technology
        assets regarding ICTS investment in Inksure until it was totally
         amortized. The balance of $284 as of December 31, 2006 represents
         the amortized technology and the equity balance of $0. This asset
           was fully amortized during 2007. The market value of the investment
         as of December 31, 2007 was $1.9 million. As of June 1, 2008, the
market value of the investment dropped to $1 million.   

         The Company secured 2,157,895 shares of Inksure loans received in
2007 and 2006 from related party - see note 20(f).      

       (2) In September 2002, ICTS and ICTS Europe established a joint
     venture, ICTS Netherlands Airport Services VOF ("NAS"), owned
   equally by the parties, which provided security services at
    Amsterdam Schiphol Airport in the Netherlands. NAS commenced
          operations in December 2002. In 2004 and 2003 the Company invested
       additional amounts in NAS of $564 and $1,399, respectively. The
     Company's share in profit (loss) of equity in the years ended
        December 31, 2007, 2006 and 2005 were $(2,003), $1,303 and $705,
        respectively. The joint venture declared a dividend in September
            2006. ICTS's part was approximately $443. The Company recorded other
          comprehensive income (loss) regarding its investment of $ 32, $184
        and $(122) as of December 31, 2007, 2006 and 2005, respectively.

 The investment in NAS was displayed by the Equity Method.

       The NAS contract with Schiphol expired on February 1, 2008. NAS
   ceased its operations at that date and is in the process of
         dissolving the entity. The Company does not expect to receive any
   proceeds for NAS, so, the Company decided to impair all its
         investment in NAS as of December 31, 2007, which totaled to $332.

       (3) The Company holds 42.5% in Rainbow Square Entertainment LLC
     ("Rainbow"), a partnership that was established in July 2003.
         Rainbow operates an entertainment site. Both in 2007 and 2006 the
        Company recorded a loss of $0, compared to a loss of $36 in 2005
        regarding the share of the partnership loss. In 2007 the Company
          impaired $55 on its investment, as the Company does not expect any
         future proceeds. The balance of the investment as of December 31,
2007 is zero.                                           

           In December 2004, the Company determined that the future cash flows
      from the partnership will not recover its investment, and as a
         result recorded an impairment loss of $419. In December 2005, the
Company recorded another impairment loss of $110.       

           At December 31, 2007 and 2006, the balance of this investment of $0
      and $55, respectively, was included in non-current assets from
discontinued operations.                                

       Below is summarized financial data of Inksure, Rainbow and NAS:

Inksure:                                          

Balance sheet data:                               

                                            December 31,
                                            ------------
                                            2007          2006
                                            ----          ----

       Current assets                       $1,897        $3,599
                                           =======       =======
       Non-current assets                   $1,025        $1,146
                                           =======       =======
       Current liabilities                    $850          $564
                                           =======       =======
       Long-term liabilities                $5,691        $5,518
                                           =======       =======
        Shareholders' Deficiency            $(3,619)      $(1,337)
                                           =======       =======

F-21

20-F
72nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 72nd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                        

Operating results data:                           

                                               Year ended December 31,
                                               -----------------------

                                              2007         2006         2005
                                              ----         ----         ----

              Revenues                        $2,890       $2,002       $1,626
                                             =======      =======      =======
              Gross profit                    $1,782       $1,139         $842
                                             =======      =======      =======
               Net loss                       $(3,078)     $(3,112)     $(2,213)
                                             =======      =======      =======

Rainbow:                                          

Balance sheet data:                               

                                                            December 31,
                                                            ------------

                                                           2007         2006
                                                           ----         ----
                                                           Unaudited
                                                           ---------

              Current assets                                 $193         $205
                                                           ======       ======
              Non-current assets                           $1,122       $1,143
                                                           ======       ======
              Current liabilities                            $199         $216
                                                           ======       ======
              Partners' capital                            $1,135       $1,133
                                                           ======       ======

Operating results data:                           

                                                   Year ended December 31,
                                                   -----------------------

                                                  2007         2006         2005
                                                  ----         ----         ----

                                                 Unaudited
                                                 ---------

              Net loss                           $18          $69          $87
                                                 ===          ===          ===

NAS:                                              

Balance sheet data:                               

                                                            December 31,
                                                            ------------

                                                           2007         2006
                                                           ----         ----

              Current assets                               $9,962      $11,762
                                                           ======      =======
              Non-current assets                              $44         $385
                                                           ======      =======
              Current liabilities                          $9,341       $7,695
                                                           ======      =======
              Shareholders' equity                           $665       $4,452
                                                           ======      =======

F-22

20-F
73rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 73rd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)                        

Operating results data:                           

                                               Year ended December 31,
                                               -----------------------

                                              2007         2006         2005
                                              ----         ----         ----

              Revenues                       $62,684      $57,742      $40,443
                                             =======      =======      =======
              Gross profit                      $873       $3,644      $ 3,609
                                             =======      =======      =======
              Net income (loss)              $(4,006)      $1,422      $ 1,409
                                             =======      =======      =======

NOTE 6 - OTHER RECEIVABLES AND INVESTMENTS                                      

                                                                [Download Table]

                                                                    December 31,   
                                                                    ------------   

                                                                  2007       2006  
                                                                  ----       ----  

                                                                                   
Long-term deposits                                               $   42      $ 277 
Marketable securities:                                                             
Investment in 17.6% interest in PlanGraphics, Inc. (a)                         103 
Receivable from the TSA (b)                                       2,934            
                                                                 ------      ----- 
Total                                                            $2,976      $ 380 
                                                                 ======      ===== 
Gross unrealized gain (loss) on marketable securities and other                    
investments were as follows:                                                       

Gross unrealized losses                                             -,-      $(497)
                                                                 ======      ===== 

(a)   Investment in PlanGraphics, Inc. ("PlanGraphics"):            

           In January 2002, ICTS purchased 17,142,857 shares (17.6%) of common
      stock of PlanGraphics (formerly Integrated Spatial Information
          Solutions, Inc.) for $0.035 per share. PlanGraphics securities are
         traded on the pink sheets. The price per share as of December 31,
        2007 and 2006 was $0.006 at both dates. At December 31, 2007 the
          Company decided to impair its investment which included the market
            value of PlanGraphics at December 31, 2007 of $103 and comprehensive
     income of $497 regarding the accumulated comprehensive losses
    related to PlanGraphics. Unrealized loss as of December 2006
amounted to $497.                                       

      (b)   Receivable from the TSA of $2,934 as of December 31, 2007 - see note
         14(b)(3). In 2006 the receivable is shown on the balance sheet as
       part of the accounts receivable. At 2007 the company decided to
 reclass the receivable as a long-term receivable based on
            management's estimation that the litigation with the TSA will not be
resolved during 2008.                                   

F-23

20-F
74th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 74th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 7 - PROPERTY AND EQUIPMENT                                                 

   a.    Property and equipment from continuing operations are composed as
follows:                                                

                                                            December 31,
                                                            ------------

                                                           2007         2006
                                                           ----         ----
Cost:                                                                           

Equipment and facilities                                   $ 3,659      $ 4,007 
Vehicles                                                       817          801 
Leasehold improvements                                         299          125 
                                                          -------      -------
                                                            4,775        4,933
Less - Accumulated depreciation and amortization            (3,256)      (3,548)
                                                          -------      -------
                                                          $ 1,519      $ 1,385
                                                          =======      =======

    b.    Depreciation expense from continuing operations totaled $570, $481
           and $520 in 2007, 2006 and 2005, respectively. During 2007 and 2006
       there was no depreciation expense from discontinued operations,
compared to $2,533 in 2005.                             

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

     d.    In June 2002 equipment in the amount of $23.5 million was purchased
        and leased back to the seller, a related party and private Dutch
          company, for 7 years in an operating lease agreement (with respect
            to equipment in an amount of $12.5 million, the Company entered into
            a purchase and lease agreement that replaced a predecessor acquirer,
            see below). The seller had the option to buy back the assets after 5
            or 7 years, at their fair value, which would have been determined by
         an appraiser. The Company has undertaken to repay the predecessor
         acquirer's liability to a bank, in an amount of $8.7 million, and
         issued him a promissory note. The loan was non-recourse. The note
bore annual interest of Euro-Libor plus 2.05%.          

         In December 2004, ICTS determined that the future cash flows from
      the leased equipment will not recover its investment, and as a
      result recorded an impairment loss of $2,247 in addition to an
         impairment loss of $6,042 that was recorded in 2003. The value of
           the equipment was based on a cash flow projection that incorporated
      an external appraisal of the equipment's terminal value at the
option exercise date.                                   

          In June 2005, the Company granted the lessee an option to purchase
       the leased equipment for an amount of $5 million plus an amount
    equal to the related loan balance on the exercise date, thus
         providing for the possibility of early termination of the leasing
           agreement. The option period started on June 1, 2005 and expired on
          September 30, 2006. As a consideration for granting the option fee
           the lessee was required to pay ICTS an option fee of $20 per month,
      which should have been deducted from the $5 million in case of
exercising the option.                                  

          In July 2005 the Company received an advance payment of $1 million
       on lease installments which would be deducted from the purchase
price of $5 million were the option to be exercised.    

F-24

20-F
75th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 75th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 7 - PROPERTY AND EQUIPMENT (continued)                                     

           On December 28, 2005, the lessee announced that he is interested in
       exercising the option. The net value of the equipment as of the
          purchase date was (euro)9,775 (equal to $11,554 on that date). The
 loss from the sale amounted to $4,774, and is included in
           discontinued operations in the accompanying statement of operations
of that year.                                           

    e.    Equipment and facilities included an amount of $15,906 relating to
         the entertainment sites in Baltimore, Maryland and Atlantic City,
           New Jersey. The Baltimore facility started operations in June 2003.
        The facility in Atlantic City commenced operations in June 2004.
           Those locations have been closed since December 2005. See also note
2(u).                                                   

           Based on the performances of the entertainment sites, the Company's
  management revaluated these two facilities during 2004 and
      determined that their forecasted cash flows will not cover the
          investments. Based on their fair value that was calculated using a
         discounted cash flows model, the Company recognized an impairment
        loss and wrote off its investment in those sites in an amount of
            $7,691 in 2004, in addition to an impairment loss of $7,513 that was
recorded in 2003.                                       

NOTE 8 - GOODWILL                                                               

      Goodwill, which totaled $314 as of December 31, 2007 and 2006,
         reflects the excess of the purchase price of Procheck acquired in
2002 over the fair value of net assets.                 

NOTE 9 - OTHER ASSETS                                                           

a.    As of December 31, 2007, other assets were comprised of the   
following:                                              

                                                        [Enlarge/Download Table]

                                        December 31, 2007                         December 31, 2006          
                                        -----------------                         -----------------          

                           Gross carrying     Accumulated  Net book  Gross carrying     Accumulated  Net book
                               amount        amortization   value        amount        amortization   value  
                           --------------    ------------  --------  --------------    ------------  --------

                                                                                                             
Customer relationship (1)      $1,785           $1,732       $ 53        $1,785           $1,084       $701  
Rent Deposits                      97                          97           188                         188  
                               ------           ------       ----       -------           ------       ----  
                               $1,882           $1,732       $150       $ 1,973           $1,084       $889  
                               ======           ======       ====       =======           ======       ====  

        (1) Regarding the contract with Schiphol Airport, see note 1(e).
          Amortization expense in 2007, 2006 and 2005 totaled $648, $648 and
$224, respectively.                                     

b.    Estimated amortization expenses for the year 2008 are $53.    

F-25

20-F
76th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 76th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 10 - SHORT-TERM BANK CREDIT                                                

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

                                                        [Enlarge/Download Table]

                                                   Interest rates as of                     
                                                     December 31, 2007       December 31,   
                                                   --------------------      ------------   

                                                             %            2007          2006
                                                             -            ----          ----

                                                                                            
Short-term credit from continuing operations:                                               
ICTS -                                                                                      
In dollars                                                 7.80            $281        $38  
Other currencies                                                                        45  
Subsidiaries:                                                                               
In dollars (a)                                             8.35           5,662      4,833  
Euros (b)                                                  7.30             680        196  
Other currencies                                           7.75              96         20  
                                                                         ------     ------  
                                                                         $6,719     $5,132  
                                                                         ------     ------  
Short-term credit from discontinued operations(c)                           -,-       $122  
                                                                         ======     ======  

    (a)   On April 5, 2005, one of the Company's subsidiaries entered into a
           Loan and Security Agreement and established a replacement Revolving
       Line of Credit. The Revolver provides a borrowing base up to $8
            million based on 85% of defined Eligible Accounts Receivable and 95%
 of required Certificates of Deposit less Letter of Credit
       obligations. The interest rate is one percent (1%) per annum in
         excess of the Prime Rate for loan balances in excess of the Libor
       Rate Loans. As of December 31, 2007, the restricted cash of 3.5
     million held by the Company serves as other collateral on the
         revolving credit facility. At December 31, 2007, $5.7 million was
      outstanding and $1.8 million was available under the revolving
          credit facility for additional borrowings. The borrowing agreement
           also provides for a commitment guarantee of up to a maximum of $3.5
           million for letters of credit and requires a per annum fee equal to
          3%. The Company had letters of credit outstanding of approximately
$1 million at December 31, 2007.                        

       Based on the revolving line of credit agreement, the subsidiary
   established a time deposit account, with the lender as cash
            collateral security. The amount bears annual interest of 4.25%. This
        deposit is being shown in the balance sheet as restricted cash -
long term.                                              

            On December 31, 2005, an amended agreement was signed which adjusted
      the minimum tangible net worth covenant, the Interest Coverage
           covenant and the annual Capital Expenditure Limitation covenant. In
            July 2006, a second amendment to the Loan and Security Agreement was
         executed. This amendment suspended the Interest Coverage covenant
        until March 31, 2007 and replaced this covenant with a Stop Loss
           requirement. The Stop Loss requirement was based on pre-established
     quarterly pre-tax net loss amounts through December 31, 2006.

           As of December 31, 2006, a third amendment to the Loan and Security
     Agreement was executed to give recognition to the tax expense
     adjustments applicable to prior year taxes made subsequent to
        executing the second amendment, adjusting the tangible net worth
covenant amount.                                        

           In July 2007, a fourth amendment to the Loan and Security Agreement
       was executed to allow the Letter of Credit to extend beyond the
       maturity date to October 1, 2008. On December 18, 2007, a fifth
         amendment was executed extending the original term from March 31,
      2008 to March 31, 2009 with automatic one-year renewals at the
           election of either the Lender or Borrower, as well as adjusting the
         tangible net worth covenant amount. The Company was in compliance
          with all loan covenants as of December 31, 2007 and 2006. However,
          as of March 31, 2008, the Company was in violation of its interest
        coverage ratio. The bank agreed to waive this covenant violation
            subject to the issuance of the stand-alone financial statements. The
       financial statements have not been issued as of the date of the
filing and the debt is classified as current.           

F-26

20-F
77th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 77th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 10 - SHORT-TERM BANK CREDIT (continued)                                    

     (b)   In November 2004, a subsidiary of the Company entered into a credit
            agreement with a bank. During 2006 the agreement was extended and it
          provided a borrowing facility of up to (euro)650 ($958 at December
         31, 2007), limited to 60% of certain pledged accounts receivable.
          The borrowing facility is also secured by the Company guaranty and
       is subject to certain covenants. At December 31, 2007, $680 was
          outstanding and $278 was available under the credit agreement. The
         Company is in compliance with the covenants. In February 2008 the
credit agreement was extended up to (euro)2.1 million.  

   (c)   The short-term credit from discontinued operations as of December
         31, 2006 represented mainly a liability arising from a promissory
         note that was issued in connection with the purchase agreement of
          the Entertainment operations. The note was payable in 13 quarterly
      installments of $50 plus the accrued interest. During 2007 all
outstanding debt was paid by the Company.               

NOTE 11 - ACCRUED EXPENSES AND OTHER LIABILITIES                                

                                                        [Enlarge/Download Table]

                                                                              December 31,   
                                                                              ------------   

                                                                           2007         2006 
                                                                           ----         ---- 

                                                                                             
Relating from continuing operations:                                                         
Payroll and related liabilities                                          $ 3,013      $ 4,085
Employees' claims and related severance (a)                                1,071        8,266
Liabilities to government institutions, including tax accrual              9,548        5,546
Deferred income taxes (see note 17 b)                                                      42

Accrued expenses and other                                                 2,423        2,275
                                                                         -------      -------
Total accrued expenses and other liabilities from continuing operations  $16,055      $20,214
                                                                         =======      =======
Accrued expenses and other liabilities from discontinued Operations      $ 2,089      $ 1,085
                                                                         =======      =======

         (a) Employee claims and related severance as of December 31, 2006
            included an amount of $7.3 million accrual for the DOL dispute - see
            note 1(c).During 2007 this claim was settled for $3 million, payable
         out of any future settlement with the TSA. As the company expects
         that the dispute with the TSA will not be solved during 2008, the
        liability was reclassified in the 2007 financials as a long-term
liability, see note 12.                                 

  (b) Regarding the loan from related party, see note 20(f).

F-27

20-F
78th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 78th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 12 - LONG-TERM LIABILITIES                                                 

a. Composition:                                                                 

                                  Interest rate as of       December 31,
                                      December 31,          ------------
              ------------------
                                            2007            2007        2006
                                            ----            ----        ----

From continuing operations:                                                     
In dollars:                                                                     

Banks (1)                                     5.71%          $   80     $  104  
Other financial institutions (1)              8.72%             196        210  
DOL (2)                                                       3,000             
                                                            ------     -------
                                                            3,276        314
Less - current maturities                                      (126)       (154)
                                                            ------     -------
                                                            $3,150     $   160
                                                            ======     =======
From discontinued operations (3)                             $8,530     $10,125 
Less - current maturities                                                (1,012)
                                                            ------     -------
                                                            $8,530     $ 9,113
                                                            ======     =======

    (1)   The balance as of December 31, 2006 represents mainly loans that a
        subsidiary received to finance a purchase of operative equipment
        during the third quarter of 2005. This equipment was sold during
          2007 and the loans were repaid. The total liability as of December
          31, 2007 represents mainly new loans taken to finance the lease of
operational equipment and should be paid up to 2010.    

      (2)   DOL liability of $3,000 as of December 31, 2007 - see note 11(a) and
note 1(c).                                              

      (3)   During 2002 two subsidiaries from the Entertainment segment signed a
            rent contract for 17 years. As of December 2005, the Company decided
        to discontinue the operations of the Entertainment segment - see
           note 2(u). There are two claims against the Company regarding these
            rent liabilities. The Company recorded a liability of the full claim
          amount but as the Company does not anticipate that the claims will
      be resolved during 2008, the whole liability is presented as a
long-term liability.                                    

b.    Regarding the loan from related party see note 20(f).                     

c.    The total liabilities from banks and other financial institutions mature  
in the following years after the balance sheet date:                

2008                  $126                                
2009                    90                                
2010                    60                                
----          
$276          
====          

F-28

20-F
79th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 79th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 13 - ACCRUED SEVERANCE PAY                                                 

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

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

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

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

            The net expenses from accrued severance pay totaled $6, $15 and $124
           for the years ended December 31, 2007, 2006 and 2005, respectively.

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES                                

a.    Operating leases                                              

        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, 2007, 2006 and 2005 were
        $ 1,191, $1,217, and $849, respectively. During 2005 the Company
           accrued for future rent. Regarding its discontinued operations, see
also note 12 (3).                                       

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

2008                        $  697                      
2009                           699                      
2010                           653                      
2011                           305                      
2012                            78                      
      ------
      $2,432
      ======

b.    Contingent liabilities                                        

      1)    As a result of the September 11, 2001 terrorist attacks,
                numerous lawsuits have commenced against Huntleigh and ICTS.
                 Huntleigh and ICTS have been named in approximately 64 and 61
              lawsuits, respectively. All of the cases were filed in the
                United States District Court, Southern District of New York.
               The cases are in their early stages with depositions having
                  begun on September 12, 2006. The Company reviewed its security
              services provided at Boston's Logan International Airport,
                  from which one of the airplanes commandeered by the terrorists
              departed, subsequent to September 11, 2001 for evidence of
            non-compliance with the policies of the Federal Aviation
Administration.                             

                Based on the contracts with the airlines, the Company may be
               indemnified by the airlines if the Company is found to have
             followed the procedures 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 the Company's review, no evidence of
          non-compliance has been identified with respect to the
                services provided at Boston's Logan International Airport on
September 11, 2001.                         

F-29

20-F
80th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 80th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)                    

                 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 liability under these cases may, by statute, be
               limited to the policy coverage. A number of personal injury
                  cases have been settled or are in the process of being settled
               at no cost to the Company. Management is unable to estimate
              the impact of the litigation or fines, as described above.
                  Accordingly, no provision in respect of these matters has been
made.                                       

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

      3)    On February 17, 2002, the Company was awarded a security
               services contract (the "TSA Contract") by the United Stated
                 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 19, 2002. In accordance with
          the terms of the Contract, the U.S. Federal Government
            provided the Company with a non-interest bearing partial
                payment of $26 million to be paid back on a monthly basis of
                 $1.3 million at the beginning of every month commencing April
                 1, 2002. On December 31, 2002, approximately $11.7 million of
                the $26 million had been paid back to the TSA. No additional
                payments have been made back to the TSA in 2007 and 2006. As
                  of December 31, 2006 ,the amount due from the TSA with respect
            to services provided under the contract aggregates $17.3
                  million; this amount, net of $14.3 million, the balance of the
      prepayment, was presented among trade receivables.

          During 2003, the Department of Labor in the US ("DOL")
                  finalized its audit of the Company's subsidiary concerning the
                pay rates used to compensate employees for services rendered
           pursuant to the TSA Contract. The DOL concluded that in
              certain instances, employees had not been paid the correct
               base rate, fringe benefits, vacation and holiday pay by the
                subsidiary. As of December 31, 2006, a liability relating to
               the audit of approximately $7.3 million was included in the
            consolidated financial statements based on the estimated
               maximum exposure according to the Company's legal advisors.
            The claim of the DOL has been settled during 2007 for $3
         million payable out of any settlement with the TSA. A
                  long-term receivable of $2.9 million and a long-term liability
              of $3 million are shown in the 2007 consolidated financial
              statements. As of the change in the liability, the Company
              recorded income in 2007 of $4.3 million, which reduced the
cost of revenues.                           

               The TSA filed a contract dispute with the Office of Dispute
          Resolution for Acquisition ("ODRA") in connection with
                  Huntleigh's February 2002 contract seeking reimbursement of an
           alleged overpayment of principal in the amount of $59.2
               million. This claim follows the lawsuit which Huntleigh has
              already filed against the TSA for repeated breaches of its
           contract with Huntleigh. Both claims are now pending in
mediation.                                  

             Huntleigh intends to vigorously challenge 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 Huntleigh's motion for partial summary judgment
            against the TSA. ODRA has granted Huntleigh's motion for
              partial summary judgment on Huntleigh's claim that the TSA
               breached the contract by failing to give appropriate notice
                for transitioning airport locations. A separate hearing will
                  be held to determine the amount of damages due to Huntleigh on
               this claim. With regards to the claim for the $59.2 million
            overpayment, Huntleigh has filed a motion to dismiss the
action which has been denied.               

                 At this stage, Management and its legal counsel are unable to
              estimate the final outcome of the above mentioned dispute.
            Accordingly, no provision has been made for this matter.

F-30

20-F
81st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 81st
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)                    

  4)    The Company has commenced an action against the U.S.
                 Government with regard to the Fifth Amendment rights relating
             to the taking of its business. In December 2004 the Court
                denied the Government's motion to dismiss the case. A motion
                  for reconsideration was filed by the defendant and denied. The
             trial for this action has been held and in March 2007 the
               court decided against the Company. The Company appealed the
                  decision. In May 2008 the USA Court of Appeals for the Federal
                  Circuit affirmed the lower court's ruling against the Company.

5)    In September 2005, Avitecture, Inc, (f/k/a        
                Audiovisual-Washington, Inc.) ("Avitecture"), filed a Demand
                for Arbitration and Mediation against ITA-Atlantic City, LLC
                  ("ITA") with the American Arbitration Association in Somerset,
             NJ. The Demand for Arbitration alleges that pursuant to a
               written agreement dated March 20, 2003, ITA owes Avitecture
             $222 for audio, video and control systems it provided for
                 ITA's use in tourist attraction in Atlantic City, New Jersey,
                  but for which Avitecture claims it has not been paid. The case
                was decided against the Company in an arbitration proceeding
           awarding Avitecture $200. The arbitrator's decision was
                 affirmed by the Superior Court of NJ in May 2007. The Company
              appealed this decision. In September 2007, ITA k/a Explore
                  Atlantic City, LLC filed bankruptcy under Chapter 7 Bankruptcy
             code. The Company filed a petition in bankruptcy with the
                  court. The Appellate Court affirmed the arbitrator's ruling in
                  February 2008. In the interim, the bankruptcy case was closed.

            6)    In November 2005, Turner Construction Company ("Turner") filed
          a Demand for Arbitration and Mediation against Explore
                Atlantic City, LLC ("Explore") with the American Arbitration
           Association in Somerset, NJ. The Demand for Arbitration
                  alleges that pursuant to a written agreement dated October 28,
           2003, Explore owes Turner $948 for work and/or services
                 performed pursuant to the contract, but for which Explore has
                not paid Turner. In an arbitration proceeding the arbitrator
                awarded Turner $956 plus interest and costs, for which award
            was affirmed on appeal. In October 2007, Explore filed a
                  petition of bankruptcy with the New Jersey Superior Court. The
             court thereafter stayed the proceedings and dismissed the
                  action without prejudice as a result of the bankruptcy filing.
                  To date, Turner has not moved to reinstate or reopen the case.
               The full amount of $948 was accrued as of December 31, 2007
and 2006.                                   

       7)    In 2005 the Company's subsidiary, ICTS USA, Inc., filed a
                 refund claim with the Internal Revenue Service ("IRS") in the
               amount of $2.4 million, which was reflected on the December
               31, 2005 year-end financial statements as a receivable. The
                Company made a demand to the IRS for the refund. Thereafter,
                 by letter dated August 15, 2006, the Company was advised that
               a criminal investigation by the United States Department of
              Justice, Tax Division is ongoing by a grand jury regarding
                  possible criminal tax violations by the subsidiary for the tax
                  years 2002 and 2003 regarding certain royalty payments made to
                  the Company. In January 2008, the Company was advised that the
                current investigation was withdrawn and the Company received
               the refund of $2.4 million and interest of $373. The refund
       was presented in the 2007 financials as income from
discontinued operations, see note 2(u).     

       8)    Two of the Company's subsidiaries have been sued by their
           landlord (which is the same entity for both properties)
            alleging breach of the respective leases. One suit is in
            Circuit Court for Baltimore City affecting the Company's
                Explore Baltimore facility, and the other is in the Superior
                Court of New Jersey affecting the Company's Explore Atlantic
                  City facility. Through legally defective service, the landlord
             was able to obtain orders for possession of both of these
              locations. A petition to open the Atlantic City action has
                  been filed and one is being prepared for the Baltimore action.
                 In addition to seeking possession, in both cases the landlord
             is seeking unpaid rent for the entire term of the leases,
            $5,970 in Atlantic City and $4,444 in Baltimore. While a
                  resolution of both actions is being discussed, a standstill of
                the proceedings is being negotiated. As of December 31, 2007
                 and 2006, the Company accrued $8.5 million and $10.1 million,
                respectively. The changes in the accruals were done based on
           changes in the claims against the Company and are being
               presented as part of the discontinued operations - see note
2(u).                                       

F-31

20-F
82nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 82nd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)                    

              The Company filed a petition in bankruptcy for each of the
                companies. However, the landlord was able to prevail against
                 the Company, with respect to a guarantee given by the Company
             in connection to the lease in Baltimore. The Company also
                 rendered that the landlord could proceed to prove its damages
             with respect to the Baltimore lease. In January 2008, the
                 Baltimore litigation was conducted. At the end of the trial a
                  judgment in the amount of $2.6 million was awarded in favor of
        the landlord. The Company has filed an appeal in its
          litigation to challenge the judgment on behalf of ICTS
International N.V.                          

                  The Atlantic City litigation was reopened in state of court in
January 2008 and is still ongoing.          

           9)    From time to time various claims against the Company, some of
        which are in litigation, have been alleged by former
                employees, mainly for wrongful termination and labor-related
                 issues. Some of the claims are in their earlier stages and it
                 is impossible to determine the amount of contingent liability
involved, if any.                           

c.    Restrictions on operations                                    

          The Company was in dispute with Fraport A.G. International Airport
            Services Worldwide in relation to 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 ($85 million as of December 31, 2007). This
         dispute has been settled during 2008 without any liability to the
Company during 2008.                                    

d.    As to tax assessments, see note 17(g).                        

    e.    As to the guarantee given to Bilu Investment Ltd., see note 16(a).

NOTE 15 - FINANCIAL INCOME (EXPENSES) - NET                                     

                                                   Year ended December 31,
                                                   -----------------------

                                                  2007       2006       2005
                                                  ----       ----       ----

From continuing operations:                                                     

Financial expenses                                $(3,537)   $(1,137)   $(1,493)
Financial income                                      325        327        203 
Exchange differences - gain (loss)                   (122)        96        382 
                                                 -------   --------    -------
                                                  $(3,334)  $   (714)   $  (908)
                                                 =======   ========    =======
Financial expenses from discontinued operations:                                
Financial expenses                                                 2       (191)
Financial income (a)                                 (373)                      
Exchange differences losses                                                 (40)
                                                 -------   --------    -------
                                                     (373)         2       (231)
                                                 =======   ========    =======

(a) During 2008 the company received a refund from the IRS totaling $2.8        
million, of which $373 was accrued interest and $2.4 million was a refund of    
overpaid taxes in previous years - see note 17. The 2007 financial expenses     
include estimation for accrued interest expenses of $2,179 regarding possible   
tax exposure in the US for previous years.                                      

F-32

20-F
83rd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 83rd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 16 - OTHER INCOME (EXPENSES)                                               

                                                   Year ended December 31,
                                                   -----------------------

                                                   2007      2006       2005
                                                   ----      ----       ----
Other income from continuing operations:                                        

Recovery (write off) investment and guaranty                                    
deposits related to investment in Bilu, (a)                     $665            
Capital gain from investments (b)                   $ 349        576       $110 
Written-off investment in Plangraphics (c)           (600)                      
Other                                                   5                    37 
                                                    ----     ------    -------
                                                   $(246)    $1,241       $147
                                                    ====     ======    =======
Other loss from discontinued operations (d)         $ (55)       -,-    $(4,774)
                                                    ====     ======    =======

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

           As a result of continuing deterioration in the financial results of
      Bilu, on December 31, 2004 Management decided to write off its
         investment in Bilu in the amount of $227 and to fully provide for
           its bank guarantees in the amount of $2,515, including the guaranty
  share of Leedan and Rogosin as a result of their financial
          positions. During May and July 2007, the Company was released from
          its guarantee for amounts of $441 and $224, respectively, see note
           3(b). Accordingly, the provision decreased to $1,850 as of December
          31, 2007. The recorded provision for these guarantees is presented
      as a reduction to the restricted deposits that the Company has
deposited at the banks where the guaranties were issued.

     b.    The Company has written off several investments in the past. During
           2005 an amount of $110 was paid to ICTS from two of those companies
          in which ICTS invested and which were completely dissolved through
           2005. In January 2006 the Company sold its holding on YCD which was
       written off in previous years. The total gain from the sale was
            $224. During 2007, an additional $54 was received for the sale of an
investment that was written off in the past.            

            During 2007 and 2006 the Company sold 155,000 shares of Inksure each
         year for $295 and $419 - see note 5(a). The gain from those sales
totaled $295 and $352, respectively.                    

c.    Write off investment in Plangraphics - see note 6(a).         

   d.    In 2005 the Company sold the property it used to lease - see note
          7(d). The loss from that sale amounted to $4,774. At December 2007
            the Company decided to recognize a full impairment of its investment
in Rainbow, totaled $55, see also note 5.               

NOTE 17 - INCOME TAXES                                                          

      1)    Each subsidiary of ICTS is subject to tax according to the tax rules
         applying with respect to its place of incorporation or residency.
      ICTS is incorporated under the laws of the Netherlands and is,
            therefore, subject to the tax laws of the Netherlands. Inter-company
            payments are subject to withholding taxes at varying rates according
   to their nature and the payer's country of incorporation or
          residency. As the Company has subsidiaries in different countries,
            each subsidiary is subject to tax according to tax rules applying in
the subsidiary location.                                

F-33

20-F
84th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 84th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 17 - INCOME TAXES (continued)                                              

b.    Deferred taxes:                                               

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

                                                            December 31,
                                                            ------------

                                                            2007          2006
                                                            ----          ----

Carry forward losses                                       $20,987       $21,603
Fixed assets                                                   (22)           44
Provision for bad debts                                        193           353
Accruals and other reserves                                    674         4,163
                                                           -------       -------
                                                            21,832        26,163
Less - valuation allowance                                  21,832        26,163
                                                           -------       -------
                                                               -,-           -,-
                                                           =======       =======

c.    Income (loss) before taxes on income and share in associated  
companies is comprised of the following:                

                                               Year ended December 31,
                                               -----------------------

                                               2007       2006        2005
                                               ----       ----        ----

Profit (Loss) from continuing operations:                                       
ICTS and subsidiaries in the Netherlands        $(1,764)   $   (373)   $    413 
Subsidiaries outside the Netherlands             (2,771)     (8,471)     (8,872)
                                               -------    --------    --------
Loss before taxes from continuing operations    $(4,535)   $ (8,844)   $ (8,459)
                                               -------    --------    --------
From discontinued operations:                                                   
Subsidiaries in the Netherlands                                          (4,688)
Subsidiaries outside the Netherlands              2,952      (1,772)    (11,349)
                                               =======    ========    ========
Loss before taxes from discontinued operations    2,952      (1,772)    (16,037)
                                               =======    ========    ========
                                                $(1,583)   $(10,616)   $(24,496)
                                               =======    ========    ========

F-34

20-F
85th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 85th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 17 - INCOME TAXES (continued)                                              

    d)    Tax benefit (expense) on income included in the income statements:

                                                     Year ended December 31,
                                                     -----------------------

                                                     2007       2006      2005
                                                     ----       ----      ----

Current taxes from continuing operations:                                       
In the Netherlands                                  $ (261)      $(36)    $ (51)
Outside the Netherlands                                           (91)      680 
Current taxes from discontinued operations                         (6)          
                                                   ------    -------    ------
                                                   $ (261)     $(133)     $629
                                                   ======    =======    ======
For previous years - from continuing operations:                                
In the Netherlands                                      (7)       259        29 
Outside the Netherlands                               (740)      (930)   (3,485)
For previous years from discontinued operations:                                
                                                    2,470     (2,476)    2,525
                                                   ------    -------    ------
                                                     1,723     (3,147)     (931)
                                                   ======    =======    ======
Deferred from continued operations outside                                      
the Netherlands                                         42        (42)      440 
                                                   ======    =======    ======
                                                   $1,504    $(3,322)     $138
                                                   ======    =======    ======

e)    The Company's effective income tax rate differs from the      
            Netherlands' statutory rate of 25.5% compared to 29.6% in 2006, with
respect to the following:                               

                                                 Year ended December 31,
                                                 -----------------------

                                                 2007       2006        2005
                                                 ----       ----        ----

Loss before taxes and equity in results of                                      
associated companies:                                                           
From continued operations                        $(4,535)  $ (8,844)   $ (8,459)
From discontinued operations                       2,952     (1,772)    (15,926)
                                                -------   --------    --------
Total                                            $(1,583)  $(10,616)   $(24,385)
                                                =======   ========    ========
Statutory tax rate                                  25.5%      29.6%       31.5%
                                                =======   ========    ========
Expected tax benefit (expense) at                                               
statutory rate                                   $   404   $  3,142    $  7,681 
Reconciliation for earnings taxed                                               
at different rates                                  (287)       737       1,034 
Disallowable expenses                              1,102       (162)     (3,686)
Non-taxable (expense) income                          75        170      (2,120)
Previous years                                     1,723        370        (671)
Changes in valuation allowance and other          (1,513)    (7,579)     (2,100)
                                                -------   --------    --------
Income taxes (expenses) benefit                  $ 1,504   $ (3,322)   $    138 
                                                =======   ========    ========

F-35

20-F
86th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 86th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 17 - INCOME TAXES (continued)                                              

Income taxes (expenses) benefits are shown as follows:                          

                                                   Year ended December 31,
                                                   -----------------------

                                                  2007      2006        2005
                                                  ----      ----        ----

From continuing operations                         $ (966)  $  (846)    $(2,387)
From discontinued operations                        2,470    (2,476)      2,525 
                                                  ------   -------     -------
Total                                              $1,504   $(3,322)    $   138 
                                                  ======   =======     =======

f.    Carry forward tax losses                                      

            As of December 31, 2007, the Company has carry forward tax losses in
          the Netherlands, in the amount of approximately $10.1 million. The
           carryforward tax losses in the U.S.A. amount to $10.9 million which
           will expire in 2025 and 2026. Utilization of such losses is limited
in certain circumstances.                               

      g.    A reconciliation of the beginning and ending amounts of unrecognized
tax benefits is as follows:                             

Balance at January 1, 2007                         $4,790                       
Additions for tax positions of prior years            659                       
                            ------
Balance at December 31, 2007                       $5,449                       
                            ======

1)    Tax assessment                                                

    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.
          However, the IRS continues with its audit for the years 2002-2004.

         Based on the issues raised and the tax authorities' position, the
            Company has included a provision in its accounts in an amount which,
            based on an opinion of its tax advisers, the Company considers being
            adequate to cover costs arising from the tax examination if and when
            it will become a tax assessment. See Note 11 for tax accrual. During
      2007, the Company recorded in the selling, administrative, and
     general costs an expense of $1,150 for possible tax penalties
           resulting from the audit. The Company recorded additional $2,179 in
          interest expenses for possible interest that might be requested by
the IRS following the result of this audit.             

       In February 2008, the Company received from the IRS a refund of
          $2,470 plus interest of $373 regarding its discontinued operations
          in the previous years. This amount was withheld by the IRS because
            of the criminal investigation. Once the investigation was dismissed,
         the refund was released to the Company. This amount is shown as a
        current asset from discontinued operations at December 31, 2007.

F-36

20-F
87th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 87th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 18- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT                              

1)    Fair market value of financial instruments                    

            Based on borrowing rates currently available to the Company for bank
         loans with similar terms and maturities, the fair market value of
   the Company's short-term and long-term debt from continuing
            operations approximates the carrying value as the interest rates are
variable.                                               

      Furthermore, the carrying value of other financial instruments
          potentially subject to credit risk (principally consisting of cash
      and cash equivalents, time deposits and marketable securities,
           accounts receivable, accounts payable and loans from related party)
            also approximates fair market value, due to the short-term nature of
the instrument or its variable rate of interest.        

  The Company has a long-term liability of $8.5 million from
      discontinued operations, see note 12(a)(3). This liability was
           recorded using a capitalization rate of 7.25% to show the liability
        at fair market value in accordance with FAS 144 and based on the
 claim against the company. All other short-term debt from
  discontinued operations approximates their carrying value.

b.    Risk management:                                              

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

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

   2)    As of December 31, 2007 and 2006, two major customers
         accounted for 23% and 34% of accounts receivable from
                continuing operations, respectively. The TSA represented one
                 of those customers for 2006 in the amount of approximately $3
                 million. This receivable has been outstanding since 2002, see
                 note 14(2)(b)(3). In 2007 the receivable was reclassified and
                 shown as other receivables - long term, as the issue is under
               litigation and Management estimates it will not be resolved
during 2008.                                

                  For the years ended December 31, 2007, 2006 and 2005, sales to
              major customers (constituting 10% or more of the Company's
              consolidated revenues from continuing operations), derived
                 from aviation service contracts, amounted 29%, 25% and 25% of
revenues, respectively, as set forth below: 

                             Year ended December 31,
                             -----------------------

                            2007      2006      2005
                            ----      ----      ----

                            (% of consolidated revenues)
                            ----------------------------

    Customer A               --        13%       15%
    Customer B               11%       --        10%
   Customer C               18%       12%       --

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

F-37

20-F
88th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 88th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 18- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)                  

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

NOTE 19 - SEGMENT INFORMATION                                                   

   The Company adopted FAS 131, which establishes disclosure and reporting
requirements for segments. Until December 2005 the Company had three
      operating segments: Aviation, Leasing and Entertainment. In December 2005,
    the Company decided to discontinue its activities on the Leasing and the
      Entertainment segments. As a result of that the Company has today only one
business segment - Aviation.                                        

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

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

                                   Year ended December 31,
                                   -----------------------

                                  2007         2006         2005
                                  ----         ----         ----
From continuing operations:                                                     

USA                                     $46,745      $46,844      $48,313       
The Netherlands                           7,619        7,200        6,319       
France                                    4,750        3,406                    
Other                                     5,666        3,341        3,081       
                                 -------      -------      -------
Total                                   $64,780      $60,791      $57,713       
                                 =======      =======      =======
From discontinued operations:                                                   

USA                                                               $ 1,171       
The Netherlands                                                     2,814       
                                 -------      -------      -------
                                     -.-          -,-      $ 3,985
                                 =======      =======      =======

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

                                                            December 31,
                                                            ------------

                                                             2007       2006
                                                             ----       ----

Long lives assets from continuing operations:           

           USA                                               $  689     $  724
           The Netherlands                                      434         43
           France                                                40         58
           Other                                                356        560
                                                             ------     ------
                                                             $1,519     $1,385
                                                             ======     ======

b.    As to the Company's major customers, see note 18(b) (2).      

F-38

20-F
89th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 89th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 20 - RELATED PARTIES - TRANSACTIONS AND BALANCES                           

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

                                                     Year ended December 31,
                                                     -----------------------

                                                    2007      2006      2005
                                                    ----      ----      ----

Cost of revenues                                       $109    $  (9)    $   89 
                                                    ======    =====     ======
Selling, general and administrative expense            $311    $ 485     $  524 
                                                    ======    =====     ======
Includes compensation payments and services                                     
provided to the Company by related parties                                      

Financial expenses, see (f) below                      $293    $ 113     $ (320)
                                                    ======    =====     ======
Other (income) expenses, see (d) and (g) below                 $(665)    $4,775 
                                                    ======    =====     ======
Share in losses of associated companies:                                        

From continuing operations                           $2,479    $ 132     $  486 
From discontinued operations (h)                         55                  36 
                                                    ------    -----     ------
                                                    $2,534    $ 132     $  522
                                                    ======    =====     ======

b.    Balances with related parties:                                

                                                              December 31,
                                                              ------------

                                                              2007      2006
                                                              ----      ----

Restricted cash, see (c) below                                             $665 
                                                                        ======
Other current assets                                              $14           
                                                    ======
Accrued expenses and other liabilities                           $366           
                                                    ======
Liabilities from discontinued operations, see note 2(u)                    $122 
                                                                        ======
Loans from related party                                       $6,528    $2,652 
                                                              ======    ======

      c.    As to guarantees issued to Bilu on behalf of related parties (Leedan
        and Rogosin) in the amount of $1,400, and not exercising them in
          2004 and the release of the $665 from these guarantees in 2006 see
note 3(b) and note 16(a).                               

      d.    As to the selling of the lease equipment in 2005 in the amount of $5
           million in cash plus an amount equal to the related loan balance on
            the exercise date ($2.1 million on the exercise date), and a loss of
$4,775, see notes 7(d) and note 2(u).                   

    e.    In July 2005, the Company signed an agreement with a related party
       to sell its rights of ownership in the long-term deposit "China
          Dragon" in an amount of $5,731 as of the sale date and to transfer
        the related long-term loan in an amount of $4,214 as of the sale
          date which was received as part of an arrangement with a bank, for
            consideration of $1.2 million. The loss from the selling amounted to
  $317 and is included in financial income (expenses) in the
accompanying statement of operations.                   

F-39

20-F
90th Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 90th
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 20 - RELATED PARTIES - TRANSACTIONS AND BALANCES (continued)               

   f.    As of December 31, 2007 and 2006 the company received loans in an
           aggregate amount of $6,528 and $2,652, respectively, from a related
       party, indirectly through a significant shareholder as bridging
            finance. These loans are evidenced by a secured Promissory Note. All
        loans and accrued interest were due no later then April 1, 2008.
           Interest accrues at prime rate plus 1.5 percent and the obligations
         were secured by the pledge of 2,157,895 shares of common stock of
           Inksure Technologies Inc - see note 5(a)(1). The loans were, at the
            option of the lender, convertible into the company's common stock at
        a price of $3.50 per share. During 2008 the Company extended the
        agreement for two additional years up to April 1, 2010, see note
23(b).                                                  

     g.    Following structural changes and continuous losses in Demco, a 100%
            held subsidiary, it was decided to transfer the projects of Demco to
     Amesco Emergency and Security Solutions, a company owned by a
         related party, as a subcontractor. Amesco will pay commissions to
          Demco based on the contracts it will operate until 2010. Total net
loss for 2007 was $210.                                 

h.    As to the impairment of Rainbow, see note 5(a)(3).            

NOTE 21 - LOSSES PER SHARE                                                      

The following table presents the data used for computation of basic and diluted 
losses per share:                                                               

                                                        [Enlarge/Download Table]

                                                               Year ended December 31,         
                                                               -----------------------         

                                                        2007            2006            2005   
                                                        ----            ----            ----   

                                                                                               
Basic:                                                                                         
Net loss from continuing operations                    $(7,980)        $(9,822)       $(11,332)
                                                     =========       =========       ========= 
Net Profit (loss) from discontinued operations          $5,422         $(4,248)       $(13,548)
                                                     =========       =========       ========= 

Net Loss for the year                                  $(2,558)       $(14,070)       $(24,880)

Weighted average shares of common stock outstanding  6,528,100       6,528,100       6,528,100 
                                                     =========       =========       ========= 
Diluted:                                                                                       
Net loss from continuing operations                    $(7,980)        $(9,822)       $(11,332)
                                                     =========       =========       ========= 
Net Profit (loss) from discontinued operations          $5,422         $(4,248)       $(13,548)
                                                     =========       =========       ========= 

Net Loss for the year                                  $(2,558)       $(14,070)       $(24,880)

Weighted average shares of common stock outstanding  6,528,100       6,528,100       6,528,100 
                                                     =========       =========       ========= 

NOTE 22 - STOCK OPTIONS                                                         

            In 1999 ICTS adopted a share option plan and reserved 600,000 common
shares for issuance under the plan.                     

         On October 28, 2004 the Compensation Committee approved the "2005
         Equity Incentive Plan," the plan was ratified in November 2004 by
      the Supervisory Board and Management Board. In February 2005 a
        special meeting of shareholders adopted the proposal. Under this
       plan the Company reserved 1,500,000 common shares for issuance.

   Under the above plans, options may be granted to employees,
            officers, directors and consultants at an exercise price equal to at
            least the fair market value at the date of grant and are granted for
        periods not to exceed ten years. Options granted under the plans
         generally vest over a period of three years. Any options that are
            cancelled or forfeited before expiration become available for future
grants.                                                 

F-40

20-F
91st Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 91st
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 22 - STOCK OPTIONS (continued)                                             

            Pursuant to the above plans, the Company reserved for the issuance a
         total of 2,100,000 common shares, out of which as of December 31,
   2007, 377,000 options are still available for future grant.

          As of December 31, 2007, 1,723,000 options are outstanding, all of
          which have been granted to directors and executive officers of the
          Company, at exercise prices ranging from $1.00 to $1.35 per share.
         These options vest over various terms ranging from immediately to
         three years. Outstanding options expire at various times, but not
    later than October 2011. For anti-dilutive options, see note
2(n)(2).                                                

         The options granted under the Company's plans are exercisable for
the purchase of shares as follows:                      

                                                      December 31,
                                                      ------------

                                                      2007          2006
                                                      ----          ----

                 At balance sheet date                 1,530,333     1,261,833
                 During the first year thereafter        192,667       446,000
                 During the second year thereafter                     212,667
                                                       ---------     ---------
                                                       1,723,000     1,920,500
                                                       =========     =========

A summary of the status of the plans as of December 31, 2007, 2006 and 2005 and 
changes during the year ended on those dates is presented below:                

                                                        [Enlarge/Download Table]

                                                            Year ended December 31,                            
                                                            -----------------------                            

                                        2007                        2006                         2005          
                                        ----                        ----                         ----          

                                              Weighted                     Weighted                    Weighted
                                 Number of     average       Number of      average       Number of     average
                                   options    exercise         options     exercise         options    exercise
                            (in thousands)       price  (in thousands)        price  (in thousands)       price
                            --------------    --------  --------------     --------  --------------    --------

                                                     $                            $                           $
                                                     -                            -                           -

                                                                                                               
Options outstanding                                                                                            
at the beginning of year             1,920        1.33           1,082         1.58           1,113        1.68
Changes during the year:                                                                                       
Granted                                                            838         1.00                            
Exercised or bought                                                                                            
by the Company                                                                                                 
Forfeited and cancelled               (197)       2.49                                          (31)       5.17
                                     -----        ----           -----         ----             ---        ----
Options outstanding at the                                                                                     
end of year                          1,723        1.19           1,920         1.33           1,082        1.58
                                     =====        ====           =====         ====             ===        ====
Options exercisable at the                                                                                     
end of year                          1,530        1.22           1,262         1.43             616        1.75
                                     =====        ====           =====         ====             ===        ====

The options outstanding as of December 31, 2007 have been separated into ranges 
of exercise price as follows:                                                   

                                                                [Download Table]

                                                        Options      Weighted  
               Options        Weighted                exercisable     average  
             outstanding       average    Weighted       as of       exercise  
                as of         remaining    average   December 31,    price of  
Exercise  December 31, 2007  contractual  exercise       2007       exercisable
  price    (in thousands)       life        price   (in thousands)    options  
--------  -----------------  -----------  --------  --------------  -----------
    $                           Years         $                          $     
--------                        -----     --------                  -----------
                                                                               
  1.00           778              4         1.00           585         1.00    
  1.35           945              2         1.35           945         1.35    

                -----                       ----         -----         ----    
                1,723                       1.19         1,530         1.22    
                =====                       ====         =====         ====    

F-41

20-F
92nd Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 92nd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

NOTE 23 - SUBSEQUENT EVENTS                                                     

      a)    The Company has commenced an action against the U.S. Government with
          regard to the Fifth Amendment rights relating to the taking of its
            business, see note 14(b)(4). The trial for this action has been held
        and the court has decided in March 2007 against the Company. The
     Company appealed the decision and at May 2008 the US Court of
          appeals has affirmed the lower court's ruling against the company.

  b)    Loans and accrued interest from related parties at June 30, 2008
        amounted to $6.3 million. During 2008 the terms of the loan with
          related party were extended for 2 years up to April 1, 2010. Based
            on the new agreement as collateral on the loan, 26% of the shares of
          I-SEC International Security B.V. a wholly owned subsidiary of the
          Company was pledged to the related party. In addition, the loan is
         convertible to the Company's shares at a price of $2.75, see also
note 20(f).                                             

    c)    In February 2008 the credit agreement of (euro)650 was extended up
        to (euro)2,100. According to the agreement, this credit line can
           include the necessary amount of (euro)1.2 million for the guarantee
            to Schiphol, see note 3(a). As a result of that, the restricted cash
            of (euro)1.2 million as of December 31, 2007 was used by the Company
         for its daily operations and to repay part of the loan to related
party, see also note 10(b).                             

      d)    Regarding the legal developments during 2008 in the claims regarding
the Entertainment sites' rent, see note 14(b)(8).       

 e)    Regarding the settlement with Fraport A.G International Airport
Services, see note 14(c).                               

     f)    In February 2008, ICTS, through its subsidiary, extended materially
            the services it provides to Schiphol International Airport, see note
1(e).                                                   

F-42

20-F
Last Page of 93
TOC
1st
Previous
Next
↓Bottom
Just 93rd
 ICTS INTERNATIONAL N.V.
 NOTES TO FINANCIAL STATEMENTS
 (US $ in thousands)

Schedule - Valuation and Qualifying Accounts

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------------------------------
                        Allowance for                                                                                               
                     doubtful accounts,                                                                                             
                        Balance as of      Additions charged to        Additions -             Deductions -             Balance as  
                         January 01         costs and expenses      bad debts recovered    write offs of bad debts    of December 31
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
   Year ended               2,708                   600                     202                    (2,273)                 1,237    
December 31, 2005                                                                                                                   

------------------------------------------------------------------------------------------------------------------------------------
   Year ended               1,237                                            21                      (264)                   994    
December 31, 2006                                                                                                                   

------------------------------------------------------------------------------------------------------------------------------------
   Year ended                 994                  (299)                                             (188)                   507    
December 31, 2007                                                                                                                   

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

F-43

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘20-F’ Filing		Date		First		Last			Other Filings
		6/30/11		39					6-K
		4/1/10		35		92
		3/31/09		25		76			4
		2/1/09		70
		1/1/09		69
		12/31/08		46					20-F,  4
		10/1/08		76					4
Filed as of:		7/1/08							4
Filed on:		6/30/08		35		92			6-K
		6/29/08		38
		6/2/08		33					4
		6/1/08		35		71
		4/1/08		35		90
		3/31/08		25		76
		3/1/08		25
		2/18/08		36
		2/1/08		22		71
		1/1/08		68
For Period End:		12/31/07		1		93			NT 20-F
		12/18/07		25		76
		10/9/07		19		36
		6/30/07		40					6-K
		5/4/07		36
		3/31/07		76
		1/1/07		44		86
		12/31/06		5		93			20-F,  NT 20-F
		12/6/06		9		40			DEF 14A
		10/16/06		31					6-K
		9/30/06		35		74
		9/12/06		18		79
		8/15/06		19		86
		4/8/06		53
		1/1/06		65
		12/31/05		4		93			20-F,  NT 20-F
		12/28/05		14		75
		7/7/05		35
		6/30/05		35					6-K
		6/1/05		35		74
		4/5/05		25		76
		2/12/05		30
		2/1/05		29
		12/31/04		5		83			20-F,  20-F/A,  NT 20-F
		11/30/04		30					3,  4
		10/28/04		90					6-K
		1/1/04		43
		12/31/03		5		46			20-F,  20-F/A,  NT 20-F
		12/23/03		11
		11/21/03		18
		10/28/03		19		81
		3/20/03		19		81
		12/31/02		7		86			20-F,  NT 20-F
		11/19/02		80					SC 13D
		11/2/02		25
		4/16/02		19		36
		4/1/02		80
		2/17/02		25		80
		1/1/02		17
		11/19/01		60
		9/11/01		6		80
		4/27/01		45
		1/1/01		45
		10/5/00		61
		6/22/99		30
		1/1/99		10					6-K
		1/1/96		10
		1/1/94		10
		10/9/92		38
									List all Filings