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

                                    FORM 10-K

(MARK ONE)

         |X|    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                       FOR THE FISCAL YEAR ENDED MARCH 31, 2000
                                       OR
         |_|    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                            SECURITIES EXCHANGE ACT OF 1934

                FOR THE TRANSITION PERIOD FROM _______ TO ______

                         COMMISSION FILE NUMBER 0-23073


                       INTERNATIONAL TOTAL SERVICES, INC.
               (Exact name of Registrant as Specified in Charter)

               OHIO                                     34-1264201
               ----                                     ----------
      (State of Incorporation)              (I.R.S. Employer Identification No.)

5005 ROCKSIDE ROAD, SUITE 1200
       INDEPENDENCE, OHIO                                 44131
       ------------------                                 -----
(Address of Principal Executive Offices)                (Zip Code)

       Registrant's Telephone Number, Including Area code: (216) 642-4522

           Securities Registered Pursuant to Section 12(b) of the Act:

   TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
   -------------------                 -----------------------------------------
          none                                            n/a

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                               TITLE OF EACH CLASS
                        COMMON SHARES, WITHOUT PAR VALUE

         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 |_| No |X|
         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
         The aggregate market value of the common shares held by non-affiliates
of the registrant, based upon the closing market price on June 15, 2000, was
approximately $3,558,800, (based on the closing price of the registrant's Common
Stock on the Electronic Quotation System of the National Quotation Bureau LLC).
As of June 15, 2000, the registrant had 6,837,494 shares of Common Stock issued
and outstanding.

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                                                TABLE OF CONTENTS

<S>                <C>                                                                            <C>
PART I                                                                                            PAGE

      Item 1.      Business......................................................................... 1
      Item 2.      Properties....................................................................... 8
      Item 3.      Legal Proceedings................................................................ 8
      Item 4.      Submission of Matters to a Vote of Security Holders.............................. 9
                   Executive Officers............................................................... 9

PART II

      Item 5.      Market for Registrant's Common Shares and Related Shareholder Matters............11
      Item 6.      Selected Financial Data..........................................................12
      Item 7.      Management's Discussion and Analysis of Financial Condition
                   and Results of Operations........................................................12
      Item 7A.     Quantitative and Qualitative Disclosures about Market Risk.......................19
      Item 8.      Consolidated Financial Statements and Supplementary Data.........................19
      Item 9.      Changes in and Disagreements with Accountants on Accounting
                   and Financial Disclosure.........................................................20

PART III

      Item 10.     Directors and Executive Officers of the Registrant...............................21
      Item 11.     Executive Compensation...........................................................22
      Item 12.     Security Ownership of Certain Beneficial Owners and Management...................25
      Item 13.     Certain Relationships and Related Transactions...................................27
      Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................27
</TABLE>
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                           FORWARD LOOKING STATEMENTS

         This Annual Report on Form 10-K (this "Form 10-K") contains statements
that constitute forward looking statements. Those statements appear in a number
of places in this Form 10-K and in the documents incorporated by reference
herein and include, among other things, statements regarding the intent, belief
or current expectations of International Total Services, Inc., an Ohio
corporation (the "Company" or "ITS"), its directors or its officers with respect
to (i) potential acquisitions by the Company; (ii) the Company's financing
plans; and (iii) trends affecting the Company's financial condition or results
of operations.

         Readers are cautioned that any forward looking statements in this Form
10-K are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from projected results, including the Company's ability to payoff or refinance
its bank credit facility, unanticipated losses of service contracts, economic
and labor conditions in the aviation industry and commercial security industry,
the transition to new management, and negative publicity regarding the airline
security and services and commercial staffing services industries. Readers are
cautioned not to place undue reliance on forward looking statements. Other
factors that could cause actual results to differ materially from projected
results include, but are not limited to, those factors discussed in the "Risk
Factors" section of the prospectus contained in the Company's Registration
Statement on Form S-1 (Registration No. 333-29463), as amended.

                                     PART I

ITEM 1. Business

         The Company's fiscal year ends on March 31, and its fiscal years are
identified by reference to the calendar year in which they end. For example, the
fiscal year ended March 31, 2000 is referred to as "fiscal 2000."

COMPANY OVERVIEW



         The Company is a significant domestic provider of aviation contract
support services and is also a provider of commercial security staffing
services. The Company provides services to customers in more than 300 cities in
the United States and the United Kingdom. Aviation services offered by the
Company include predeparture screening, skycap, baggage handling and aircraft
appearance services, and wheelchair and electric cart operations. The Company's
security services extend beyond aviation security, and include the provision of
commercial security staffing services to government and business clients,
hospitals, arenas and museums. In September 1997, the Company completed its
initial public offering (the "Initial Offering"). The Company used the proceeds
from the Initial Offering to fund acquisitions, repay indebtedness and for
general corporate purposes, including funding of working capital.



         The Company incurred a substantial operating loss in fiscal 1999, and
fiscal 2000 results also reflect a substantial operating loss and negative cash
flow from operations. The Company's current cash flow deficiency and forecasted
negative cash flow from operations for at least the first half of fiscal 2001
raise substantial doubt about the Company's ability to continue as a going
concern. The factors which raise such doubt, and management's plans to address
them, are discussed further in "ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and NOTE B OF "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS," contained elsewhere herein.

         The Company's continuation as a going concern will ultimately depend on
its ability to (i) achieve profitable operations which generate positive cash
flows and (ii) obtain new debt or equity financing. The financial statements do
not include any adjustments relating to the recoverability of assets or the
amount to settle liabilities that might be necessary should the Company be
unable to continue as a going concern.

         The Company's strategy is to use its established business
base as a platform for expanding the services that it provides. It is
management's intention to seek higher overall margins by concentrating
their marketing efforts on higher



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margin opportunities, to formulate and implement business process improvement
initiatives, evaluate past acquisitions, improve customer services and reduce
and/or control costs with the goal of improving operating cash flow and profits.
The Company intends to focus on the core businesses of aviation contract support
services and commercial security staffing services and to eliminate
under-performing contracts or locations and to dispose of non-core assets that
provide no synergistic benefits to the Company. The Company believes that its
best opportunity for increased profitability in the near term is growth in the
higher margin commercial security business.

         The Company's new management team has initiated a thorough operational
audit of each of the Company's business segments. Working with selected
consultants, management intends to effectively evaluate the performance of each
segment and the profitability of each significant customer relationship. It is
management's intention to formulate and implement business process improvement
initiatives which will improve customer service, control costs and facilitate
timely and accurate public reporting. However, there can be no assurance that
the Company will be able to obtain and successfully deploy the necessary
technical, operational, financial, human and other resources necessary to
implement these initiatives or that these initiatives will achieve their desired
results.

         From the Initial Offering through June 30, 1999, the Company completed
18 acquisitions. Management intends to assess the impact and strategic benefits
of past acquisitions and, when appropriate, make strategic recommendations to
the Board of Directors concerning acquired companies and/or business segments.
In March 2000, as part of its strategy to outsource the security product
distribution business, the Company completed the disposition of Metroplex
Control Systems Inc. ("MCS") which was acquired in May 1999. See "Acquisitions."
The Company is not presently pursuing acquisitions, and does not anticipate that
acquisitions will materially contribute to growth in the foreseeable future.

         The current strength of the United States economy, which has driven
unemployment to low levels, has adversely affected the Company's ability to
attract and retain the workforce needed to provide the services required under
its service contracts. The difficulty in attracting these workers has resulted
in the Company's payment of increased overtime and has forced the Company to
increase the wages paid to employees in advance of increases in the rates paid
by the Company's customers. These factors have resulted in downward pressure on
the Company's margins.

         The Company operates in a rapidly changing and dynamic market, and the
Company's strategies and plans are designed to adapt to changing market
conditions where and when possible. However, there can be no assurance that the
Company's management will identify the risks (especially those newly emerging
from time to time) affecting, and their impact on, the Company and its business.
Further, there is no assurance that the Company's strategies and plans will take
into account all market conditions or that such strategies and plans will be
successfully implemented. Accordingly, neither the historical results presented
in the Company's consolidated financial statements and discussed herein, nor any
forward-looking statements in this Form 10-K, are necessarily indicative of the
Company's future results.

OTHER DEVELOPMENTS

Change in Control

         On October 19, 1999, Robert A. Weitzel ("Weitzel") resigned as the
chairman, chief executive officer and director of the Company and entered into
certain additional arrangements. As of November 1, 1999, Weitzel entered into a
retirement and consulting agreement (the "Retirement and Consulting Agreement")
with the Company. This agreement required the Company to pay Weitzel $300,000 on
November 1, 1999 and $200,000 on January 3, 2000; and provide certain other
standard employment benefits through September 30, 2001. In addition, the
Company will pay Weitzel an aggregate of $500,000 under a 20 month consulting
agreement which began on February 1, 2000. The Company is obligated to pay
Weitzel the $500,000 consulting fee whether or not any services are provided.
The Retirement and Consulting Agreement also provided that Weitzel enter into a
voting trust agreement (the "Voting Trust Agreement") among the Company,
Weitzel, and H. Jeffrey Schwartz, J. Jeffrey Eakin and John P. O'Brien, as
voting trustees (the "Trustees"), and a stock restriction agreement between
Weitzel and the Company (the "Stock Restriction Agreement"). The three Trustees
constitute the entire Board of Directors of the Company as of the date of the
filing of this Form 10-K. Pursuant to the Voting Trust Agreement, Weitzel
transferred record ownership, and thereby voting control, of 3,324,979



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shares of the Company's Common Stock, representing approximately 48.6% of the
issued and outstanding shares of the Company's Common Stock, ("Common Stock")
held by Weitzel individually and by The Weitzel Family Limited Partnership to
the voting trust (the "Voting Trust") created by the Voting Trust Agreement.
Pursuant to the Voting Trust Agreement, a voting trust certificate was issued
and delivered to Weitzel.

         The Voting Trust Agreement provides that all shares of the Common Stock
beneficially owned or acquired by Weitzel are placed in trust until the earlier
of September 30, 2001 or a payment default by the Company under certain
provisions of the Retirement and Consulting Agreement. Pursuant to the Voting
Trust Agreement, the Trustees exercise voting power with respect to the shares
of the Common Stock held in the Voting Trust, by the action of a majority of the
Voting Trustees. In addition, pursuant to the Stock Restriction Agreement, other
than transfers to his spouse, children, or grandchildren, or entities of which
those people are the beneficiaries or hold controlling interests, Weitzel is not
permitted to transfer shares of the Common Stock, or voting trust certificates,
without first offering those shares on identical terms to the Company, and the
Company has a specified period of time during which it may exercise its option
to purchase those shares.

         In October 1999, the Company's Board of Directors named Mark D.
Thompson, President and Interim Chief Executive Officer.

         Delisting of Common Shares

         In June 1999, the Company announced that its Annual Report on Form 10-K
for the fiscal year ended March 31, 1999 would not be filed with the Securities
and Exchange Commission by the prescribed due date.

         On July 1, 1999, the Company was informed by the Nasdaq Stock Market
that trading of the Common Stock on that market, would be halted pending the
receipt and review of additional information in accordance with the Marketplace
Rules of the Nasdaq Stock Market. The primary cause for the halt was the
Company's failure to timely file its Form 10-K for the fiscal year ended March
31, 1999, which was originally due on or before July 1, 1999. On September 15,
1999, after an oral hearing on September 9, 1999, the Common Stock was delisted
from the Nasdaq Stock Market. On October 26, 1999 price quotes for the Common
Stock began appearing in the Electronic Quotation System of the National
Quotation Bureau LLC. Although the Company has filed its annual report on Form
10-K for the fiscal year ended March 31, 1999, as of June 15, 2000, the Company
does not meet the requirements necessary to regain listing on the Nasdaq Stock
Market.

         Internal Controls

         The Company received a letter dated August 20, 1999 from Arthur
Andersen LLP, the Company's independent public accountants, addressed to the
Audit Committee of the Board of Directors. The letter indicated that Arthur
Andersen had noted certain matters related to the accounting systems and
internal controls of the Company that they considered to be a "material
weakness" and recommended that the Company take steps to improve internal
accounting control procedures. The Company has addressed or implemented
procedures to improve controls related to the identified material weakness and
is in the process of improving internal controls with completion expected during
fiscal 2001. The Company has been informed by Arthur Andersen LLP, that during
the fiscal 2000 audit no material weaknesses in internal controls were
identified.

INDUSTRY OVERVIEW

         Aviation Staffing Services

         General. In 1973, the Federal Aviation Administration (the "FAA")
mandated that airlines conduct predeparture screening of all passengers at most
airports in the U.S. Because the labor-intensive nature of predeparture
screening imposes substantial administrative burdens, most airlines have opted
to contract out predeparture screening and other security services to third
party contractors. Certain other airline services, such as food service and
fueling, historically have



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also been contracted out by the airlines. In the past several years, market
forces have driven airlines to outsource a number of additional labor-intensive
aviation services in order to permit airline management to focus on the
essential aspects of the airline business and to reduce labor, benefit costs and
administrative overhead. As the costs of labor have increased, airlines have
frequently outsourced baggage claim services, skycap, baggage handling, aircraft
appearance, wheelchair assistance services and inter-gate cart services.
Ticketing and check-in services are also beginning to be outsourced.

         Predeparture Screening and Other Airline Security Staffing Services.
The Company is a leading provider of domestic airline predeparture screening
services. The Company currently employs predeparture screeners at 129 U.S.
airports in 41 states. The Company's predeparture screening services include
conducting x-ray or electromagnetic inspection of all carry-on baggage, manual
searches of suspicious baggage and metal-detector searches of all passengers.
The Company derived approximately 30.3%, 32.3% and 36.7% of its revenues from
predeparture screening services in fiscal 2000, 1999 and 1998, respectively. The
Company also provides passenger profiling services and document verification
agents, primarily in the United Kingdom, where airlines and airports have been
required by regulatory agencies and the political climate to devote significant
resources to the prevention of terrorist activity. Airlines contract with the
Company to provide document verification (customs) agents who interview
passengers as they embark or disembark a country via an international flight. In
the domestic market, the Company also provides security for parked aircraft and
employee parking lots, and the checking of employee identification cards and
baggage. Airline security services other than predeparture screening did not
represent a significant percentage of the Company's revenues in any of the last
three fiscal years.

         Ramp and Ground Handling Services. The ramp and ground handling
services provided by the Company include: conveyance of checked baggage from
terminal to baggage compartment of plane and from plane to baggage carousel;
cleaning interior sections of the aircraft between flights and at the end of the
aircraft's flight day; washing the exterior of aircraft; emptying on-board
lavatories and replacing the water source with potable water; and spraying
ice-melting substance on aircraft in accordance with customer specifications.
The Company derived approximately 28.4%, 26.2% and 32.4% of its revenues from
ramp and ground handling services in fiscal 2000, 1999, and 1998, respectively.

         Other Aviation Staffing Services. The Company's other aviation services
include providing skycaps for curbside check-in, baggage assistance and help
with routine passenger problems, wheelchair operators to transport disabled or
elderly passengers to and from the check-in area and the plane, and electric
cart drivers to provide inter-gate transportation for passengers who need to
board flights at distant gates. The Company derived approximately 11.5%, 12.3%
and 12.4% of its revenues from these services in fiscal 2000, 1999 and 1998,
respectively.

         Commercial Security Staffing Services

         The Company provides uniformed security officer services, business and
facility access control, security consulting, special event security and
security assessment to a broad range of commercial clients and owners or
managers of commercial offices, government buildings, airports, hospitals,
malls, distribution centers, sports arenas, museums and other facilities. The
Company entered the commercial security market in the early 1990's to further
capitalize on its staffing services experience. The Company derived
approximately 22.1%, 22.4% and 12.0% of its net revenues from commercial
security staffing services in fiscal 2000, 1999 and 1998, respectively.

         Security Products Distribution

         In addition to service offerings to the airline industry, the Company
distributes a line of security products through its wholly-owned subsidiary,
Crown Technical Systems, Inc. ("CTS"), including airport and commercial security
checkpoint products and hand-held metal detectors. CTS markets access control
equipment, including swipe card and other products to control access to secured
areas, and closed circuit television monitoring equipment to domestic and
international customers. The Company derived approximately 4.0%, 1.9% and 2.1%
of its net revenues from sales of security products in fiscal 2000, 1999 and
1998, respectively. The increased revenue in fiscal 2000 was due to the
acquisition of MCS in May 1999, a company that primarily specialized in the sale
and installation of security equipment for prisons. This security products



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distribution company was sold in March 2000 as part of the Company's strategy to
focus on its core businesses. See Company Overview and Acquisitions.

GROWTH

         Prior to the Change in Control described above in "ITEM 1. BUSINESS -
Other Developments", the Company had aggressively pursued acquisitions since the
Initial Offering in 1997. It is the view of the Company's current management
team that the Company's cost of capital makes it extremely difficult to find
accretive acquisitions at this time, given historical and prevailing operating
margins in the Company's lines of business which limit the effective yield of
capital invested in such acquisitions. The Company's credit facility also
prohibits any further acquisitions at this time. As a result, management intends
to instead focus on a renewed emphasis on sales and service, seeking an
expansion of services provided to existing customers and actively pursuing
reasonable margin contracts with new customers.

ACQUISITIONS

         Historically, when making a domestic acquisition, the Company generally
acquired only existing contracts and the equipment needed to fulfill the
contracts.

         During fiscal 2000, the Company completed two acquisitions: (1)
American Investigative Services, Inc., a commercial security staffing business
based in Houston, Texas, was acquired in April 1999 for $1.5 million in cash;
and (2) Metroplex Control Systems, Inc. ("MCS"), which sells, installs and
services fire detectors, detention control and other security systems from its
Dallas, Texas headquarters, was acquired in June 1999 for $5.0 million in cash.
The Company completed the disposition of MCS on March 10, 2000 and recognized a
loss of approximately $800,000 in Fiscal 2000 related to this disposition.
During fiscal 2000, MCS generated net operating revenues of $4.0 million and net
income of $0.2 million, or $0.03 per share.

         The Company is not presently pursuing further acquisitions, and does
not anticipate that acquisitions will materially contribute to growth in the
foreseeable future.

COMPETITION

         Aviation Staffing Services

         Predeparture Screening. Contracts for predeparture screening services
tend to be highly competitive among a handful of experienced providers and are
generally awarded to the low-cost provider. At the same time, the airlines are
sensitive about security lapses and may cancel a contract based on even minor
security breaches. Currently, the Company faces the same challenge as its
competitors do--finding qualified employees to provide consistent service at the
wage rates offered by the airlines for screeners in the current economic
environment. The Company's principal competitors in domestic predeparture
screening include Globe Aviation Securities Corporation, AHL Services, Inc. and
Huntleigh, Inc.

         In the United Kingdom Aviation security market, the Company strives to
distinguish itself by developing training programs and screening methods that
meet the demands of its customers. The Company's passenger profilers are trained
in questioning techniques that are designed to elicit cooperation and to avoid
offense to innocent travelers. The Company's main competitors for international
profiling and screening services are ICTS International, N.V., AHL Services,
Inc. and International Aviation Security, Inc.

         Ramp and Ground Handling Services. Airlines frequently outsource ramp
and ground handling services because these services often require a considerable
investment in support equipment, which can be expensive for carriers with few
flights at a particular location. The Company has the ability to offer a package
of services which include new or refurbished equipment, maintenance and
manpower, for a fully inclusive per-hour charge. The Company has typically
offered ground handling or passenger services as "add on" services to its base
airline security business. It also offers these services on a



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stand-alone basis at certain locations. In this area, the Company competes with
the airlines themselves, Signature Flight Support Services, AMR Services, Ogden
Allied Support Services, Hudson General, and Service Master Co. The Company has
sought to increase the volume of its aircraft appearance business by focusing on
providing service in accordance with detailed specifications. The Company
conducts an Aircraft Appearance and Facility Audit Program through which it
continually monitors its own performance. The Company believes that this
approach enables the Company to correct problems that might not otherwise come
to its attention until client dissatisfaction has occurred. To complement the
Quality Assurance Programs, the Company introduced a comprehensive health and
safety program system-wide to establish responsibilities and procedures for
safety awareness programs. The Company's competitors in aircraft appearance
include airlines themselves, Signature Flight Support Services, AMR Services,
Ogden Allied Support Services, Hudson General, and Service Master Co.

         Other Aviation Services. The Company believes that customer service is
as important as cost in the competition for domestic passenger service
contracts. Because passenger service providers such as skycaps, wheelchair
operators and cart drivers have a high level of interaction with passengers, the
Company has developed specialized training programs that emphasize customer
service and empathy. The Company's main competitors for passenger services
include the airlines, AHL Services, Inc., Globe Aviation Securities Corporation,
and Huntleigh, Inc.

         Commercial Security Staffing Services

         The commercial security staffing industry is highly fragmented.
Management believes there are in excess of 100,000 separate providers of
commercial and industrial security services, and the Company does not believe
that any single participant has a significant share of the market. In the
commercial staffing field, the major providers include Borg-Warner Security
Corporation, Guardsmark, Inc. and The Wackenhut Corporation.

         Security Products Distribution

         The Company, through its wholly-owned subsidiary, Crown Technical
Systems, focuses on technical security applications and their integration into
existing security arrangements. The Company's current plans are to outsource the
implementation and service functions of this business segment during fiscal
2001.

         In each of the segments where the Company operates, most of the
Company's competitors are larger and may have greater financial resources than
the Company.

SALES AND MARKETING

         The Company believes that strengthening and maintaining relationships
with personnel at various levels of its customer organizations are an integral
element of its sales and marketing efforts. There are four sales executives
servicing the Company's three operating regions throughout the United States and
United Kingdom. The Company's three regional directors in the United States and
United Kingdom also have sales responsibilities and a portion of their incentive
compensation is dependent on meeting established sales goals. Sales staff
incentives are generally based on margins derived from their respective annual
revenues.

         The Company seeks internal growth through, among other things, a
focused marketing approach based on expanding the services provided to existing
customers and increasing the volume of services provided in targeted markets.
The Company is further developing national sales and marketing strategies aimed
at improving the consistency of its sales approach. The Company has implemented
a digitally integrated contract administration function that automatically
tracks contracts, identifying in a timely manner contracts requiring pricing
adjustments.

         The Company's marketing initiatives include the development of branded
services, direct mail marketing, creation of local, regional and national
marketing plans, strategic positioning for preferred provider partnerships,
integration of high technology components, and coordination of the Company's
participation in trade shows and other sales activities. Additionally, the
corporate marketing department conducts quarterly training sessions for sales
executives. These training



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sessions include presentation and customer service skills, database management
and methods for cross-selling the Company's products and services.

MANAGEMENT AND REPORTING SYSTEMS

         In fiscal 2000 and continuing into fiscal 2001, the Company has started
a major project to develop the means to automate and coordinate both the
collection of payroll data and the billing to customers. Management believes
that these efforts will improve accuracy, provide for efficiencies and minimize
billing disputes. The Company has hired consultants to assist it in evaluating
organizational structure, identifying inefficient practices, and has begun
improving control over field operations.



WORKFORCE MANAGEMENT

         As of June 15, 2000, the Company had approximately 15,000 full- and
part-time non-union employees engaged in performing its client services. The
Company experiences annual turnover of almost 100%, and believes that improving
employee retention is important to reducing operating costs and providing high
quality service to its clients. Because employee turnover is inherent in the
nature of its business, the Company allocates significant resources to
recruiting potential employees. Each applicant must complete an interview and a
written application that includes inquiry concerning prior criminal convictions.
The Company grants various bonuses and awards to exceptional employees, in part
to further enhance retention. These include bonuses for detecting weapons and
other illegal objects, including those detected during FAA-mandated tests.
Currently, the Company faces the same challenge as its competitors do - finding
qualified employees to provide consistent service at the wage rate allowed by
clients.

         For certain aviation services employees, FAA regulations require that
each applicant provide proof of citizenship or resident alien status, and each
applicant is subject to a five- or ten-year background verification, depending
upon the position, and a pre-employment drug screen. For persons with unescorted
access to secured areas, a criminal background verification procedure, which is
conducted by the Federal Bureau of Investigation, is triggered by any 12-month
gap in employment history that cannot be explained through independent
verification.

CUSTOMERS AND CONTRACT TERMS

         The Company derives a significant portion of its revenues from a few
clients. In fiscal 2000, Delta Air Lines, Inc. (22.8%), Continental Airlines,
Inc. (12.2%), Trans World Airlines, Inc. (4.2%), U.S. Airways, Inc. (4.3%) and
Northwest Airlines, Inc. (2.9%) accounted for 46.4% of the Company's net
operating revenues. During fiscal 2000, 1999 and 1998, the Company's ten largest
clients accounted for an aggregate of 56.5%, 59.0% and 66.3% respectively, of
the Company's net operating revenues.

         The Company's contracts with clients, including those that it has
obtained through acquisitions, generally have one- to three-year terms but are
cancelable by either party on 30 to 90 days' notice. The Company invoices its
aviation services clients weekly or biweekly. The Company invoices its
commercial security staffing services clients weekly, which is typical in that
field.

         The services provided by the Company require it to train and manage low
wage workforces with high turnover rates. From time to time, the Company has
failed to meet test standards or a client's service expectations at a particular
location, and, like its competitors, has had contracts terminated because of
customer dissatisfaction with various aspects of its performance. The Company's
predeparture screening services are tested daily at numerous locations, both
internally and by the FAA, to determine the Company's ability to detect weapons
passing through checkpoints. Failure to pass FAA tests may result in fines to
the airline responsible for the checkpoint, which the Company reimburses
pursuant to its contracts in amounts up to $11,000 per test failure. In
addition, the Company's contracts with airlines typically provide that the



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Company will indemnify the client against claims for property damage, or death
of or personal injury to any person, arising out of the negligent acts or
omissions of the Company, unless the claim results from a negligent act of the
customer. The Company is self-insured for the first $250,000 per incident.

         The risk of contract termination as a result of actual or perceived
service failures is increased by the substantial publicity that often
accompanies errors in the provision of screening services, because of public
concern over airline security issues. Failure to meet tests or other performance
standards may result in fines, or the loss of a contract or service location or
the Company's license to perform services, and any such loss could have a
material adverse effect on the Company's reputation, business, results of
operations and financial condition.

GOVERNMENT REGULATION

         The Company's aviation services clients are subject to various
regulations and directives issued by the FAA. Under current regulations,
independent contractors, such as the Company, that perform services for air
carriers and airport authorities share responsibility for aviation security with
air carriers, airport authorities, the FAA and various other federal, state and
local agencies. At airports throughout the United States, the FAA tests security
systems and conducts threat and vulnerability assessments. Through the use of
its regulatory powers, the FAA directs the aviation industry to implement
measures that address existing and anticipated threat situations.

         FAA regulations require each air carrier and airport authority to
implement an FAA-approved security program. Airport authorities are responsible
for maintaining a secure environment on airport grounds and for providing law
enforcement support and training. Air carriers are responsible for the security
of all people and items connected to their aircraft, including passengers,
baggage, maintenance equipment and flight crews. Although an air carrier is
permitted to outsource certain security functions, FAA regulations require the
air carrier to provide oversight in order to assure that all requirements are
met. The FAA itself regularly conducts tests of predeparture screening
checkpoints at U.S. airports. Failure to meet requirements imposed by the FAA or
the air carrier or the failure of various tests administered by the FAA can
result in fines and other penalties to the responsible air carrier, which are in
turn passed on to the screening company under the terms of the contract between
the provider and the carrier. Regulatory compliance problems and test failures
may also result in the termination of a security contract or of services at the
affected site.

         The Company's aviation and commercial security staffing services are
also subject to regulation by various state and local authorities. The Company
is required to obtain and maintain various licenses and permits from state and
local authorities to provide aviation and commercial security staffing services,
as well as certain other services.

ITEM 2. Properties

         During fiscal 2000 the Company leased approximately 20,600 square feet
in Independence, Ohio, for its corporate headquarters. The initial term of the
lease expires in 2001 and may be extended, at the option of the Company, until
2006. The Company leases space in numerous facilities in the United States and
the United Kingdom to house local offices. None of these local office leases are
material to the Company's operations. The Company does not own any real estate.
In April 2000, the Company signed a partial lease termination related to 6,496
square feet of its headquarters space, leaving approximately 14,100 square feet
for its corporate headquarters. The Company believes its current facilities are
adequate for its needs.

ITEM 3. Legal Proceedings

         Because the Company's employees function in public facilities and in
the workplaces of other businesses, the Company is exposed to possible claims by
its clients' customers and employees of discrimination, harassment and
negligence, and similar claims. The Company is subject to liability for the acts
or negligence of its employees while on assignment that cause personal injury or
damages, and to claims of misuse of client proprietary information or theft of
client property. As a provider of security services, the Company faces potential
liability for claims that may arise from any



                                       8
<PAGE>   11


terrorist activity occurring in circumstances associated with the Company.
Although the Company maintains insurance coverage against such potential
liabilities, any such claim against the Company might exceed the amount of such
insurance coverage or fall outside the type of activities covered by such
insurance.

         The Company is involved in various legal proceedings, including routine
civil actions instituted by the FAA with respect to test failures, background
checks and recordkeeping matters that arise in the ordinary course of its
business and litigation relating to its acquisitions. The Company does not
believe that the ultimate outcome of these proceedings will have a material
adverse effect on the Company's business, assets, financial condition or results
of operations, however, in the event any of the foregoing litigation results in
an award of money damages against the Company, given the Company's current
liquidity situation, that award could adversely affect the financial condition
of the Company.

ITEM 4. Submission of Matters to a Vote of Security Holders

         There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS

         Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, the
following information is reported below.

         Executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors until their successors are duly chosen and
qualified.

         The executive officers of the Company at June 25, 2000 are as follows:

<TABLE>
<CAPTION>

NAME                                                     AGE                                 POSITION
----                                                     ---                                 --------
<S>                                                       <C>          <C>
Mark D. Thompson.....................................      42          President and Chief Executive Officer
Terri M. Jones.......................................      43          Executive Vice President, Aviation
Ronald P. Koegler....................................      47          Executive Vice President and Controller
Michael F. Sosh......................................      38          Executive  Vice  President, Treasurer and
                                                                       Chief Financial Officer

Charles P. Licata....................................      55          President, Commercial Security Staffing Services
Scott E. Brewer......................................      37          Senior Vice President and General Counsel
John W. Demell.......................................      53          Senior Vice President, Aviation
</TABLE>


         The following are biographical summaries of the business experience of
the executive officers of the Company.

         MARK D. THOMPSON is the President and Chief Executive Officer of the
Company and was elected in October 1999. Mr. Thompson was the Executive Vice
President and Chief Financial Officer of Lexford Residential Trust from April
1996 until September 1999, when Lexford was acquired by Equity Residential
Properties Trust. Lexford Residential Trust was a publicly traded real estate
investment trust which specialized in the ownership and management of multi-
family housing. From January 1995 to March 1996, Mr. Thompson was a partner with
the law firm of McDonald, Hopkins, Burke & Haber. From September 1985 to
December 1994, Mr. Thompson was an associate and partner with the law firm of
Benesch, Friedlander, Coplan & Aronoff, LLP.

         TERRI M. JONES is the Executive Vice President - Aviation since January
2000. Ms. Jones joined the Company in November 1997 as Vice President, Marketing
and was named Senior Vice President, Sales and Marketing in June 1999.



                                       9
<PAGE>   12


For the seven years prior to joining the Company, Ms. Jones was with the
American Heart Association, as Director of Communications and Marketing.

         RONALD P. KOEGLER has been the Executive Vice President and Controller
since joining the Company in February 2000. From 1989 until joining the Company,
Mr. Koegler held various positions with Lexford Residential Trust, most recently
as Senior Vice President and Controller since December 1996, as Vice President
and Treasurer from January 1996 to December 1996 and Controller from April 1992
to January 1996.

         MICHAEL F. SOSH is the Executive Vice President, Treasurer and Chief
Financial Officer of the Company since January 2000. Mr. Sosh joined the Company
in November 1999 as a consultant. Mr. Sosh was the Senior Vice President and
Treasurer of Lexford Residential Trust from January 1997 to September 1999. From
1987 to 1997 Mr. Sosh was with the retail department store chain of Bon-Ton
Stores, Inc. (NASDAQ:BONT), as Manager of Financial Planning and Financial
Analyst from 1987 to 1995 and Divisional Vice President and Assistant Treasurer
from March 1995 to January 1997.

         CHARLES P. LICATA is the President of the Commercial Security Staffing
business since June 1999. Mr. Licata joined the Company in December 1998 as Vice
President of Commercial Services. Prior to joining the Company, Mr. Licata was a
Vice President at Borg-Warner Protective Services for 16 years.

         SCOTT E. BREWER is the Senior Vice President and General Counsel of the
Company since June 1999. He has served as a Vice President since April 1995 and
General Counsel since September 1993. Mr. Brewer was in the private practice of
law from October 1988 to August 1993.

         JOHN DEMELL is the Senior Vice President, Aviation of the Company since
joining the Company in May 2000. Mr. Demell was the Vice president of regional
operations of Lexford Residential Trust from 1988 to April 2000. From 1983 to
1987 Mr. Demell was with Fabri-Centers of America as a regional manager.

                                    * * * * *

         There are no arrangements or understandings known to the Company
between any executive officer and any other person pursuant to which any
executive officer was elected to office. There is no family relationship between
any director or executive officer and any other director or executive officer of
the Company.



                                       10
<PAGE>   13


                                     PART II

ITEM 5. Market for Registrant's Common Shares and Related Shareholder Matters

(a)      Market Information

         During the year ended March 31, 1999, the Common Stock was traded on
the Nasdaq Market under the symbol "ITSW". On July 1, 1999, trading of the
Common Stock was halted. On September 15, 1999, the Common Stock was delisted
from the Nasdaq Stock Market. On October 26, 1999, price quotes for the Common
Stock began appearing on the Electronic Quotation System of the National
Quotation Bureau LLC ("Pink Sheets"). See "ITEM 1. BUSINESS - Other
Developments". As of June 15, 2000 the Common Stock is still being quoted on the
Pink Sheets and therefore there is no established public trading market for the
Common Stock. The reported closing price on the Pink Sheets on June 15, 2000 was
$1.125. The following table sets forth for the indicated periods the high and
low market prices for the Common Stock:

<TABLE>
<CAPTION>

                                                                                                     PRICE RANGE
                                                                                                     -----------
                                                                                                HIGH              LOW
                                                                                                ----              ---
FISCAL YEAR ENDED MARCH 31, 2000
--------------------------------
<S>                                                                                         <C>               <C>
First Quarter...........................................................................    $      4.375      $    3.313
Second Quarter (1)......................................................................    $        n/a      $      n/a
Third Quarter...........................................................................    $      1.563      $    0.688
Fourth Quarter..........................................................................    $      2.125      $     1.00
(1)  There was no trading of Company Common Stock from July 1, 1999 until
     October 26,1999.


FISCAL YEAR ENDED MARCH 31, 1999
--------------------------------

First Quarter...........................................................................    $      22.00      $    5.625
Second Quarter..........................................................................    $      8.125      $    3.875
Third Quarter...........................................................................    $      6.375      $     3.50
Fourth Quarter..........................................................................    $      5.375      $     3.50


FISCAL YEAR ENDED MARCH 31, 1998
--------------------------------

Third Quarter (beginning September 19, 1997)............................................    $      18.75      $    13.00
Fourth Quarter..........................................................................    $      24.13      $    15.75
</TABLE>

(b)      Shareholder Information

         As of June 15, 2000, there were 54 record holders of Common Stock and
approximately 860 beneficial owners.

(c)      Dividend Information

         The Company has never paid, and does not anticipate paying in the
foreseeable future, cash dividends on the Common Stock. In addition, the
Company's ability to pay cash dividends is limited by the terms of its revolving
line of credit.



                                       11
<PAGE>   14


ITEM 6. Selected Financial Data

         The following sets forth certain selected financial data appearing in
or derived from the Company's historical audited financial statements. The
selected financial data should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere herein, and with Item
7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. During fiscal 2000, 1999, 1998 and 1997, the Company paid cash for
the acquisitions of service contracts and the related equipment. These
acquisitions were accounted for under the purchase method and accordingly their
operating results are included in the consolidated financial statements for all
periods subsequent to the date of acquisition.

<TABLE>
<CAPTION>

                                                                (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA)
                                                                                 YEARS ENDED MARCH 31,
                                                                                 ---------------------
                                                              2000         1999          1998         1997         1996
                                                              ----         ----          ----         ----         ----
<S>                                                        <C>          <C>           <C>          <C>          <C>
STATEMENTS OF OPERATIONS DATA:
   Net operating revenues..............................    $ 214,640    $226,872      $ 172,367    $ 115,242    $ 95,467
   Income (loss) before income taxes ..................      (13,965)     (6,501)         8,357        2,725       1,815
     Net income (loss).................................      (13,015)     (7,295)         4,857        1,569         930
Net income (loss) per share:...........................
   Basic...............................................    $   (1.95)   $  (1.10)     $    0.93    $    0.31    $   0.16
   Diluted.............................................        (1.95)      (1.10)          0.92         0.31        0.16
Weighted average common shares outstanding (1):
   Basic ..............................................        6,683       6,662          5,215        5,089       5,776
   Diluted.............................................        6,683       6,662          5,265        5,089       5,776


                                                                                    AS OF MARCH 31,
                                                                                    ---------------
                                                              2000         1999          1998         1997         1996
                                                              ----         ----          ----         ----         ----

OPERATING DATA:
Number of employees....................................       15,000      16,000         15,000       10,700       9,900

BALANCE SHEET DATA:
   Cash and cash equivalents...........................    $     792    $    672      $   3,542    $   3,018    $  2,693
   Working capital (deficit)...........................        4,507       3,318         11,491        1,496      (2,398)
   Total assets........................................       71,212      70,634         61,631       28,865      21,929
   Long-term obligations...............................       22,103      10,859          3,682       11,641       5,790
   Shareholders' equity................................       17,796      30,841         38,319        2,800       3,710
</TABLE>

(1)  The weighted average number of shares outstanding has been adjusted to
     reflect the 12,892.62 for 1 stock split declared June 17, 1997.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

OVERVIEW

         The Company's services are provided under contracts that generally have
terms of one to three years, but are cancelable by either party on 30 to 90 days
notice. Although contract terms vary significantly, clients generally pay an
hourly rate for services provided. Certain services, such as aircraft cleaning,
are billed on a flat fee-for-service basis, and certain others are billed at a
fixed monthly rate. The Company recognizes revenues as the related services are
performed.

         Acquisitions played an important role in the Company's net operating
revenue growth during fiscal 1999 and 1998. In fiscal 2000, the Company
completed two acquisitions which were accounted for under the purchase method,
and accordingly, their operating results are included in the Company's
consolidated financial statements for all periods subsequent to the date of the
acquisition. The Company is not presently pursuing acquisitions, and does not
anticipate that acquisitions will materially contribute to growth in the
foreseeable future.



                                       12
<PAGE>   15

         Operations generated negative cash flow for fiscal 2000. Although the
Company obtained a one year extension of its credit facility through April 2001
(See Note G of "Notes to the Consolidated Financial Statements") the negative
cash generated during fiscal 2000 and forecast to continue at least through the
first half of fiscal 2001 are factors that raise doubts about the Company's
ability to continue as a going concern. The audit report of Arthur Andersen LLP
for fiscal 2000 contains an explanatory paragraph with respect to this matter.

RESULTS OF OPERATIONS

    YEAR ENDED MARCH 31, 2000 COMPARED WITH YEAR ENDED MARCH 31, 1999

         The following discussion of operating results for fiscal 2000 as
compared to fiscal 1999 focuses on the core business segments of the Company.
This presentation is intended to facilitate shareholders' and prospective
investors' evaluation of the Company's performance in relation to its strategy
of focusing on internal growth by improving margins and reducing expenses of its
core business segments.

         The following are the Net Operating Revenues, Cost of Revenues and
Gross Margin for fiscal 2000 as compared to fiscal 1999, by segment (in
thousands).

<TABLE>
<CAPTION>
                                          2000       % of Rev        1999      % of Rev   Inc/(Dec)   % Inc/(Dec)
                                      -------------------------  -------------------------------------------------
<S>                                       <C>           <C>          <C>         <C>       <C>             <C>
Net Revenues:
    Aviation                              $ 158,603      73.9%       $171,726     75.7%    $ (13,123)       -7.6%
    Commercial Security                      47,406      22.1%         50,849     22.4%       (3,443)       -6.8%
    Security Products                         8,631       4.0%          4,297      1.9%        4,334       100.9%
                                      -------------------------  ----------------------- -------------------------
                                            214,640     100.0%        226,872    100.0%      (12,232)       -5.4%
                                      -------------------------  ----------------------- -------------------------
Cost of Revenues:
    Aviation                                149,636      94.3%        158,558     92.3%       (8,922)       -5.6%
    Commercial Security                      39,268      82.8%         43,282     85.1%       (4,014)       -9.3%
    Security Products                         6,467      74.9%          3,384     78.8%        3,083        91.1%
                                      -------------------------  ----------------------- -------------------------
                                            195,371      91.0%        205,224     90.5%       (9,853)       -4.8%
                                      -------------------------  ----------------------- -------------------------
Gross Margin:
    Aviation                                  8,967       5.7%         13,168      7.7%       (4,201)      -31.9%
    Commercial Security                       8,138      17.2%          7,567     14.9%          571         7.6%
    Security Products                         2,164      25.1%            913     21.2%        1,251       137.0%
                                      -------------------------  ----------------------- -------------------------
                                          $  19,269       9.0%       $ 21,648      9.5%     $ (2,379)      -11.0%
                                      =========================  ======================= =========================
</TABLE>


         Net Operating Revenues. Net operating revenues in fiscal 2000 decreased
by $12.2 million, or 5.4%, as compared with fiscal 1999. The decrease is
attributable to the loss of aviation and commercial security staffing contracts
that was partially offset by an increase in revenues from the sale of Security
Products. The increase in Security Products net revenues was primarily related
to the acquisition of MCS in May 1999, a company that was primarily devoted to
the sale and installation of security equipment for prisons and fire safety
equipment. The increase in net operating revenues for Security Products is not
expected to continue. The Company has decided to focus on its core businesses of
Aviation staffing services and Commercial Security services. In conjunction with
this strategy the Company sold MCS in March 2000 and intends to outsource the
implementation and service functions of this business segment during fiscal
2001. (See Item 1.BUSINESS "Company Overview"). The decrease in aviation
revenues relates to lost service contracts at several sites. The contracts were
generally lost in competitive bidding processes. The Company has been at a
disadvantage in these bids due to competitors taking advantage of the Company's
uncertain financial situation. This decline may continue as management focuses
on higher margin business and intends to give notice on contracts that do not
meet profit criteria. The Company believes it has mitigated the uncertainty of
its financial position with the extension of the Company's credit facility. The
decrease in Commercial Security net revenues was related to the Company's
strategy, commencing in the third quarter of fiscal 2000, to eliminate contracts
that did not meet profit criteria. Although commercial security net revenues
decreased by



                                       13
<PAGE>   16


$3.4 million, or 6.8%, gross margin actually increased approximately $0.6
million from 14.9% of revenue to 17.2% of revenue.

         Cost of Revenues. Cost of revenues includes primarily the cost of field
personnel (wages, payroll taxes, vacation, workers' compensation and uniforms)
and related equipment costs. Fiscal 2000 total cost of revenues decreased $9.9
million, or 4.8%, from fiscal 1999. Most of this decrease was due to costs
associated with the service contracts lost or discontinued in fiscal 2000.
However, cost of revenues as a percent of net operating revenues for Commercial
Security services decreased from 85.1% in fiscal 1999 to 82.8% in fiscal 2000
primarily as a result of focusing on higher margin contracts and eliminating
lower margin contracts. The cost of revenues for security products increased
$3.1 million primarily due to the acquisition previously discussed. See "Net
Operating Revenues". The improved margin performance in the Commercial Security
staffing services and the Security Products businesses were offset by the
increased costs of revenues as a percent of net operating revenues for the
Aviation staffing services business. The Aviation Staffing Services cost of
revenues increased from 92.3% in fiscal 1999 to 94.3% in fiscal 2000 primarily
due to the increase in labor costs. The Company is working to eliminate low
margin contracts and improve controls over labor costs to improve margins in the
Aviation Staffing services segment

         The current strength of the United States economy, which has driven
unemployment to low levels, has adversely impacted the Company's ability to
attract and retain the workforce needed to provide the services required under
its service contracts. The difficulty in attracting these workers has resulted
in the Company's payment of increased overtime and has forced the Company to
increase the wages paid to employees in advance of increases in the rates paid
by the Company's customers, primarily in the Aviation Staffing Services segment.
These factors continue to exert downward pressure on the Company's margins.
Management is currently implementing operational strategies that it believes
will improve margins, however, there can be no assurance that these strategies
will be successful.

         Selling, General and Administrative Expenses ("S G & A"). Selling,
general and administrative expenses include corporate governance costs, support
services for field personnel, bad debt expense and professional services (legal,
audit and consulting). The following table breaks down S,G & A by business
segment and corporate administrative costs (in thousands):

                                                   2000              1999
                                               --------------   ---------------
Aviation Staffing Services                      $    7,463        $   8,308
Commercial Security Staffing Services                6,024            4,904
Security Products                                    1,314              403
Corporate Administration                            12,933           11,035
                                               --------------   ---------------
                                                $   27,734        $  24,650
                                               ==============   ===============


         These expenses increased $3.1 million, or 12.5%, in fiscal 2000 as
compared to fiscal 1999. S, G & A expenses were 12.9% and 10.9% of net operating
revenues for fiscal 2000 and 1999, respectively. The following discusses the
change in S, G & A expenses by business segment for fiscal 2000 as compared to
fiscal 1999.

         Aviation Staffing Services S, G & A expenses decreased $0.8 million for
fiscal 2000 as compared to fiscal 1999. The decrease was due to aviation
contracts that have been lost which reduced administrative costs, primarily
salary and payroll taxes and benefits. The Company has initiated a
reorganization of the administrative structure of the aviation business segment
which is anticipated to further reduce the S, G & A related to Aviation Staffing
Services.

         Commercial Security Staffing Services S, G & A expenses increased $1.1
million, or 22.8%, in fiscal 2000 as compared to fiscal 1999. Approximately $0.6
million of the increase related to payroll, payroll taxes and benefits. This
increase was attributable to the numerous acquisitions during fiscal 1999 and
fiscal 2000, which added significant overhead. The Company has completed the
reorganization of the Commercial Security administrative support structure. The
actual



                                       14
<PAGE>   17


Commercial Security S, G & A for the month of April 2000, if maintained for all
of fiscal 2001, would result in Commercial Security S, G & A for fiscal 2001 of
$5.2 million.

         Security Products S, G & A increased $0.9 million in fiscal 2000 as
compared to fiscal 1999. The increase was primarily due to the acquisition of
MCS in May 1999. In connection with the Company's current strategy to focus on
its core business segments, the Company sold MCS in March 2000 and is currently
planning to outsource the implementation and service functions of this business
segment during fiscal 2001. The S, G & A expenses associated with the Security
Products Distribution business segment should decrease significantly during
fiscal 2001 as the Company implements its strategy.

         Corporate Administration S, G & A costs increased $1.9 million in
fiscal 2000 as compared to fiscal 1999. Professional, consulting and settlement
expenses increased $2.3 million due to settlement of certain outstanding
litigation and related legal fees and additional costs incurred for accounting
and consulting due to the material weakness identified by the Company's
independent public accountants. Contributing to this increase was a $1.0 million
charge related to the retirement and consulting agreement with the former
chairman. In addition, bank charges increase $0.3 million related to the loan
modifications completed in fiscal 2000.This increase was offset by costs
incurred in fiscal 1999 that did not reoccur in fiscal 2000. During fiscal 1999,
management decided to cease operations in the Czech Republic and Italy. The
Company also adjusted the carrying value of its investment in the United Kingdom
and Germany to net realizable value due to the filing for insolvency by its
joint venture partner in the United Kingdom (which was also its largest customer
in Germany). Charges of $1.8 million for the unrealized loss on the carrying
value of these assets identified for disposition are included in fiscal 1999
results.

         Amortization Expense. Amortization expense was $2.8 million in fiscal
2000 compared to $2.3 million in fiscal 1999, an increase of $0.5 million, or
21.4%. The increase was the result of the additional charges to amortization for
the fiscal 2000 acquisitions and a full year's charge for fiscal 1999
acquisitions.

         Interest Expense. Interest expense increased by $0.8 million to $1.8
million for fiscal 2000, principally as a result of the increase in the
Company's level of outstanding debt obligations to an average of $21.5 million
from $10.4 million for fiscal 2000 and 1999, respectively. In addition, the
Company's weighted average borrowing rate increased to 8.6% for fiscal 2000
from 7.9% for fiscal 1999.

         Income Taxes. The Company recorded an income tax benefit of $0.9
million in fiscal 2000 as compared to an income tax expense of $0.8 million for
fiscal 1999. The income tax benefit recorded in fiscal 2000 was a result of the
realized tax benefit of the carry back of the fiscal 2000 net operating tax loss
to prior years. Despite recording a pre-tax book loss for fiscal 1999, a net tax
expense of $.8 million was incurred. This expense is the tax benefit for the
fiscal 1999 loss net of a provision to provide a deferred tax valuation
allowance on net deferred tax assets where there is uncertainty of
their future realization.

         Loss on Disposal Assets. The Company recorded a $0.8 million loss in
fiscal 2000 related to the disposal of MCS which it had acquired in May 1999.
The Company completed the disposition in March 2000. The disposition
was part of the Company's strategy to focus on its core businesses of Aviation
Staffing Services and Commercial Security staffing services.



   YEAR ENDED MARCH 31, 1999 COMPARED WITH YEAR ENDED MARCH 31, 1998

         Net Operating Revenues. Net operating revenues in fiscal 1999 increased
by $54.5 million, or 31.6%, as compared with fiscal 1998. The increase is mostly
attributable to revenues from the six acquisitions completed during the year,
and the inclusion of a full year of revenues from the eleven acquisitions
completed in fiscal 1998. This rate of growth did not



                                       15
<PAGE>   18


continue into fiscal 2000 as the Company completed only two acquisitions during
fiscal 2000 and has determined not to pursue further acquisitions at the present
time. See "ITEM 1-BUSINESS-Growth". Internal growth accounted for only a nominal
portion of the revenue increases in fiscal 1999. Revenues from Aviation Services
increased $23.6 million or 16.0%, Commercial Staffing Services increased $30.2
million or 145.8%, and Security Products increased $0.7 million, or 19.5%. These
growth rates did not continue into fiscal 2000. The fourth quarter of fiscal
1999 showed a 9.1% decrease in net operating revenue from the prior quarter.

         Cost of Revenues. Cost of revenues includes primarily the cost of field
personnel (wages, payroll taxes, vacation, workers' compensation and uniforms)
and related equipment costs.

         Fiscal 1999 cost of revenues increased $57.9 million, or 39.3%, over
fiscal 1998. Most of this increase (approximately $56.0 million) was due to
expenses associated with fiscal 1999 acquisitions and inclusion of a full year
of expenses for fiscal 1998 acquisitions. Marginally, cost of revenues were
90.5% and 85.5% of net operating revenues for fiscal 1999 and 1998,
respectively. This deterioration of margin was largely due to: increased
workers' compensation expense, increased aircraft damages and fines; and a
greater proportionate increase in wages and overtime. The approximate impact on
fiscal 1999 cost of revenues for each of these items was as follows: Workers'
compensation - $1.5 million; aircraft damages and fines - $.8 million; and wages
and overtime - $5.7 million.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses include support services for field personnel, bad debt
expense, charges for cessation of certain operations and professional services
(legal, audit and consulting). These expenses increased $9.7 million, or 64.2%,
to $24.7 million in fiscal 1999 from $15.0 million in fiscal 1998. Selling,
general and administrative expenses were 10.9% and 8.7% of net operating
revenues for fiscal 1999 and 1998, respectively.

         During fiscal 1999, management decided to cease operations in the Czech
Republic and Italy. The Company also adjusted the carrying value of its
investment in the United Kingdom and Germany to net realizable value due to the
filing for insolvency by its joint venture partner in the United Kingdom (which
was also its largest customer in Germany). Charges of $1.8 million for the
unrealized loss on the carrying value of these assets identified for disposition
are included in fiscal 1999 results.

         Bad debt expense increased (approximately $1.2 million in fiscal 1999
compared to $0.3 million in fiscal 1998) primarily due to increased revenue and
information that came to the Company's attention regarding the realizability of
certain accounts receivable balances. Professional and consulting expenses
increased $1.7 million due to settlement of certain outstanding litigation and
related legal fees and additional costs incurred for accounting and consulting
due to the material weakness identified by the Company's independent public
accountants.

         The balance of the increase in Selling, General and Administrative
expenses primarily relates to increased expenditures to expand the corporate
infrastructure to support the numerous acquisitions completed in fiscal 1999 and
1998. This was the primary factor for the increase in selling, general and
administrative payroll, taxes and benefits which increased $3.5 million in
fiscal 1999 as compared to 1998.

         Amortization Expense. Amortization expense was $2.3 million in fiscal
1999 compared to $1.0 million in fiscal 1998, an increase of $1.3 million, or
130%. The increase was the result of the additional charges to amortization for
the fiscal 1999 acquisitions and a full year's charge for fiscal 1998
acquisitions.

         Interest Expense. Interest expense increased by $0.3 million to $1.0
million for fiscal 1999 from fiscal 1998, principally as a result of the
increase in the Company's level of outstanding debt obligations to an average of
$10.4 million from $6.1 million for fiscal 1999 and 1998, respectively,
partially offset by the decrease in the Company's effective borrowing rate to
7.9% for fiscal 1999 from 13.2% for fiscal 1998.

         Income Taxes. Income tax expense decreased to $0.8 million for fiscal
1999 from $3.5 million for fiscal 1998. Despite recording a pre-tax book loss
for fiscal 1999, a net tax expense of $0.8 million was incurred. This expense is
the tax



                                       16
<PAGE>   19


benefit for the year's loss net of a provision to provide a deferred tax
valuation allowance on net deferred tax assets where there is uncertainty of
their future realization.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's business is labor intensive. Consequently, it has
substantial needs for cash throughout its fiscal year. During fiscal 2000, the
Company's cash requirements were heightened by its increased payroll and
professional and consulting costs. Operating activities used net cash of
approximately $8.0 million, investing activities used net cash of $3.1 million
primarily related to the two acquisitions completed in early fiscal 2000 and
financing activities generated net cash of $11.2 million during fiscal 2000.

         During fiscal 2000, principal uses of funds, in addition to working
capital requirements, included expenditures associated with the Company's
acquisitions. These included $4.0 million in acquisitions of service contracts,
related goodwill and non-compete agreements, $1.5 million of net working capital
acquired and $0.3 million for related property and equipment. In addition, the
Company used funds amounting to $0.8 million related to additions to property
and equipment. The Company financed its investing and operating activities with
borrowings under its credit facility and proceeds from the sale of assets and
the sale of MCS which it had acquired in May 1999.

         As a result of the net loss incurred in fiscal 1999 and fiscal 2000,
the Company was not in compliance with several covenants under its credit
facility. Those covenants included maintenance of a specified minimum
shareholders' equity, debt service coverage ratio, and a specified minimum
earnings before interest, taxes, depreciation and amortization level. The
lenders granted the Company waivers for all non-compliant loan covenants as of
March 31, 1999, in addition to granting waivers for the non-compliance with loan
covenants through April 1, 2000. On August 27, 1999, the lender agreed to modify
the credit facility. The modifications included an extension to the maturity
date of the facility to April 1, 2000, a $5.0 million reduction in the maximum
available borrowings under the credit facility to $25.0 million, and a $3.0
million reduction in the annual capital asset acquisition allowance to $1.0
million.

         Subsequent to year end, management secured, from its lenders, certain
amendments to its existing credit facility. Among them are an extension of the
term to April 1, 2001 with a reduction of the interest rate to be charged on
borrowings to Prime plus 0.75%, if the loan is repaid by December 31, 2000. The
amended agreement also includes an increase to the percentage advance rate of
eligible receivables as well as more relaxed financial covenants. The financial
covenants include certain net worth covenants, a minimum debt coverage ratio,
and standard financial reporting requirements. As of June 15, 2000 the Company
was in compliance with all covenants and the outstanding obligation under this
facility was $22.1 million.

         In consideration for the amendment and extension of the credit facility
the Company granted the banks warrants for the purchase of 300,000 shares of the
Company's Common Stock at an exercise price of $1.41, which the Board determined
was the fair market value of the Company's Common Stock as of the date of the
grant. The warrants expire on March 31, 2007. As part of the transaction, the
banks were granted a "put" option commencing April 1, 2001 which would, if
exercised, require the Company to purchase all the warrants at $1.00 per
warrant, and the Company retained a "call" option commencing immediately at an
initial price of $4.50 per warrant. The call price increases by $1.00 per
warrant per year commencing April 1, 2001.

         The Company anticipates negative cash flow from operations for at least
the first half of fiscal 2001, but believes that the Company will generate
positive cash flow from operations in the second half of fiscal 2001 when the
benefits of programs to improve the margins and expense reductions are expected
to start to be realized. Although there can be no assurance, the Company
believes that amounts available under its credit facility combined with the
receipt of an income tax refund of $3.0 million in May 2000 will be sufficient
to meet its cash requirements, including monthly debt service, until operations
begin to generate positive cash flow. The Company will seek to refinance its
outstanding borrowings under the credit facility on or prior to December 31,
2000, but there can be no assurance as to the Company's ability to obtain a
replacement credit facility or otherwise refinance its debt or obtain equity
financing.



                                       17
<PAGE>   20


         As previously discussed, the Company's lack of external financing
sources will limit its ability to grow by acquisitions and cause it to rely on
net cash generated by operations to pay expenses and existing liabilities. Such
limitations may have an adverse impact on the Company's liquidity and results of
operations.

EURO CONVERSION

         On January 1, 1999, 11 of the 15 countries that are members of the
European Union introduced a new currency unit called the "Euro," which will
ultimately replace the national currencies of these 11 countries. The conversion
rates between the Euro and the participating nations' currencies were fixed
irrevocably as of January 1, 1999, with the participating national currencies
being removed from circulation between January 1, 2002 and June 30, 2002, and
replaced by Euro notes and coinage. During the "transition period" from January
1, 1999 through December 31, 2001, public and private entities as well as
individuals may pay for goods and services using either checks, drafts or wire
transfers denominated in Euro or the participating country's national currency.

         Under the regulations governing the transition to a single currency,
there is a "no compulsion, no prohibition" rule, which states that no one is
obligated to use the Euro until the notes and coinage have been introduced on
January 1, 2002. In keeping with this rule, as of January 1, 1999, the Company
is now also able to (i) receive Euro-denominated payments, (ii) invoice in Euro
as requested by vendors and suppliers and (iii) perform appropriate conversion
and rounding calculations. Full conversion of all affected country operations to
the Euro is expected to be completed by the time national currencies are removed
from circulation. The cost of software and business process conversion required
to achieve such abilities is not expected to be material.

         The Company does not anticipate that the introduction and use of the
Euro will materially affect the Company's foreign exchange, or will have a
material adverse effect on operating results or cash flows due to the
immateriality of European operations to the Company's financial statements.
However, the ultimate effect of the Euro on competition due to foreign currency
risk cannot yet be determined and may have an adverse effect, on the Company's
operations, financial position or cash flows. Conversely, introduction of the
Euro may also have positive effects, such as lower foreign currency risk.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (as amended by SFAS No. 137).
SFAS No. 133 must first be applied in the first quarter of fiscal years that
begin after June 15, 2000 (the first quarter of fiscal 2002 for the Company) and
in general requires that entities recognize all derivative financial instruments
as assets or liabilities, measured at fair value, and include in earnings the
changes in the fair value of such assets and liabilities in either operations or
comprehensive income (loss). The Company does not presently utilize derivative
instruments, either for hedging or other purposes, and therefore it is expected
that the adoption of the requirements of SFAS No. 133 will not have a material
effect on its financial statements.


                                       18
<PAGE>   21


FORWARD LOOKING STATEMENTS

         In addition to discussing and analyzing the Company's recent historical
financial results and condition, the preceding management's discussion and
analysis of financial condition and results of operations includes statements
regarding certain trends or of other forward-looking information concerning the
Company's anticipated revenues, costs, financial resources or otherwise
affecting or relating to the Company which are intended to qualify for the
protections afforded "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. The forward-looking statements made herein and
elsewhere in this Form 10-K are inherently subject to risks and uncertainties,
which could cause the Company's actual results or other future events pertaining
to the Company to differ materially from the forward-looking statements.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

         In the ordinary course of business, the Company is subject to foreign
currency and interest rate risks. The risks primarily relate to the sale of the
Company's services to foreign customers through its foreign subsidiaries and
changes in interest rates on the Company's short-term financing.



FOREIGN CURRENCY RISK

         A portion of the Company's revenues (2.6% of total revenues for the
year ended March 31, 2000) are received, and operating costs are incurred, in
foreign currencies. The denomination of foreign subsidiaries' account balances
in their local currency exposes the Company to certain foreign exchange rate
risks which the Company believes are not material. The Company does not engage
in hedging transactions to reduce exposure to fluctuations in foreign currency
exchange rates.

         The financial results of the Company's foreign subsidiaries are
measured in their local currencies. Assets and liabilities are translated into
U.S. dollars at the rates of exchange at the end of each year and revenues and
expenses are translated at average rates of exchange during the year. Resulting
translation adjustments are reported as a component of comprehensive income
(loss).

         Historically, the Company has not experienced any significant foreign
currency gains or losses involving U.S. dollars and other currencies. This is
primarily due to natural hedges of revenues and expenses in the functional
currencies of the countries in which subsidiaries are located. Although the
Company did not have any forward foreign currency exchange contracts in place at
March 31, 2000, it does monitor its foreign currency exposure and does not
anticipate any material impact on financial statements in the near future.

INTEREST RATE RISK

         The Company maintains a revolving line of credit which subjects the
Company to the risk associated with movements in market interest rates. This
line of credit had a balance at March 31, 2000 of $22.1 million, which was at a
variable rate of interest based on prime. Since revolving payments and
borrowings are made on this line of credit on a daily basis with a variable
market interest rate, the March 31, 2000 balance of this debt is considered to
be at fair value. Based upon the Company's June 15, 2000 outstanding balance on
the variable rate credit facility, a hypothetical increase of 100 basis points
in the prime rate of interest would adversely affect future earnings and cash
flows by approximately $220,000 on an annual basis. The Company monitors its
interest rate risk, but does not engage in any hedging activities using
derivative financial instruments to mitigate such risk.

ITEM 8. Consolidated Financial Statements and Supplementary Data



                                       19
<PAGE>   22


         See Index to Consolidated Financial Statements on page F-1.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

         None.



                                       20
<PAGE>   23
                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

         A portion of the information required by this Item 10 is incorporated
by reference to the information under the heading "Executive Officers", in Part
I of this Annual Report on Form 10-K.

DIRECTORS OF THE REGISTRANT
<TABLE>
<CAPTION>


                                                                                                 DIRECTOR            TERM TO
NAME OF DIRECTOR       AGE    PRINCIPAL OCCUPATION AND OTHER INFORMATION                         SINCE               EXPIRE
----------------       ---    ------------------------------------------                         -----               ------

<S>                   <C>                                                                               <C>            <C>
John P. O'Brien       59      Co-Chairman of the Board of International Total Services, Inc.     August 1999           Next
                              since October 1999. Currently, Mr. O'Brien is Managing Director                          Annual
                              of Inglewood Associates, a firm specializing in consulting and                           Meeting
                              investing in financial turnarounds, since 1990;
                              Chairman of the Board of Allied Construction
                              Products, Inc., a majority owned subsidiary of
                              PUBCO, Inc., since 1993; and is a Director of
                              American Italian Pasta Company (NYSE:PLB) since
                              1997. From 1995 to 1999 Mr. O'Brien was Chairman
                              of the Board and Chief Executive Officer of
                              Jeffrey Mining Products LP, a distributor of
                              underground mining products. Prior to 1990, Mr.
                              O'Brien was with the public accounting firm of
                              PriceWaterhouse, LLP, most recently as the firm's
                              Southeast Regional Managing Partner.

H. Jeffrey Schwartz   45      Co-Chairman of the Board of International Total Services, Inc.     April 1999            Next
                              since October 1999. Mr. Schwartz is an attorney engaged as a                             Annual
                              partner with the law firm of Benesch, Friedlander, Coplan &                              Meeting
                              Aronoff, LLP. Mr. Schwartz has been with this firm since 1983
                              and currently heads his firm's Business Reorganization
                              Department and serves on its Executive Committee. Mr. Schwartz
                              is also a Director of Driveoff.com, Inc a full service
                              internet automobile purchasing solution, and a subsidiary of
                              Navidec Inc. (NASDAQ:NVDC)

J. Jeffrey Eakin      53      Currently Mr. Eakin is Senior Vice President and a founder of      September 1998        Next
                              Preferred Capital Inc., a general equipment finance company,                             Annual
                              since 1997. From 1994 to 1997 Mr. Eakin was a founder of and                             Meeting
                              served as Vice President and Division Credit
                              Officer for DVI Capital Company, a wholly owned
                              wholesale finance company subsidiary of DVI, Inc.
                              (NYSE:DVI) From 1992 to 1994 Mr. Eakin was
                              Director of Credit and Funding for Picker
                              Financial Group, a joint venture lease financing
                              company between Picker International and LDI
                              Corporation.
</TABLE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and owners of more than
10% of the Company's Common Shares, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Shares and other equity securities of the Company. Executive
officers, directors and owners of more than 10% of the Common Shares are
required by SEC regulations to furnish the Company with copies of all forms they
file pursuant to Section 16(a). To the Company's knowledge, based solely on its
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended March 31, 2000, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater-than-10% beneficial owners were
complied with.





                                       21
<PAGE>   24


ITEM 11. Executive Compensation

SUMMARY COMPENSATION TABLE

         The following table sets forth a summary of the compensation earned for
services rendered by the Company's Chief Executive Officer, three other most
highly compensated executive officers who were serving as an executive officer
of the registrant at March 31, 2000 and any other individual that would have
been among the three most highly compensated executives but for the fact that
the individual was not serving as an Executive Officer at the end of the last
completed fiscal year for the fiscal years ended March 31, 2000, 1999 and 1998
("Named Executive Officers").
<TABLE>
<CAPTION>

                                                                    ANNUAL COMPENSATION (2)
                                                                    -----------------------

NAME AND                                                  FISCAL            SALARY                              OTHER
PRINCIPAL POSITION                                       YEAR (1)             ($)         BONUS ($)        COMPENSATION ($)

<S>                                                         <C>             <C>              <C>               <C>
Mark D. Thompson (4).............................            2000             50,000               --           140,625(4)
President and Chief .............................            1999                 --               --                --
Executive Officer................................            1998                 --               --                --

Robert A. Weitzel (5)............................            2000            270,833               --           550,000(5)
Former Chairman and Chief........................            1999            300,000          100,000
Executive Officer................................            1998            309,288          211,025             1,897(3)

Charles P. Licata ...............................            2000            108,332               --                (7)
President .......................................            1999             23,754               --                --
Commercial Security Staffing Services............            1998                 --               --                --

Thomas M. Vaiden (6).............................            2000            108,333               --                --
President .......................................            1999                 --               --                --
Aviation Staffing Services.......................            1998                 --               --                --

Charles S. Deutchman.............................            2000                 --               --           344,658(7 & 8)
Vice President - Finance and ....................            1999                 --               --                --
Chief Financial Officer..........................            1998                 --               --                --
</TABLE>


(1)      The Company's fiscal year ends on March 31, and its fiscal years are
         identified by reference to the calendar year in which they end. Amounts
         shown include compensation earned or awarded for each fiscal year.

(2)      No named executive officer received perquisites or other personal
         benefits in excess of the lesser of $50,000 or 10% of that individual's
         salary plus annual bonus.

(3)      Represents amounts contributed by the Company to the Company's 401(k)
         Plan as matching contributions relating to before-tax contributions
         made by that individual.

(4)      Mr. Mark D. Thompson joined the Company in October 1999. Other
         compensation includes $87,500 paid to Mr Thompson as consulting fees
         prior to becoming an employee of the Company. In addition, Mr. Thompson
         received an award of 175,000 shares of Common Stock on January 13,
         2000, 75,000 of which vested immediately with the remaining 100,000
         shares vesting over a four year period or upon the achievement of
         specified average share prices over 10-day trading periods. In January
         2000, 10,000 of the 100,000 shares vested. Other compensation includes
         $53,125 related to the value of the 85,000 shares of Common Stock that
         vested in fiscal 2000. The value of this award was determined by
         multiplying the number of shares subject to this grant by the estimated
         fair market value of the shares on the vesting date. The value of this
         award at the end of fiscal 2000 was $280,000 based on the March 31,
         2000 price of $1.60 per share. (See "Employment Agreement")



                                       22
<PAGE>   25

(5)      Mr. Robert A. Weitzel joined the Company in September 1978, and
         resigned in October 1999. Mr. Weitzel was under a two-year employment
         contract, which would have expired on December 31, 2000. The Company
         and Mr. Weitzel came to an agreement on his resignation, effective
         October 19, 1999. See "ITEM 1 BUSINESS - Other Developments. Other
         compensation reflects payments made related to Mr. Weitzel's retirement
         and consulting agreement.

(6)      Mr. Vaiden joined the Company in June 1999 and resigned in June 2000.

(7)      Mr. Licata and Mr. Deutchman were granted Common Stock options of
         25,000 and 100,000 shares, respectively, during fiscal 2000 at exercise
         price based on the fair market value on the grant date. The exercise
         price for Mr. Licata is $0.625 per share and $0.9375 per share for
         Mr. Deutchman.

(8)      Mr. Deutchman served as the Company's Vice President-Finance and Chief
         Financial Officer from October 15, 1999 until February 29, 2000. Mr.
         Deutchman was employed as an independent contractor and received
         $182,158 in fees and $162,500 as a lump severance payment upon the
         termination of his contract.


OPTIONS
<TABLE>
<CAPTION>

                        OPTION GRANTS IN FISCAL YEAR 2000
                                INDIVIDUAL GRANTS
                                -----------------

                                                                                                POTENTIAL REALIZABLE
                                            PERCENTAGE OF                                       VALUE AT ASSUMED
                                            TOTAL OPTIONS                                       ANNUAL RATES OF STOCK
                                             GRANTED TO                                         PRICE APPRECIATION FOR
                              OPTIONS       EMPLOYEES IN    EXERCISE                             OPTION TERM(4)
                             GRANTED (#)      FISCAL         PRICE         EXPIRATION         ------------------------
         NAME                    (1)           YEAR(2)    ($/SHARE)(3)        DATE            5%($)            10%($)
         ----                    ---           -------    ------------        ----            -----            ------

<S>                            <C>             <C>            <C>           <C>              <C>              <C>
Charles P. Licata........      25,000          12.5%          0.625          1/13/2010         9,800            24,975

Charles S. Deutchman (5).     100,000            50%         0.9375         10/15/2009        58,950           149,350
</TABLE>


(1)      Options are fully vested.

(2)      Based on 200,000 options granted to all employees during fiscal year
         2000.

(3)      Options were granted at the fair market value of the Common Stock on
         the day of the grant.

(4)      These amounts are based on hypothetical appreciation rates of 5% and
         10%, as required by the Securities and Exchange Commission and are not
         intended to forecast the actual future appreciation of the Common
         Stock. No gain to optionees is possible without an actual increase in
         the price of the Common Stock, which would benefit all of the Company's
         shareholders. All calculations are based on a ten-year option period.

(5)      Mr. Deutchman left the Company on February 29, 2000, however his
         options will not lapse until October 2009.




                                       23

<PAGE>   26

<TABLE>
<CAPTION>

                   AGGREGATED OPTION EXERCISES IN FISCAL 2000
                        AND FISCAL YEAR-END OPTION VALUES

                                                                                       NUMBER OF              VALUE OF
                                                                                      UNEXERCISED            UNEXERCISED
                                                                                      OPTIONS AT            IN-THE-MONEY
                                                                                  FISCAL YEAR-END (1)     OPTIONS AT FISCAL
                                                SHARES               VALUE                (#)              YEAR-END ($)(2)
                                              ACQUIRED ON          REALIZED          EXERCISABLE/           EXERCISABLE/
         NAME                                EXERCISE (#)             ($)            UNEXERCISABLE          UNEXERCISABLE
         ----                                ------------             ---            -------------          -------------

<S>                                                  <C>              <C>             <C>                    <C>
Charles P. Licata..................                   --               --              25,000/-0-            24,375/-0-
Charles S. Deutchman...............                   --               --             100,000/-0-            66,250/-0-
</TABLE>

(1)      Mr. Licata's exercise price is $0.625 per share. Mr. Deutchman's
         exercise price is $0.9375 per share.

(2)      Using the March 31, 2000 Common Stock closing price of $1.60.


         Director's Compensation. Each director who is not an employee of the
Company is compensated at the rate of $12,000 per year and also receives $1,000
for attendance at each meeting of the Board of Directors and for each meeting of
any committee. Upon joining the Board in September 1998, Mr. Eakin received an
option to purchase 5,000 shares of Common Stock at the exercise price of $5.00
per share. In addition, the Directors participate in the Non-Employee Director
Compensation Plan which provided a one-time grant of 50,000 phantom shares of
the Company's common stock to each Director, 20% of which vested at grant and
the remainder of which vests in 10% increments upon the attainment of certain
target share prices. Vesting is accelerated as a result of a change in control
of the Company and the plan provides that non-employee directors may have a
portion of their fees that would otherwise be paid to them deferred into phantom
shares.

         Employment Agreement. The Company entered into an employment agreement
(the "Thompson Agreement') effective October 28, 1999 with Mark D. Thompson
pursuant to which Mr. Thompson serves as the Company's President and Interim
Chief Executive Officer. Under the terms of the Thompson Agreement, Mr. Thompson
is employed indefinitely on a month-to-month basis, subject to termination by
the Board of Directors with at least ninety (90) days advance notice. Mr.
Thompson receives a base salary of $300,000 per year. Mr. Thompson was granted
75,000 fully vested shares of Common Stock on January 13, 2000, the date Mr.
Thompson's agreement was approved by the Board. In addition, Mr. Thompson was
granted a restricted stock award of 100,000 shares of Common Stock which vest
over a four year period or upon the achievement of specified average share
prices over 10-day trading periods, and which vesting is subject to acceleration
upon the occurrence of a change in control or termination of Mr. Thompson's
employment other than for "cause" (as defined in the Thompson Agreement).

         The Company entered into an employment agreement with Scott E. Brewer
effective September 1997 for an initial term to December 31, 1999, which was
automatically extended through December 31, 2000. Mr. Brewer's base annual
salary was $110,000 as of September 1, 1999. Mr. Brewer is also entitled to a
bonus keyed to the Company's profits, if any.

         Compensation Committee Interlocks and Insider Participation. The
members of the Compensation Committee during fiscal 2000 were H. Jeffrey
Schwartz, John P. O'Brien and J. Jeffrey Eakin. No member of the Compensation
Committee has served as an executive officer or employee of the Company or
served during fiscal 2000 as an executive officer of another entity of which any
executive officer of the Company was a director or member of the Compensation
Committee.




                                       24
<PAGE>   27



ITEM 12. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth information with respect to each person
or group known to the Company to be beneficial owners, as of June 15, 2000 of
more than 5% of the Common Stock and by all directors of the Company, the Chief
Executive Officer of the Company and the Named Executive Officers and by all
officers and directors of the Company as a group:
<TABLE>
<CAPTION>

                                                                                              NUMBER OF
                                                                                               SHARES            PERCENT
                                                                                            BENEFICIALLY        OF CLASS
NAME AND BENEFICIAL OWNER                                                                     OWNED (3)        OUTSTANDING
-------------------------                                                                     ---------        -----------

<S>                                                                                          <C>                    <C>
Robert A. Weitzel (1)...............................................................         3,324,979              48.6%
Wanger Asset Management, L.P. (4)...................................................           500,000               7.3%
Brantley Partners IV, LP (5)........................................................           417,000               6.1%
John P. O'Brien (2) ................................................................                --               *
H. Jeffrey Schwartz (2) ............................................................                --               *
J. Jeffrey Eakin  (2&3).............................................................             7,000               *
Mark D. Thompson (6)................................................................           175,000               2.6%
Terri M. Jones (3)..................................................................            26,000               *
Ronald P. Koegler (3)...............................................................            25,000               *
Michael F. Sosh (3).................................................................            25,000               *
Charles P. Licata. (3)..............................................................            25,000               *
Scott E. Brewer (3).................................................................            41,151               *
John W. Demell (3)..................................................................            25,000               *
Charles S. Deutchman (3)............................................................           100,000               1.4%
All directors, the Voting Trust, and executive officers as a group
  (12 people as a group)............................................................         3,774,131              53.2%
</TABLE>

* Less than one percent (1%).

(1)      Mr. Robert A. Weitzel resigned from the Company in October 1999. On
         November 5, 1999, Mr. Weitzel entered into a Voting Trust Agreement
         among the Company, Mr. Weitzel, H. Jeffrey Schwartz, J. Jeffrey Eakin,
         and John P. O'Brien, as Voting Trustees. Pursuant to the Voting Trust
         Agreement, Mr. Weitzel and the Weitzel Family Limited Partnership
         transferred record ownership, and thereby voting control, of 3,324,979
         shares of Common Stock to the Voting Trust. Pursuant to the Voting
         Trust, the Trustees, constituting the entire Board of Directors of the
         Company, exercise voting power with respect to Mr. Weitzel's shares
         while Mr. Weitzel exercises dispositive and investment control, subject
         to the stock retention agreement. See "ITEM 1 BUSINESS - Other
         Developments". In addition, Mr. Weitzel is contractually obligated to
         transfer the voting rights of any stock options he may exercise to this
         Voting Trust. All of Mr. Weitzel`s stock options have lapsed.

(2)      The Trustees reported beneficial ownership of 3,324,979 Common Shares
         pursuant to a Voting Trust Agreement between the Company, Trustees and
         Mr. Weitzel. Pursuant to the Voting Trust Agreement, Mr. Weitzel
         transferred record ownership, and thereby voting control, of 3,324,979
         shares of Common Stock to the Voting Trust. The Trustees reported
         shared voting power with respect to all of Mr. Weitzel's Shares. See
         "ITEM 1 BUSINESS - Other Developments".


(3)      Includes Common Stock which may be acquired within 60 days of June 15,
         2000 pursuant to the Company's September 1997 Long-Term Incentive Plan
         as follows:




                                      25

<PAGE>   28
<TABLE>

<S>                                                                                                              <C>
         J. Jeffrey Eakin.............................................................................           5,000
         Terri M. Jones...............................................................................          25,000
         Ronald P. Koegler............................................................................          25,000
         Michael F. Sosh..............................................................................          25,000
         Charles P. Licata............................................................................          25,000
         John W. Demell...............................................................................          25,000
         Scott E. Brewer..............................................................................          25,035
         Charles S. Deutchman.........................................................................         100,000

         All directors and executive officers as a group..............................................         255,035
</TABLE>

(4)      Based solely on information set forth in a Schedule 13G filed with the
         Securities and Exchange Commission on February 11, 2000; Wanger Asset
         Management, L.P. ("WAM"), Wanger Asset Management Ltd ("WAM Limited").
         and Acorn Investment Trust ("Acorn") (collectively "WAM Parties"),
         reported the beneficial ownership of 500,000 Common Shares. The
         principal business address of the WAM Parties is 227 West Monroe
         Street, Suite 3000, Chicago, Illinois 60606. The WAM Parties reported
         shared voting and dispositive power with respect to all such shares of
         Common Stock. According to the Schedule 13G, Acorn is the only person
         known to be entitled to receive all dividends from, and all proceeds
         from the sale of, shares of Common Stock to the extent of more than 5%
         of the class.

(5)      Based solely on information set forth in a Schedule 13D filed with the
         Securities and Exchange Commission on November 15, 1999. Brantley
         Capital Corporation reports beneficial ownership of 104,250 Common
         Shares. Brantley Partners IV, L.P. reports beneficial ownership of
         312,750 shares of Common Stock. Each entity disclaims beneficial
         ownership of all shares of Common Stock owned by the other entity. The
         Company is unable to determine from the Schedule 13D the exact
         relationship between the entities. The principal address listed for
         Brantley Capital Corporation and Brantley Partners IV L.P. is 20600
         Chagrin Blvd., Suite 1150, Cleveland, Ohio 44122.

(6)      Mr. Thompson was granted 75,000 fully vested shares of Common Stock
         effective January 13, 2000. In addition, Mr. Thompson was granted
         100,000 shares of restricted Common Stock which vests over a four year
         period. Mr. Thompson holds voting rights over the entire 175,000 shares
         of Common Stock.





                                       26

<PAGE>   29


ITEM 13. Certain Relationships and Related Transactions

                          See "ITEM 1 BUSINESS - Other Developments".

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) (1) and (2)           FINANCIAL STATEMENTS

                          See Index to Consolidated Financial Statements on
                          page F-1.

(a) (3)                   Exhibits - See Item 14(c).

(b)                       REPORTS ON FORM 8-K



(c) EXHIBIT NO.        REF:         DESCRIPTION
    ----------         ----         -----------

           3.1     *     Amended and Restated Articles of Incorporation.
           3.2     *     Amended and Restated Code of Regulations.
           4.1     *     Specimen Common Share Certificate.
           10.3    *     Employment Agreement between the Company and Scott E.
                         Brewer.
           10.9    *     Directors' Deferred Compensation Plan.
           10.10   *     Long-Term Incentive Plan.
           10.11   *     Third Amended and Restated Consolidated Replacement
                         Credit Facility and Security Agreement, dated as of
                         March 31, 1997, between Bank One, Cleveland, NA, and
                         the Company.
           10.12   **    First Amendment to Third Amended and Restated
                         Consolidated Replacement Credit Facility and Security
                         Agreement, dated as of October 10, 1997, between Bank
                         One, Cleveland, NA and the Company.
          10.13    **    Amended and Restated Replacement Promissory Note
                         executed by the Company in favor of Bank One, NA,
                         successor by merger to Bank One, Cleveland, NA.
          10.14    ***   Second Amendment to Third Amended and Restated
                         Consolidated Replacement Credit Facility and Security
                         Agreement, dated as of December 16, 1998, between Bank
                         One, Cleveland, NA and the Company.
          10.15    ***   Employment Agreement between the Company and Mark D.
                         Thompson.
          10.16    ***   Non-Employee Director Compensation Plan.
          10.17          Fourth amendment to Third Amended and Restated
                         Consolidated Replacement Credit Facility and Security
                         Agreement.
          10.18          Common Stock Warrant Agreement
           21.1    ***   Subsidiaries of International Total Services, Inc.
            27           Financial Data Schedule.

* Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 333-29463), as amended.
** Incorporated by reference from the Company's Form 10-K for fiscal 1998 filed
on July 14, 1998.
*** Incorporated by reference from the Company's Form 10-K for fiscal 1999 filed
on May 4, 2000.

(d)      Financial Statement Schedules

         See Index to Consolidated Financial Statements and Schedule on Page F-1


                                       27

<PAGE>   30


SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       INTERNATIONAL TOTAL SERVICES, INC.

JUNE 29, 2000                          By: /s/ MARK D. THOMPSON
-------------                              --------------------
                                             Mark D. Thompson
                                             President and Chief
                                             Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

JUNE 29, 2000                          /s/ MARK D. THOMPSON
-------------                          --------------------
                                       Mark D. Thompson
                                       President and Chief Executive
                                       Officer (Principal Executive Officer)

JUNE 29, 2000                          /s/ RONALD P. KOEGLER
-------------                          ---------------------
                                       Ronald P. Koegler
                                       Executive Vice President and
                                       Controller (Principal Accounting Officer)

JUNE 29, 2000                          /s/ MICHAEL F. SOSH
-------------                          -------------------
                                       Michael F. Sosh
                                       Executive Vice President and
                                       Treasurer (Principal Financial
                                       Officer)

JUNE 29, 2000                          /s/ JOHN P. O'BRIEN
-------------                          -------------------
                                       John P. O'Brien
                                       Director, Co-Chairman of the Board
                                       of Directors

JUNE 29, 2000                          /s/ H. JEFFREY SCHWARTZ
-------------                          -----------------------
                                       H. Jeffrey Schwartz
                                       Director, Co-Chairman of the Board
                                       of Directors

JUNE 29, 2000                          /s/ J. JEFFREY EAKIN
-------------                          --------------------
                                       J. Jeffrey Eakin
                                       Director





                                       28








<PAGE>   31
               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S>                                                                                                                  <C>

                                                                                                                    Page
                                                                                                                    ----

The following consolidated financial statements of International Total Services,
Inc. and Subsidiaries are included in Item 8:
    Report of Independent Public Accountants - For the Years Ended March 31, 2000 and 1999........................   F-2
    Report of Independent Public Accountants - For the Year Ended March 31, 1998 .................................   F-3
    Consolidated Balance Sheets as of March 31, 2000 and 1999.....................................................   F-4
    Consolidated Statements of Operations and Comprehensive Income (Loss)
        for the years ended March 31, 2000, 1999 and 1998.........................................................   F-6
    Consolidated Statements of Shareholders' Equity for the years ended March 31, 2000,
        1999 and 1998.............................................................................................   F-7
    Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999
        and 1998..................................................................................................   F-8
    Notes to Consolidated Financial Statements as of March 31, 2000, 1999 and 1998................................   F-9
    Schedule II Valuation and Qualifying Accounts.................................................................   F-23
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.





                                      F-1

<PAGE>   32


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

                   FOR THE YEARS ENDED MARCH 31, 2000 AND 1999

To the Shareholders and Board of Directors of
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES:

We have audited the accompanying consolidated balance sheets of International
Total Services, Inc. and Subsidiaries, (an Ohio corporation), as of March 31,
2000 and 1999, and the related consolidated statements of operations and
comprehensive loss, shareholders' equity, and cash flows for each of the two
years in the period ended March 31, 2000. These consolidated financial
statements and the schedule referred to below are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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 audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Total Services, Inc. and Subsidiaries as of March 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the two years in
the period ended March 31, 2000 in conformity with accounting principles
generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B, the
Company incurred losses from operations in fiscal 2000 and fiscal 1999 and has
negative tangible net worth. In addition, the Company generated negative cash
flow from operations in fiscal 2000. These matters raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

                                                 /s/ ARTHUR ANDERSEN LLP

Cleveland, Ohio,
June 23, 2000.




                                      F-2
<PAGE>   33


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                        FOR THE YEAR ENDED MARCH 31, 1998

Shareholders and Board of Directors
INTERNATIONAL TOTAL SERVICES, INC.

We have audited the accompanying consolidated statements of operations and
comprehensive income (loss), shareholders' equity, and cash flows of
International Total Services, Inc. and Subsidiaries for the year ended March 31,
1998. 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 auditing standards generally accepted
in the 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 results of operations
and the consolidated cash flows of International Total Services, Inc. and
Subsidiaries for the year ended March 31, 1998 in conformity with accounting
principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein for the year ended March 31,
1998 in relation to the basic consolidated financial statements taken as a
whole.

                                                       /S/ GRANT THORNTON LLP

Cleveland, Ohio

May 15, 1998, except for Note C as to
    which the date is April 14, 2000





                                      F-3
<PAGE>   34


               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 2000 AND 1999
                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                     2000                   1999
                                                                                     ----                   ----
                                     ASSETS

<S>                                                                                 <C>                   <C>
CURRENT ASSETS
   Cash and cash equivalents .................................................      $   792               $   672
   Accounts receivable--net of allowance for doubtful
      accounts of $474 and $513, respectively ................................       27,675                23,811
   Federal income tax refund receivable ......................................        3,020                  --
   Deferred taxes ............................................................          640                 3,033
   Uniforms, net .............................................................        1,035                 2,691
   Other current assets ......................................................        2,018                 1,422
                                                                                    -------               -------
      Total current assets ...................................................       35,180                31,629
PROPERTY AND EQUIPMENT
   Security equipment ........................................................        3,799                 4,729
   Service equipment .........................................................        2,206                 2,636
   Computer equipment ........................................................        3,256                 2,882
   Furniture and fixtures ....................................................        1,100                 1,136
   Autos .....................................................................          936                   974
   Leasehold improvements ....................................................           70                    63
                                                                                    -------               -------
                                                                                     11,367                12,420
   Less accumulated depreciation and amortization ............................        6,470                 5,773
                                                                                    -------               -------
         Property and equipment, net .........................................        4,897                 6,647
INTANGIBLES, less accumulated amortization of
   $6,254 and $3,932, respectively ...........................................       31,030                32,254
SECURITY DEPOSITS AND OTHER ..................................................          105                   104
                                                                                    -------               -------
         TOTAL ASSETS ........................................................      $71,212               $70,634
                                                                                    =======               =======
</TABLE>

         The accompanying notes are an integral part of these Consolidated
Financial Statements.





                                      F-4
<PAGE>   35


               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 2000 AND 1999
                             (AMOUNTS IN THOUSANDS)
                      LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                              2000              1999
                                                                                              ----              ----

<S>                                                                                         <C>               <C>
CURRENT LIABILITIES
   Trade accounts payable ..........................................................        $  5,466          $  1,871
   Accrued payroll and employee benefits ...........................................          16,314            17,832
   Other accrued expenses ..........................................................           8,556             8,554
   Income taxes payable ............................................................             337                54
                                                                                            --------          --------
   Total current liabilities .......................................................          30,673            28,311
DEFERRED TAXES .....................................................................             640               623
LONG-TERM DEBT OBLIGATIONS .........................................................          22,103            10,859
SHAREHOLDERS' EQUITY
   Common shares, without par value, stated at $.01 per share
      -authorized 20,000 shares, 6,837 and 6,662 shares
      issued and outstanding at March 31, 2000 and 1999, respectively ..............              68                67
   Additional paid-in capital ......................................................          31,263            31,211
   Accumulated other comprehensive loss:
   Foreign currency translation adjustment .........................................            (470)             (387)

   Retained  deficit ...............................................................         (13,065)              (50)
                                                                                            --------          --------
   Total shareholders' equity ......................................................          17,796            30,841
                                                                                            --------          --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .........................................        $ 71,212          $ 70,634
                                                                                            ========          ========

</TABLE>

              The accompanying notes are an integral part of these
Consolidated Financial Statements.




                                      F-5
<PAGE>   36
               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                              2000              1999             1998
                                                                              ----              ----             ----

<S>                                                                   <C>               <C>              <C>
Net operating revenues...........................................     $      214,640    $     226,872    $      172,367
Cost of revenues.................................................            195,371          205,224           147,311
                                                                      --------------    -------------    --------------
        GROSS MARGIN.............................................             19,269           21,648            25,056
Selling, general and administrative expenses.....................             27,734           24,650            15,015
Amortization expense.............................................              2,833            2,334               988
                                                                      --------------    -------------    --------------
        OPERATING PROFIT (LOSS)..................................            (11,298)          (5,336)            9,053
Interest expense, net............................................              1,791              994               719
Loss on disposal of assets, net..................................                876              171               (23)
                                                                      --------------    -------------    --------------
                                                                               2,667            1,165               696
                                                                      --------------    -------------    --------------
        INCOME (LOSS) BEFORE INCOME TAXES........................            (13,965)          (6,501)            8,357
Provision (Benefit) for Income taxes.............................               (950)             794             3,500
        NET INCOME (LOSS)........................................            (13,015)          (7,295)            4,857
                                                                      ==============    =============    ==============
Other comprehensive income (loss)
   Foreign currency translation adjustment.......................                (83)            (183)             (105)
                                                                      --------------    -------------    --------------
        COMPREHENSIVE INCOME (LOSS)..............................     $      (13,098)   $      (7,478)   $        4,752
                                                                      ==============    =============    ==============
Net income (loss) per share:
   Basic........................................................      $        (1.95)   $       (1.10)   $         0.93
                                                                      ==============    =============    ==============
   Diluted.......................................................     $        (1.95)   $       (1.10)   $         0.92
                                                                      ==============    =============    ==============
Weighted average number of shares outstanding:
   Basic.........................................................              6,683            6,662             5,215
                                                                      ==============    =============    ==============
   Diluted.......................................................              6,683            6,662             5,265
                                                                      ==============    =============    ==============

                   The accompanying notes are an integral part of these Consolidated Financial Statements.

</TABLE>


                                      F-6
<PAGE>   37


               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               Accumulated
                                                    Additional    Other     Retained        Total
                                         Common       Paid-in Comprehensive Earnings    Shareholders'
                                         Shares       Capital     Loss      (Deficit)      Equity

<S>                                         <C>        <C>         <C>         <C>         <C>
BALANCE AT MARCH 31, 1997 ................   $     37   $    473    $    (99)   $  2,388    $  2,799
                                             --------   --------    --------    --------    --------
   Purchase of common shares
      for treasury .......................       --         (165)       --          --          (165)
   Contribution of common shares
      by shareholder .....................       --          805        --          --           805
   Initial Public Offering--
      issuance of common shares ..........         30     29,963        --          --        29,993
   Foreign currency translation adjustment       --         --          (105)       --          (105)
   Other .................................       --          135        --          --           135
   Net income............. ...............       --         --          --         4,857       4,857
                                             --------   --------    --------    --------    --------
BALANCE AT MARCH 31, 1998 ................         67     31,211        (204)      7,245      38,319
   Foreign currency translation adjustment       --         --          (183)       --          (183)
   Net loss ..............................       --         --          --        (7,295)     (7,295)
                                             --------   --------    --------    --------    --------
BALANCE AT MARCH 31, 1999 ................         67     31,211        (387)        (50)     30,841
   Foreign currency translation adjustment       --         --           (83)       --           (83)
   Stock Compensation ....................          1         52        --          --            53
   Net loss ..............................       --         --          --       (13,015)    (13,015)
                                             --------   --------    --------    --------    --------
BALANCE AT MARCH 31, 2000 ................   $     68   $ 31,263    $   (470)   $(13,065)   $ 17,796
                                             ========   ========    ========    ========    ========

                   The accompanying notes are an integral part of these Consolidated Financial Statements.

</TABLE>

                                      F-7
<PAGE>   38


               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 2000             1999             1998
                                                                                 ----             ----             ----

<S>                                                                        <C>             <C>            <C>
OPERATING ACTIVITIES:
   Net income (loss)..................................................     $    (13,015)   $    (7,295)   $       4,857
   Adjustments to reconcile net income (loss) to
      net cash (used in)/provided by operating activities:
      Depreciation....................................................            1,543          1,240              948
      Amortization....................................................            2,833          2,334              988
      Loss on Disposal of Assets......................................              876           (104)             334
      Deferred income taxes...........................................            2,392           (837)             (73)
      Changes in working capital:
         Accounts receivable..........................................           (3,226)        (3,043)          (8,984)
         Other assets.................................................           (1,914)           307              147
         Trade accounts payable.......................................            3,741            645              (57)
         Accrued expenses.............................................           (1,257)         8,513            5,594
                                                                           ------------    -----------    -------------
           Net cash (used in)/provided by operating activities........           (8,027)         1,760            3,754
INVESTING ACTIVITIES:
   Purchases of property and equipment................................             (826)        (2,373)          (1,508)
   Proceeds received from sale of assets..............................            3,592            446               --
   Purchased property and equipment of acquired businesses............             (302)          (187)          (1,699)
   Working capital acquired, net of cash..............................           (1,471)            --               --
   Payments for acquisitions of businesses, primarily
      by purchase of service contracts................................           (4,008)        (9,510)         (19,042)
                                                                           ------------    -----------    -------------
           Net cash used in investing activities......................           (3,015)       (11,624)         (22,249)
FINANCING ACTIVITIES:
   Net proceeds from Initial Public Offering..........................               --             --           29,993
   Net borrowings (payments) on note payable to bank..................           11,245          7,177           (2,400)
   Payments on subordinated debt......................................               --             --           (3,000)
   Principal payments on long-term debt...............................               --             --           (5,439)
   Purchase of Company common shares..................................               --             --             (165)
   Other .............................................................               --             --              135
                                                                           ------------    -----------    -------------
           Net cash provided by financing activities..................           11,245          7,177           19,124
Effect of exchange rates on cash......................................              (83)          (183)            (105)
                                                                           ------------    -----------    -------------
           Net (decrease) increase in cash and cash
             equivalents..............................................              120         (2,870)             524
Cash and cash equivalents at beginning of year........................              672          3,542            3,018
                                                                           ------------    -----------    -------------
Cash and cash equivalents at end of year..............................     $        792    $       672    $       3,542
                                                                           ============    ===========    =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for:
      Interest........................................................     $      1,677    $       771    $         841
                                                                           ============    ===========    =============
      Income taxes....................................................     $        412    $     1,412    $       3,943
                                                                           ============    ===========    =============

                   The accompanying notes are an integral part of these Consolidated Financial Statements.
</TABLE>

                                      F-8
<PAGE>   39


               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          MARCH 31, 2000, 1999 AND 1998

      (TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Business

         International Total Services, Inc. and Subsidiaries (the "Company"), an
Ohio corporation, is a provider of aviation security and other aviation
services, providing personnel and management support to airlines at airports
primarily in the United States and United Kingdom. The Company also provides
commercial staffing services and security products to various businesses in the
United States.

         Fiscal Year

         The Company's fiscal year ends on March 31. All references to fiscal
years in these notes to the consolidated financial statements represent the year
in which the fiscal year ends (i.e. fiscal 2000 is the year ended March 31,
2000) unless otherwise noted.

         Principles of Consolidation

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

         Revenue Recognition

         Revenues are recognized at the time aviation and commercial security
services are provided. Revenues generated from the sales of security products
are recognized when the products have been delivered and installed.

         Commencing in the first quarter of fiscal 2000, as a result of an
acquisition (see Note E), revenues generated from the sales of security products
are recognized on the percentage of completion basis. This was the policy of the
newly acquired company which was involved in numerous long term installation
contracts. The percentage-of-completion method is based on estimates by the
project manager.

         Translation of Foreign Currencies

         All balance sheet accounts of foreign operations are translated into
U.S. dollars at the fiscal year-end rate of exchange, and statement of
operations items are translated at the weighted average exchange rate for the
fiscal year. The resulting translation adjustments are reflected in
comprehensive income (loss) and displayed as a separate component of
shareholders' equity.

         Statements of Cash Flows

         During fiscal 1998, the Company entered into the following non-cash
transaction. The Company's principal shareholder, who was also, at the time, the
Company's Chairman and Chief Executive Officer, contributed 73,101 common
shares, valued at approximately $805,000, to a former employee to settle the
Company's previously recorded liability to him. There were no such non-cash
transactions in fiscal 2000 or 1999.

                                      F-9
<PAGE>   40

         Financial Instruments

         The Company considers all highly liquid investments with original
maturities of three months or less to be cash and cash equivalents. Other
financial instruments consisting of trade and other receivables, and long-term
debt, are considered to have a fair value which approximates their carrying
value at March 31, 2000 and 1999, due to the short term duration of receivables
and the fact that the debt instruments have variable rate interest features and
a relatively short-term duration.

         Uniforms

         Uniforms consist of uniforms on hand that have not been issued to
employees and uniforms in service. Uniforms in service are recorded at cost and
amortized over an expected useful life of 18 months.

         Property and Equipment

         Property and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the respective assets, principally five or
seven years, using the straight-line method.

         Intangibles

         Intangibles consist primarily of goodwill, representing the excess
purchase price paid over the fair value of net assets acquired from the
acquisitions of various aviation service and commercial security businesses,
primarily through the assumption of security service contracts. Intangibles also
include the fair value of those service contracts acquired in the acquisitions.

         Goodwill is being amortized on a straight-line basis over the expected
life of the contracts, including anticipated renewals (generally 20 years),
based on the Company's historical retention rate, giving consideration to
additional business obtained or obtainable as a result of entering new markets
through the acquisition of existing contracts. The service contracts are being
amortized on a straight-line basis over their remaining lives, up to a maximum
of five years. Accumulated amortization of intangibles was $6.2 million and $3.9
million at March 31, 2000 and 1999, respectively. Management of the Company
regularly evaluates the recoverability of its goodwill and long-lived assets
under APB Opinion No. 17 "Intangible Assets" and Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets To Be Disposed Of." The Company uses projected undiscounted
future cash flows to determine whether the carrying amount of the asset can be
recovered over its remaining life. Based on the assessments made, management
believes that there has been no impairment of the Company's domestic goodwill
and long-lived assets. During fiscal 1999, the Company recorded a $472,000
write-down of contracts and goodwill at two of its foreign locations. See Note F
for a discussion of the foreign operations.

         Self-Insurance Reserves

         The Company is self-insured up to a stop loss of $250,000 per claim for
general liability and workers' compensation claims. An estimated provision for
claims under the self-insurance programs is recorded and revised annually based
on industry trends, historical experience and management judgment. Changes in
assumptions for such matters as legal actions, medical costs and actual
experience could cause estimates to change in the near term.

         Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and

                                      F-10
<PAGE>   41

disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Since actual results could differ from those estimates,
management revises estimates as better information becomes available.

         Accounting Standards Not Yet Adopted

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This Statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires companies to recognize all
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This Statement is effective for fiscal years
beginning after June 15, 2000. The Company will adopt this Statement on April 1,
2001, and it is expected not to have a material effect on its financial
statements.


NOTE B - GOING CONCERN

         The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
settlement of liabilities, including any commitments and/or contingent
liabilities, in the normal course of business. The Company incurred a loss from
operations for fiscal 2000 and fiscal 1999, and has negative tangible net worth.
In addition, operations generated negative cash flow for fiscal 2000. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.

         The Company's strategy is to use its established business base as a
platform for expanding services and currently will not pursue any further
acquisitions due to the unavailability of funds. It is management's intention to
seek higher overall margins by concentrating its marketing efforts on higher
margin opportunities, to formulate and implement business process improvement
initiatives, evaluate past acquisitions, improve customer services and reduce
and/or control costs with the goal of improving operating cash flow and profits.
There can be no assurance that capital will be obtained from any sources or that
this plan will be successful.

         The Company's continuation as a going concern will ultimately depend on
its ability to (i) achieve profitable operations which generate positive cash
flows and (ii) obtain new debt or equity financing. The financial statements do
not include any adjustments relating to the recoverability of assets or the
amount to settle liabilities that might be necessary should the Company be
unable to continue as a going concern.

NOTE C - RESTATEMENT

         Prior to the issuance of the fiscal 1999 financial statements,
management determined that its previously issued fiscal 1998, 1997, 1996 and
1995 financial statements and the unaudited results for the first, second and
third quarters of fiscal 1999 required restatement. This restatement is to
correct accounting that resulted from the failure of the Company to properly
consider information available at the time those financial statements were
prepared, including information that may not have been considered due to errors
and omissions in accounting or corporate records.

         The Company's restated fiscal 1998 financial statements in the fiscal
1999 10K included changes to (i) increase Workers' Compensation expense,
(ii) charge to expense vacation costs incurred but not accrued (iii) record
various liabilities relating to corporate rent (iv) adjust the income tax
provisions for the tax effects of the adjustments described above. See the
Company's Form 10K for fiscal 1999 as filed with the Securities and Exchange
Commission.

                                      F-11
<PAGE>   42

NOTE D - COMPREHENSIVE INCOME (LOSS)

         Effective April 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which requires disclosure of comprehensive income (loss).
Comprehensive income (loss) is defined as changes in shareholders' equity from
non-owner sources and for the Company, includes net income (loss) and changes in
the foreign currency translation adjustment. The adoption of this statement had
no impact on the Company's net income (loss) or shareholders' equity. Prior year
financial statements were reclassified to conform to the requirements of this
statement.

NOTE E - ACQUISITIONS

         In April, 1999, the Company acquired the commercial security contracts
and goodwill of American Investigative and Security Services, Inc. headquartered
in Houston, Texas for approximately $1.5 million in cash. The acquired contracts
cover commercial staffing services throughout Texas. The transaction was
accounted for as a purchase. The purchase price allocation resulted in goodwill
of approximately $1.5 million which is being amortized to operations on a
straight line basis over 20 years.

         In June, 1999, the Company acquired the outstanding stock of Metroplex
Control Systems, Inc. ("Metroplex") headquartered in Dallas, Texas for
approximately $5.0 million in cash. The purchase price allocation resulted in
goodwill of approximately $2.5 million which amount was charged to operations in
fiscal 2000 due to the subsequent disposition. In March 2000, the Company
completed the disposition of Metroplex in conjunction with the Company's
strategy to focus on its core businesses and reported an $800,000 loss on the
sale. During fiscal 2000, MCS generated net operating revenues of $4.0 million
and net income of $0.2 million, or $0.03 per share.

         During fiscal year 1999, the Company acquired aviation services and
commercial staffing contracts and related property and equipment from six
companies for an aggregate purchase price of approximately $9.7 million. During
the fiscal year ended March 31, 1998, the Company acquired aviation service and
commercial security contracts and related property and equipment from eleven
entities for an aggregate purchase price of approximately $23.3 million. The
acquisitions have been accounted for under the purchase method of accounting
with the purchase price allocated to the contracts based upon their estimated
fair market values. The purchase price allocation for the 1999 acquisitions
resulted in goodwill of approximately $7.4 million, which is being amortized to
operations on a straight-line basis over 20 years. The purchase price allocation
for the 1998 acquisitions resulted in goodwill of approximately $19.8 million.
The operating results related to the acquired contracts have been included in
the Company's results of operations from the respective dates of acquisition.

         The following unaudited pro forma results of operations give effect to
the above acquisitions as if the acquisitions had occurred at April 1, 1997:

                                                           Years Ended March 31
                                                           ---------------------
                                                             1999         1998
                                                             ----         ----

Net operating revenues..................................   $232,536     $232,446
Net income (loss).......................................   $ (7,030)    $  7,088
Net income (loss) per share:
   Basic................................................   $  (1.06)    $   1.36
   Diluted..............................................   $  (1.06)    $   1.35

         The pro forma results of operations have been prepared for comparative
purposes only and do not purport to present actual operating results had the
acquisitions been made at the beginning of fiscal 1998, or of results which may
occur in the future.

NOTE F - FOREIGN OPERATIONS

         During the third quarter of fiscal 2000, management decided to abandon
all operating activities, consisting of aviation services, in the Philippines
and fully reserved all the receivables associated with its Philippine
operations. Based on management's analysis of the realizabilty of the Philippine
operations receivables, the Company recorded an additional allowance for
doubtful accounts of approximately $130,000 and $247,000 at March 31, 2000 and
1999, respectively.

         In the fourth quarter of fiscal 1999, management decided to abandon all
operating activities, consisting of aviation services, in Italy and the Czech
Republic due to poor operating performance (total operating losses of
approximately $269,000). This resulted in a charge of $190,000 in fiscal 1999 to
operations to write-off all of the remaining assets, consisting primarily of
accounts receivable and other net assets associated with these entities.

                                      F-12
<PAGE>   43

         Also during fiscal 1999, the Company also decided to cease all of its
operating activities, consisting of aviation services, in Germany based on
unfavorable past performance and the insolvency of its largest customer. A
charge of $457,000 to operations was incurred in fiscal 1999 to recognize the
write-off of the related net assets, exclusive of intangibles. These assets
primarily consisted of accounts receivable and other assets. For the fiscal year
ending March 31, 1999, prior to the charges discussed above, the German
affiliate recorded a loss from operations of approximately $353,000.

         Also as a result of the customer's insolvency mentioned above, the
Company wrote off its $409,000 investment in the United Kingdom joint venture
with this customer.

         In conjunction with the above, during fiscal 1999 the Company
recognized an impairment charge of approximately $472,000; which is equal to the
value of unamortized contracts and goodwill associated with the Italian and
German entities, as all operations within these countries were ceased. This
charge is included as a component of selling, general and administrative
expenses in the accompanying statement of operations. The Company reviewed the
realizability of its contracts and related goodwill based on historical and
future profitability and concluded it does not expect to receive any future
benefit from these assets.

NOTE G - FINANCING ARRANGEMENTS

         Prior to August 27, 1999, the Company's credit facility which was
secured by substantially all accounts receivable, equipment, and other assets,
provided for borrowings under a revolving promissory note of up to $30 million
through September 30, 1999, limited to a percentage of eligible receivables. The
revolving promissory note bore interest at a variable rate based on the
Company's total debt to tangible net worth ranging from LIBOR plus 1.50% to the
bank's prime rate plus 3.00%. The Company had approximately $22.1 million and
$10.8 million outstanding under the facility at March 31, 2000 and 1999,
respectively with weighted average interest rates of 8.64% and 7.57%,
respectively. At June 15, 2000, outstanding obligations under this facility were
$22.1 million.

         The credit facility limited the Company's ability to incur additional
indebtedness and pay dividends, required the Company to maintain prescribed
debt-to-equity and fixed charge coverage ratios, minimum net worth levels, and
to satisfy certain other financial covenants. The Company was not in compliance
with certain of these covenants. Waivers were obtained for these covenant
violations as of March 31, 1999 and waivers were obtained through March 31, 2000
for those covenants which the Company did not meet through the end of fiscal
2000.

         On August 27, 1999, the lender agreed to modify the credit facility.
The modifications included a six-month extension of the maturity date to April
1, 2000, a $5.0 million reduction in the maximum available borrowings to $25.0
million, and a $3.0 million reduction in the annual capital asset acquisition
allowance to $1.0 million.

         Subsequent to year end management secured, from its lenders, certain
amendments to its existing credit facility. Among them are an extension of the
term to April 1, 2001 with a reduction of the interest rate to be charged on
borrowings to prime plus 0.75%, if the loan is repaid by December 31, 2000. The
amended agreement also includes an increase to the percentage advance rate of
eligible receivables as well as more relaxed financial covenants. The financial
covenants include certain net worth covenants and a minimum debt coverage ratio
and standard financial reporting requirements. As of June 15, 2000, the Company
was in compliance with all covenants.

         In consideration for the amendment and extension of the credit facility
the Company granted the banks warrants for the purchase of 300,000 shares of the
Company's Common Stock at an exercise price of $1.41, which the Board determined
was the fair market value of the Company's Common Stock as of the date of the
grant. The warrants expire on March 31, 2007. As part of the transaction, the
banks were granted a "put" option commencing April 1, 2001 which would, if
exercised, require the Company to purchase the warrants at $1.00 per warrant and
the Company retained a "call" option commencing immediately at an initial price
of $4.50 per warrant. The call price increases by $1.00 per warrant per year
commencing April 1, 2001.

                                      F-13
<PAGE>   44

         Guarantee of Debt

         On July 7, 1999, the Company entered into a First Demand Guarantee with
a German bank to guarantee overdrafts of the German operations up to 500,000
Deutsche Marks (approximately $270,000 at that date). In February 2000 the
Company received notice for a claim amounting to approximately $122,000 related
to this guarantee.

NOTE H - LEASE OBLIGATIONS

         The Company leases certain equipment and facilities under operating
leases that expire at various dates. The future minimum lease commitments under
these operating leases are as follows:

         Years Ended March 31,

         2001................................................    $    1,196
         2002................................................           780
         2003................................................           460
         2004................................................           232
         2005................................................           105
         Thereafter..........................................           161
                                                                 ----------
         Total Future Minimum Lease Commitments..............    $    2,934
                                                                 ==========

         Rent expense incurred under operating leases was $3.8 million, $3.3
million and $2.2 million for the years ended March 31, 2000, 1999 and 1998,
respectively.

NOTE I - LITIGATION

         The Company is subject to on-going legal proceedings and claims which
arise in the ordinary course of its business. While the ultimate outcome of
these matters cannot be reasonably estimated at this time, these actions, when
ultimately settled or adjudicated, will not, in the opinion of management, have
a material adverse effect on the financial condition or results of operations of
the Company. The Company has accrued for matters where management has determined
that it is probable a liability for which a loss or range of loss can be
reasonably estimated has been incurred. The Company does not believe that the
ultimate outcome of these proceedings will have a material adverse effect on the
Company's business, assets, financial condition or results of operations,
however, in the event any of the foregoing litigation results in an award of
money damages against the Company, given the Company's liquidity situation, any
award could adversely affect the financial condition of the Company.

NOTE J - RELATED PARTY TRANSACTIONS

         The Company had notes receivable due from the Company's principal
shareholder, approximately $325,000, which were fully repaid in September 1997.
Interest income on shareholder notes amounted to $14,000 in the year ended March
31, 1998. See discussions of other Related Party Transactions in Notes A and O.

NOTE K - SELF INSURANCE RESERVE

         The Company carries insurance for workers' compensation and general
liability matters. The Company self insures all employees except for those in
states that require coverage under the state's workers' compensation funds. The
insurance coverages have deductibles of $250,000 per occurrence. Under the terms
of the insurance agreement, the Company has outstanding letters of credit in the
amount of $838,000 at March 31, 2000. These letters of credit serve as
collateral for any claims incurred but not reported.

         The Company has an accrued liability for unpaid workers' compensation
claims and claims incurred but not reported (IBNR) and premiums due of
approximately $2.5 million and $3.8 million at March 31, 2000 and 1999,
respectively which is

                                      F-14
<PAGE>   45

included in accrued payroll and employee benefits in the accompanying
consolidated balance sheets. The Company has an accrued liability for litigation
matters that have arisen in the normal operation of the Company of approximately
$1.4 million and $1.5 million, respectively at March 31, 2000 and 1999, which is
included in other accrued expenses in the accompanying consolidated balance
sheets.

NOTE L - OTHER ACCRUED EXPENSES

         Other accrued expenses includes the following at March 31:

<TABLE>
<CAPTION>
                                                                                                    2000        1999
                                                                                                    ----        ----

<S>                                                                                              <C>          <C>
Legal and professional (including litigation reserve)........................................    $   1,638    $   1,856
FAA fines and aircraft damages...............................................................        1,760        1,329
Other accrued accounts individually below $1.5 million.......................................        5,158        5,369
                                                                                                 ---------    ---------
        Total other accrued expenses.........................................................    $   8,556    $   8,554
                                                                                                 =========    =========
</TABLE>

NOTE M - INCOME TAXES

         The components of income (loss) before income taxes and provision for
income taxes consist of the following:

<TABLE>
<CAPTION>
                                                                                        YEARS ENDED MARCH 31,
                                                                                        ---------------------
                                                                                   2000           1999              1998
                                                                                   ----           ----              ----
<S>                                                                        <C>              <C>               <C>
INCOME (LOSS) BEFORE INCOME TAXES
   Domestic............................................................    $     (14,359)   $     (4,718)     $    7,914
   Foreign.............................................................              394          (1,783)            443
                                                                           -------------    ------------      ----------
         Total.........................................................    $     (13,965)   $     (6,501)     $    8,357
                                                                           =============    ============      ==========
PROVISION FOR INCOME TAXES
CURRENT TAX (BENEFIT)/EXPENSE:
   Federal.............................................................    $      (3,437)   $      1,270      $    2,650
   State ..............................................................              100             145             700
   Foreign.............................................................              (24)            215             223
                                                                           -------------    ------------      ----------
Total current..........................................................           (3,361)          1,630           3,573
DEFERRED TAX EXPENSE (BENEFIT):
   Federal.............................................................             (228)         (2,187)            (78)
   State ..............................................................             (200)           (366)              5
                                                                           -------------    ------------      ----------
      Total deferred...................................................             (428)         (2,553)            (73)
                                                                           -------------    ------------      ----------
      Total provision before valuation allowance
         on net deferred tax assets....................................           (3,789)           (923)          3,500
      Valuation allowance on net deferred tax assets...................            2,839           1,717               -
                                                                           -------------    ------------      ----------
Total (benefit)/provision for income taxes.............................    $        (950)   $        794      $    3,500
                                                                           =============    ============      ==========
</TABLE>

         As a result of the taxable loss incurred in the year ended March 31,
2000, the Company was able to carry back a significant portion of these losses
to prior years to obtain a refund of taxes paid. The Company recorded a
receivable of $3.0 million as of March 31, 2000 related to the carry back of
these losses. The income tax refund was received in May 2000.

                                      F-15
<PAGE>   46

         A reconciliation of the provision for income taxes computed at the
United States federal statutory tax rate to the Company's effective tax rate is
as follows:

<TABLE>
<CAPTION>
                                                                                       Years Ended March 31,
                                                                                       ---------------------
                                                                             2000                 1999             1998
                                                                             ----                 ----             ----

<S>                                 <C>                                <C>               <C>              <C>
Tax at U.S. federal income tax rate (34%)..........................    $     (4,748)     $     (2,210)    $      2,841
Valuation allowance................................................           2,839             1,717               --
State income taxes--net of U.S. federal tax benefit................            (134)              195              452
Difference between foreign and U.S. federal tax rates..............            (158)              101               72
Nondeductible items................................................             427               718               57
Other--net.........................................................             824               273               78
                                                                       -------------     -------------    -------------
                                                                       $       (950)     $        794    $       3,500
                                                                       =============     =============    =============
Effective tax rates................................................            (6.8%)           (12.2%)           41.9%
                                                                       =============     =============    =============
</TABLE>

         The Company does not provide deferred income taxes on unremitted
earnings of foreign subsidiaries, as such funds are deemed indefinitely
reinvested in those operations.

         Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and for income tax purposes. Significant components of deferred tax
assets and liabilities relate to the following at March 31:

<TABLE>
<CAPTION>
                                                                                                  2000            1999
                                                                                                  ----            ----
DEFERRED TAX ASSETS:

<S>                                                                                        <C>               <C>
   Accrued workers' compensation........................................................   $        1,149    $     1,538
   Accrued legal expenses...............................................................              562            904
   Deferred compensation................................................................               81             81
   Amortization of intangibles..........................................................              211            101
   Allowance for doubtful accounts......................................................              382            235
   State income taxes...................................................................               86             --
   Net Operating Loss carry forward.....................................................              249             --
   Other accruals not currently deductible..............................................            1,537            928
   Other ...............................................................................              939            963
                                                                                           --------------    -----------
   Total Deferred Tax Asset.............................................................            5,196          4,750
                                                                                           --------------    -----------
DEFERRED TAX LIABILITIES:
   Depreciation.........................................................................              627            610
   Other ...............................................................................               13             13
                                                                                           --------------    -----------
   Total Deferred Tax Liabilities.......................................................              640            623
                                                                                           --------------    -----------
   Net Deferred Tax Asset before Valuation Allowance....................................            4,556          4,127
      Less: Valuation Allowance ........................................................           (4,556)        (1,717)
                                                                                           --------------    -----------
      Net Deferred Tax Assets...........................................................   $           --    $     2,410
                                                                                           ==============    ===========
</TABLE>

         The Company periodically reviews the need for a valuation allowance
against certain deferred tax assets and recognizes these assets to the extent
that realization is more likely than not. Based upon a review of earnings
history, taxes paid, and projected tax losses for fiscal 2001, the Company
provided a valuation allowance of $2.8 million and $1.7 million in fiscal 2000
and 1999, respectively. The valuation allowance was provided primarily against
the net deferred tax assets relating to significant accruals for which
utilization is uncertain, since the Company is unable to determine, at this
time, that the generation of future taxable income can be predicted to be more
likely than not. The net change in the valuation allowance was $2.8 million and
$1.7 million for the years ended March 31, 2000 and 1999, respectively. There
was no change in the reserve for the year ended March 31, 1998. At March 31,
2000, the Company has an estimated net operating loss carry forward for tax
purposes of approximately $0.6 million which expires if not utilized prior to
fiscal 2007.

                                      F-16
<PAGE>   47

         The net deferred tax assets are classified in the balance sheet as
follows at March 31:

<TABLE>
<CAPTION>
                                                                                                 2000              1999
                                                                                                 ----              ----

<S>                                                                                        <C>             <C>
Current deferred income taxes........................................................      $       640     $      3,033
Noncurrent deferred income taxes.....................................................             (640)            (623)
                                                                                           -----------     ------------
   Net deferred tax assets...........................................................      $        --     $      2,410
                                                                                           ===========     ============
</TABLE>

NOTE N - INITIAL PUBLIC OFFERING

         On September 24, 1997, the Company completed a public offering of
3,021,477 shares of its Common Stock and received net proceeds of approximately
$30 million. The Company used the proceeds from the Initial Offering to repay
indebtedness and for general corporate purposes, including working capital, and
mostly to fund acquisitions.

NOTE O - CAPITAL STOCK

         The Company has authorized Common Stock at March 31, 2000 of 20,000,000
shares. The Common Stock has one vote per share.

         Delisting of Common Shares

         On July 1, 1999, the Company was informed by the Nasdaq Stock Market
that trading of the Company's Common Stock on that market would be halted
pending the receipt and review of additional information in accordance with
Marketplace Rules of the Nasdaq Stock Market. The primary cause for the halt was
the Company's failure to timely file the Company's Form 10-K for the fiscal
year ended March 31, 1999, which was originally due on or before July 1, 1999.
On September 15, 1999, after an oral hearing on September 9, 1999, the Company's
Common Stock was delisted from the Nasdaq Stock Market. On October 26, 1999
price quotes for the Company's Common Stock began appearing in the Electronic
Quotation System of the National Quotation Bureau LLC. Although the Company
filed its annual report on Form 10K for the fiscal year ended March 31, 1999,
as of June 15, 2000 the Company does not meet the requirements necessary to
regain listing on the Nasdaq Stock Market.

         Change in Control

         On October 19, 1999, Robert A. Weitzel ("Weitzel") resigned as the
chairman, chief executive officer and director of the Company and entered into
certain additional arrangements. As of November 1, 1999, Weitzel entered into a
retirement and consulting agreement (the "Retirement and Consulting Agreement")
with the Company. This agreement required the Company to pay Weitzel $300,000 on
November 1, 1999 and $200,000 on January 3, 2000, and provide certain other
standard employment benefits through September 30, 2001. In addition, the
Company will pay Weitzel an aggregate of $500,000 under a 20 month consulting
agreement which began February 1, 2000. The Company is obligated to pay Weitzel
the $500,000 consulting fee whether or not any services are performed. The
Retirement and Consulting Agreement also provided that Weitzel enter into a
voting trust agreement (the "Voting Trust Agreement") among the Company,
Weitzel, and H. Jeffrey Schwartz, J. Jeffrey Eakin and John P. O'Brien, as
voting trustees (the "Trustees"), and a stock restriction agreement between
Weitzel and the Company (the "Stock Restriction Agreement"). The three Trustees
constitute the entire Board of Directors of the Company as of June 15, 2000.
Pursuant to the Voting Trust Agreement, Weitzel transferred record ownership,
and thereby voting control, of 3,324,979 shares of the Company's Common Stock,
representing approximately 48.6% of the issued and outstanding shares of the
Company's Common Stock, held by Weitzel individually and by The Weitzel Family
Limited Partnership to the voting trust (the "Voting Trust") created by the
Voting Trust Agreement. Pursuant to the Voting Trust Agreement, a voting trust
certificate was issued and delivered to Weitzel.

                                      F-17
<PAGE>   48

         The Voting Trust Agreement provides that all shares of the Company's
Common Stock transferred to the Trust are held in trust until the earlier of
September 30, 2001 or a payment default by the Company under certain provisions
of the Retirement and Consulting Agreement. Pursuant to the Voting Trust
Agreement, the Trustees exercise voting power with respect to the shares of the
Company's Common Stock held in the Voting Trust, by the action of a majority of
the Voting Trustees. In addition, any transfer of the voting trust certificate
is only permitted in accordance with the Stock Restriction Agreement.

         Pursuant to the Stock Restriction Agreement, other than transfers to
his spouse, children, or grandchildren, or entities of which those people are
the beneficiaries or hold controlling interests, Weitzel is not permitted to
transfer shares of the Company's Common Stock, or voting trust certificates,
without first offering those shares on identical terms to the Company, and the
Company has a specified period of time during which it may exercise its option
to purchase those shares

NOTE P - NET INCOME (LOSS) PER SHARE

         Net income (loss) per share--basic is based on the weighted average
number of shares outstanding during each period.

         Net income (loss) per share--diluted gives effect to the net additional
shares that would have been issued had all dilutive stock options been
exercised. The Company had no other potentially dilutive common share
obligations outstanding.

         For purposes of calculating the basic and diluted net income (loss) per
share, no adjustments have been made to net income (loss). The share amounts
used for the years ended March 31 are as follows: (in thousands)

<TABLE>
<CAPTION>
                                                                                     2000          1999            1998
                                                                                     ----          ----            ----

<S>                                                                                 <C>            <C>            <C>
Basic common shares (weighted average)......................................        6,683          6,662          5,215
Dilutive stock options......................................................            -              -             50
                                                                                   ------         ------          ------
Diluted common shares.......................................................        6,683          6,662          5,265
                                                                                   ======         ======          ======
</TABLE>

There were no dilutive stock options outstanding at March 31, 2000 and 1999.

NOTE Q - LONG-TERM INCENTIVE PLAN

         In September 1997, the Company adopted the Long-Term Incentive Plan
(the "Plan") for its officers and directors. The Company accounts for the Plan
under APB Opinion No. 25 and related interpretations. The Plan allows the
Company to grant options to officers and directors for up to 500,000 common
shares. Options currently outstanding become exercisable one to five years from
the grant date and expire 10 years after the grant date. The options are
exercisable at the market price of the Company's common shares on the date of
grant. Accordingly, no compensation cost has been recognized for the Plan. Had
compensation cost for the Plan been determined based on the fair value of the
options at the grant date consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income (loss) and
earnings (loss) per share for the years ended March 31, 2000, 1999 and 1998
would have been reduced (increased) to the proforma amounts indicated below.

<TABLE>
<CAPTION>
                                                                                              Years Ended March 31,
                                                                                          -----------------------------
                                                                                          2000         1999        1998
                                                                                          ----         ----        ----
<S>                                                                                   <C>           <C>        <C>
NET INCOME (LOSS)
      As reported .............................................................       $ (13,015)    $  (7,295)   $ 4,857
      Proforma .................................................................      $ (12,840)    $  (7,636)   $ 4,561
NET INCOME (LOSS) PER SHARE--BASIC
      As reported ..............................................................      $   (1.95)    $   (1.10)   $  0.93
      Proforma .................................................................      $   (1.92)    $   (1.15)   $  0.87
</TABLE>

                                      F-18
<PAGE>   49

<TABLE>
<S>                                                                                   <C>           <C>        <C>
NET INCOME (LOSS) PER SHARE--DILUTED
      As  reported .............................................................      $    (1.95)   $   (1.10) $  0.92
      Proforma .................................................................      $    (1.92)   $   (1.15) $  0.87
</TABLE>

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted-
average assumptions: expected volatility of 40% to 45%; and risk-free interest
rate of 6.24% to 6.54%; and expected lives of 8 to 10 years. The effect of
applying SFAS 123 for the pro forma disclosures are not representative of the
effect expected on reported net income (loss) per share in future years, since
the valuations are based on highly subjective assumptions about the future,
including stock price volatility and exercise patterns.

         A summary of the status of the Company's plan as of and for the years
ended March 31 are as follows:

<TABLE>
<CAPTION>
                                                        2000                       1999                    1998
                                                        ----                       ----                    ----

                                                               Weighted                  Weighted               Weighted
                                                                 Ave.                      Ave.                   Ave.
                                                               Exercise                  Exercise               Exercise
                                                                 Price                     Price                  Price
                                                  Shares       per share     Shares      per share    Shares    per share
                                                  ------       ---------     ------      ---------    ------    ---------

<S>                                               <C>           <C>         <C>           <C>        <C>         <C>
Options outstanding at beginning of year             247        $  9.17         265       $ 11.25         -      $     -
                                                  ------        -------     -------       -------    ------      -------
Granted                                              200           0.78          97          5.95       265        11.25
Forfeited                                           (158)          7.95        (115)        11.25         -            -
                                                  ------        -------     -------       -------    ------      -------
Options outstanding at end of year                   289        $  3.88         247       $  9.17       265      $ 11.25
                                                  ======        =======     =======       =======    ======      =======
Options exercisable at end of year                   238                         38                       -
                                                  ======                    =======                  ======

Weighted average fair value of options
     Granted during the year                      $ 0.44                    $ 13.78                  $ 7.43
                                                  ======                    =======                  ======

Weighted average remaining contractual
     Life (Years)                                   9.30                       8.78                    9.49
                                                  ======                    =======                  ======
</TABLE>

         On September 18, 1998, the Company reset the price of 16,690 stock
options to $11.25 per share. There were no options exercised during fiscal 2000,
1999 or 1998. The exercise prices of outstanding options on March 31, 2000 range
from $0.625 to $11.25.

         The outstanding options expire at various dates through the year 2010.
As of March 31, 2000 the following stock options were outstanding, 100,000 stock
options with an exercise price of $0.625 per share, 100,000 stock options with
an exercise price of $0.9375, approximately 83,000 stock options with an
exercise price of $11.25 per share and 5,000 stock options with an exercise
price of $5.00 per share. As of March 31, 2000 there were approximately 238,000
options exercisable at a weighted average exercise price of $2.33 per share.

         In Fiscal 2000, the Company granted 75,000 fully vested shares of
Common Stock and 100,000 shares of restricted shares of Common Stock which vests
over a four year period or upon the achievement of specified share prices over
10-day trading periods. The shares were granted in connection with an employment
contract for an executive officer of the Company. In fiscal 2000, the Company
recorded compensation expense of approximately $53,000 related to the fully
vested share award and 10,000 shares of the 100,000 restricted share award which
vested in fiscal 2000. The expense was recorded based on the per share value at
the grant date of $0.625.



                                      F-19
<PAGE>   50


NOTE R - DEFINED CONTRIBUTION PLANS

         The Company and its subsidiaries have a defined contribution (401k)
plan for substantially all employees. Employees may contribute up to 15% of
their pay. Currently, the Company contributes, in cash, amounts equal to 5% of
the employee's contributions, up to the first 8% of the employee's pay. The
employee vests in the Company match over a five year period on a pro rata basis.
The amount expensed for the Company's matching contribution to the plan was
$34,000 and $95,000 in fiscal 2000 and 1999, respectively.

NOTE S - REPORTABLE SEGMENTS

         In 1999, the Company adopted SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" This statement requires companies to
identify segments consistent with the manner in which management makes decisions
about allocating resources to segments and measuring their performance. It also
requires disclosures of products and services, geographic areas and major
customers. The following disclosures have been made in accordance with this new
statement.

         The Company has three segments: Aviation Staffing Services, Commercial
Security Staffing Services, and Security Products Distribution. The aviation
services offered by the Company include skycap, baggage handling, aircraft
appearance, wheelchair and electric cart operations. The Company's commercial
staffing services extend beyond aviation security, and include the provision of
uniformed security officers, facility access control, security consulting,
special event security and security assessment to a broad range of clients. The
Security Products Distribution segment offers a line of security products
including airport and commercial security checkpoint products and hand-held
metal detectors.

         The Company's reportable segments are strategic business units that
offer different products and services to different markets. Aviation services is
treated as a separate business because of its unique marketing focus and the
specialized needs of its customer base, the airline industry. Commercial
staffing services is treated as a separate business due to its focus on security
services and its wide range of clients. Security Products is treated as a
separate business because it markets tangible security goods.

         The accounting policies of the segments are the same as those described
in the summary of significant accounting policies (see Note A).

         The following table provides selected information about the Company's
three business units. The Company makes operating decisions based on segment
revenues, costs of operating revenues, gross margins, and net income. It does
not make operating decisions based on the level of assets held by a segment.

                             SEGMENT DISCLOSURE DATA

<TABLE>
<CAPTION>
                                                                          Commercial
                                                            Aviation       Security          Security
                                                            Staffing       Staffing          Products
For the Year Ended March 31, 2000                           Services       Services        Distribution         Totals
---------------------------------                           --------       --------        ------------         ------
<S>                                                      <C>              <C>            <C>               <C>
Net operating revenues ..............................    $     158,603    $   47,406     $       8,631     $    214,640
Cost of revenues.....................................    $     149,636    $   39,268     $       6,467     $    195,371
Gross margin ........................................    $       8,967    $    8,138     $       2,164     $     19,269
Net (loss)...........................................    $      (9,703)   $   (2,777)    $        (535)    $    (13,015)

For the Year Ended March 31, 1999
---------------------------------
Net operating revenues...............................    $     171,726    $   50,849     $       4,297     $    226,872
Cost of revenues.....................................    $     158,558    $   43,282     $       3,384     $    205,224
Gross margin ........................................    $      13,168    $    7,567     $         913     $     21,648
Net income (loss)....................................    $      (6,005)   $   (1,484)    $         194     $     (7,295)
</TABLE>


                                      F-20
<PAGE>   51



<TABLE>
<CAPTION>
For the Year Ended March 31, 1998
---------------------------------
<S>                                                      <C>              <C>            <C>               <C>
Net operating revenues...............................    $     148,082    $   20,688     $       3,597     $    172,367
Cost of revenues.....................................    $     127,856    $   16,681     $       2,774     $    147,311
Gross margin.........................................    $      20,226    $    4,007     $         823     $     25,056
Net income ..........................................    $       4,458    $      169     $         230     $      4,857
</TABLE>

                      DISCLOSURE OF GEOGRAPHIC INFORMATION

          NET OPERATING REVENUES FOR THE YEAR ENDED MARCH 31, 2000 AND
                            ASSETS AT MARCH 31, 2000

<TABLE>
<CAPTION>
                                                                        Revenues             Assets
                                                                        --------             ------

<S>                                                                   <C>               <C>
United States...................................................      $     208,978     $        70,450
Other Countries.................................................              5,662                 762
                                                                      -------------     ---------------
Total...........................................................      $     214,640     $        71,212
                                                                      =============     ===============
</TABLE>


          NET OPERATING REVENUES FOR THE YEAR ENDED MARCH 31, 1999 AND
                            ASSETS AT MARCH 31, 1999

<TABLE>
<CAPTION>
                                                                       Revenues                  Assets
                                                                       --------                  ------

<S>                                                                   <C>                    <C>
United States...................................................      $     218,889          $      70,010
Other Countries.................................................              7,983                    624
                                                                      -------------          -------------
Total...........................................................      $     226,872          $      70,634
                                                                      =============          =============
</TABLE>

          NET OPERATING REVENUES FOR THE YEAR ENDED MARCH 31, 1998 AND
                            ASSETS AT MARCH 31, 1998

<TABLE>
<CAPTION>
                                                                         Revenues                Assets
                                                                         --------                ------

<S>                                                                   <C>                    <C>
United States...................................................      $     166,996          $      60,135
Other Countries.................................................              5,371                  1,496
                                                                      -------------          -------------
Total...........................................................      $     172,367          $      61,631
                                                                      =============          =============
</TABLE>

Disclosure About Major Customers

         Revenues from the Company's largest customer were approximately 22.8%,
26.0% and 25.6% of net operating revenues for the years ended March 31, 2000,
1999 and 1998, respectively. Accounts receivable from this customer were 19.9%
and 32.7% of net accounts receivable at March 31, 2000 and 1999, respectively.

         Services provided to another major customer represented approximately
12.2%, 11.7% and 14.8% of net operating revenues for the years ended March 31,
2000, 1999 and 1998 respectively. Accounts receivable from this customer were
1.1% and 2.4% of net accounts receivable at March 31, 2000 and 1999,
respectively.

         Furthermore, five airline customers, including the two noted above,
accounted for approximately 46.4%, 48% and 54% of net operating revenues for the
years ended March 31, 2000, 1999 and 1998, respectively, and accounted for 34.5%
and 42.6% of net accounts receivable at March 31, 2000 and 1999, respectively.



                                      F-21
<PAGE>   52



NOTE T - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

         The following is a summary of the unaudited quarterly results of
operations for the years ended March 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                           June 30        September 30      December 31      March 31
                                                           -------        ------------      -----------      --------
         FISCAL 2000

<S>                                                    <C>                <C>              <C>             <C>
Net operating revenues ............................    $       55,805     $     55,609     $     52,805    $     50,421
                                                       ==============     ============     ============    ============
Gross margin.......................................    $        5,363     $      6,284     $      5,515    $      2,107
                                                       ==============     ============     ============    ============
Net (loss).........................................    $       (1,634)    $     (1,228)    $     (3,897)   $     (6,256)
                                                       ==============     ============     ============    ============
Net (loss) per share:
       Basic.......................................    $        (0.25)    $      (0.18)    $      (0.58)   $      (0.94)
                                                       ==============     ============     ============    ============
       Diluted.....................................    $        (0.25)    $      (0.18)    $      (0.58)   $      (0.94)
                                                       ==============     ============     ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                           June 30        September 30      December 31      March 31
                                                           -------        ------------      -----------      --------
         FISCAL 1999

<S>                                                    <C>                <C>              <C>             <C>
Net operating revenues.............................    $       56,121     $     58,407     $     58,858    $     53,486
                                                       ==============     ============     ============    ============
Gross margin.......................................    $        5,833     $      6,299     $      6,452    $      3,064
                                                       ==============     ============     ============    ============
Net income/(loss) .................................    $          106     $        163     $        214    $     (7,778)
                                                       ==============     ============     ============    ============
Net income/(loss) per share
   Basic...........................................    $         0.02     $       0.02     $       0.03    $      (1.17)
                                                       ==============     ============     ============    ============
   Diluted.........................................    $         0.02     $       0.02     $       0.03    $      (1.17)
                                                       ==============     ============     ============    ============
</TABLE>

                                      F-22
<PAGE>   53


                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

               INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES

                FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
            Column A                                   Column B      Column C                     Column D         Column E
            --------                                   --------      --------                     --------         --------

                                                      Balance at     Additions                                    Balance At
                                                       Beginning    Charged to:                                     End of
           Description                                 of Period     Expenses         Other      Deductions         Period
           -----------                                 ---------     --------         -----      ----------         ------

Year Ended March 31, 2000
-------------------------
<S>                                                     <C>           <C>               <C>      <C>                <C>
Self Insurance Reserve........................          $5,335        $6,490            -        $7,990 (a)         $3,835
Reserve for FAA Fines and Aircraft Damage.....           1,329         1,426            -           995 (b)          1,760
Allowance for Doubtful Accounts...............             513           989            -         1,028 (c)            474

Year Ended March 31, 1999
-------------------------
Self Insurance Reserve........................          $2,996        $5,402            -        $3,063 (a)         $5,335
Reserve for FAA Fines and Aircraft Damage.....             512         1,821            -         1,004 (b)          1,329
Allowance for Doubtful Accounts...............             100         1,248            -           835 (c)            513

Year Ended March 31, 1998
-------------------------
Self Insurance Reserve........................          $1,556        $4,723            -        $3,283 (a)         $2,996
Reserve for FAA Fines and Aircraft Damage.....             397         1,280            -         1,165 (b)            512
Allowance for Doubtful Accounts...............             100           319            -           319 (c)            100
</TABLE>

(a)       Cash payments of insurance premiums and claims.
(b)       Cash payments made for fines and reduction of claims.
(c)       Trade receivables written off.




                                      F-23