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


                                    FORM 20-F/A


[ ]  REGISTRATION  STATEMENT  PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

       OR

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


                         COMMISSION FILE NUMBER 0-28542
                                ----------------


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

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

                                 The Netherlands
                 (Jurisdiction of incorporation or organization)

               Biesbosch 225, 1181 JC Amstelveen, The Netherlands
                    (Address of principal executive offices)

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

Title of each Class: Name of each exchange on which registered:

          None                               None


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

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

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


                                      None
                                 Title of Class



<PAGE>

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital or common stock as of December 31, 2003: 6,672,980

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES [X]           NO [  ]

Indicate by check mark which financial statement item the registrant has elected
to follow.

Item 17 [ ]       Item 18 [X]



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



<PAGE>


                     Table of Contents


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

     Part II
     Item 13         Defaults, Dividend Arrearages and Delinquencies
     Item 14         Material Modifications to the Rights of Security Holders
                      and the Use of Proceed
     Item 15         Controls and Procedures

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

     Exhibits
     Exhibit 8       Subsidiaries (included herein)
     Exhibit 10.1    Consolidated Financial Statements (included herein)
     Exhibit 10.2    Certification by the Registrant's Chief Executive Officer
                       pursuant to 18 U.S.C.
                     Section 1350, as adopted pursuant to Section 906 of the
                      Sarbanes-Oxley Act of 2002 (included herein)
     Exhibit 10.3    Certification by the Registrant's Chief Financial Officer
                      pursuant to 18 U.S.C.
                     Section 1350, as adopted pursuant to Section 906 of the
                      Sarbanes-Oxley Act of 2002 (included herein)







<PAGE>
                                                       PART I

Item 1.  Identity of Directors, Senior Management and Advisers
                                 Not Applicable

Item 2.  Offer Statistics and Expected Timetable
                                 Not Applicable

Item 3.  Key information.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                        ICTS INTERNATIONAL N.V.
                                                      CONSOLIDATED BALANCE SHEETS
                                                (US $ in thousands, except share data)
                                                                                          December 31,
                                                                                       2003          2002
                                       A s s e t s
         CURRENT ASSETS:
             Cash and cash equivalents (note 2c)                                         $7,660       $32,465
             Restricted cash and short term investments (note 3)                          3,114        13,083
             Accounts receivable - trade                                                 13,798        15,628
             Short-term loan to a related party (note 19c)                                              3,738
             Prepaid expenses                                                             1,323         1,108
             Deferred income taxes (note 16b)                                               385         5,409
             Other current assets                                                         4,583         1,804
                                                                                        _______       _______
                    T o t a l  current assets                                            30,863        73,235
                                                                                        _______       _______
         INVESTMENTS:
             Investments in associated companies (note 5)                                 5,308         9,919
             Other investments (note 6)                                                  16,287         9,558
             Deferred income taxes (note 16)                                                 33            28
                                                                                        ________        ______
                                                                                         21,628        19,505
         PROPERTY AND EQUIPMENT (note 7):
             Cost                                                                        30,629        32,408
             Less - accumulated depreciation and amortization                             6,666         2,991
                                                                                        _______       _______
                                                                                         23,963        29,417
                                                                                        _______       _______
         GOODWILL (note 8)                                                                  314         1,167
                                                                                        _______       _______
          OTHER ASSETS , net of
             accumulated amortization (note 9)                                            7,732        2,120
                                                                                        _______       _______
                    T o t a l  assets                                                   $84,500      $125,444
                                                                                        _______       _______

<PAGE>
                                                                                                December 31,
                                                                                             2003          2002
                             Liabilities and shareholders' equity
       CURRENT LIABILITIES:
           Short-term bank credit (note 10)                                                   $4,387        $8,651
           Current maturities of long-term liabilities (note 12)                               2,752         2,097
           Accounts payable - trade                                                              964           975
           Liabilities for losses of associated companies (note 5)                             2,130
           Accrued expenses and other liabilities (note 11)                                   17,865        46,585
                                                                                             _______       _______
                  Total  current liabilities                                                  28,098        58,308
                                                                                             _______       _______
       LONG-TERM LIABILITIES:
           Accrued severance pay (note 13)                                                        90            78
           Deferred income taxes (note 16b)                                                       19
           Long-term liabilities, net of current maturities (note 12)                          9,332         5,680
                                                                                             _______       _______
                  T o t a l  long-term liabilities                                             9,441         5,758
                                                                                             _______       _______
       COMMITMENTS AND CONTINGENT
           LIABILITIES (note 14)
                                                                                             _______       _______
                  T o t a l  liabilities                                                      37,539        64,066
                                                                                             _______       _______
       SHAREHOLDERS' EQUITY:
          Share capital - shares of common stock, par value 0.45 Euro,
              December 31, 2003 and 2002:
              Authorized - 17,000,000 shares; issued and outstanding -
              6,672,980 shares.                                                                3,605         3,605
           Additional paid-in capital                                                         19,670        19,670
           Retained earnings                                                                  30,612        49,516
           Accumulated other comprehensive loss                                               (5,947)      (10,434)
                                                                                             _______       _______
                                                                                              47,940        62,357

       Treasury stock at cost - December 31, 2003 and 2002-159,880 shares                       (979)         (979)
                                                                                             _______       _______
                  Total  shareholders' equity                                                 46,961        61,378
                                                                                             _______       _______
                  Total  liabilities and shareholders' equity                                $84,500      $125,444
                                                                                             _______       _______
</TABLE>
<PAGE>
Selected Financial Data

The following table summarizes certain statement of operations data for ICTS for
the years ended December 31, 2001, 2002 and 2003:
<TABLE>
<CAPTION>
<S>                                                                                                         <C>
                                                                                        Year ended December 31,
                                                                                   2003           2002          2001

REVENUES                                                                             $71,571      $279,931      $212,137
COST OF REVENUES                                                                      57,562       214,054       189,925
                                                                                     -------       -------       -------
GROSS PROFIT                                                                          14,009        65,877        22,212
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                           9,216        25,636        19,461
IMPAIRMENT OF ASSETS AND GOODWILL                                                     14,352         9,156
CONTRACT SETTLEMENT EXPENSES                                                           5,266
                                                                                     -------       -------       -------
OPERATING INCOME (LOSS)                                                              (9,559)        31,085         2,751
INTEREST INCOME                                                                        2,248         2,072         1,649
INTEREST EXPENSE                                                                     (1,222)       (1,678)       (1,637)
EXCHANGE DIFFERENCES                                                                   (242)         2,356         1,965
OTHER INCOME (EXPENSES), net                                                           (353)        41,229        29,520
                                                                                     -------       -------       -------
INCOME (LOSS) BEFORE TAXES ON INCOME                                                 (9,128)        75,064        34,248
TAXES ON INCOME                                                                        3,115        16,442         4,919
                                                                                     -------       -------       -------
INCOME (LOSS) FROM OPERATIONS OF THE COMPANY
AND ITS SUBSIDIARIES                                                                (12,243)        58,622        29,329
SHARE IN LOSSES OF ASSOCIATED
    COMPANIES - net                                                                  (6,661)       (1,807)         (395)
MINORITY INTERESTS IN PROFITS OF
    SUBSIDIARIES - net                                                                                           (2,736)
                                                                                     -------       -------       -------
NET INCOME (LOSS) FOR THE YEAR                                                     $(18,904)       $56,815       $26,198
                                                                                     -------       -------       -------
OTHER COMPREHENSIVE INCOME (LOSS):
    Translation adjustments                                                            3,456           710       (1,811)
    Unrealized gains (losses) on marketable securities                                   794           731         (345)
    Reclassification adjustment for losses for available for sale
        securities included in net income                                                237         (771)           368
                                                                                     -------       -------       -------
                                                                                       4,487           670       (1,788)
                                                                                     -------       -------       -------
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE
YEAR                                                                               $(14,417)       $57,485       $24,410
                                                                                     =======       =======       =======
EARNINGS (LOSSES) PER SHARE:
    Basic                                                                            $(2.90)         $8.85         $4.18
                                                                                     =======       =======       =======
    Diluted                                                                          $(2.90)         $8.80         $4.09
                                                                                     =======       =======       =======
</TABLE>
<PAGE>
         Risk Factors.

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

         Developments that have had a significant impact on our operations.

         Two major events in 2001 and early 2002 significantly changed our
business operations: (i) the sale of substantially all of our European
operations and (ii) the passage of the Aviation and Transportation Security Act
(the "Security Act") by the United States Congress in response to the terrorist
attacks on September 11, 2001 pursuant to which the Federal government through
the Transportation Security Administration (the "TSA) took over aviation
security services in the U.S. in November 2002. As a result of these events, we
have limited aviation security operations in Europe and in the U.S. We
previously derived most of our revenues from the provision of aviation security
services and we have developed substantial experience and expertise in that
field. If we are unable to increase revenues from aviation security services,
our financial condition and results of operations will be adversely affected.

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

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

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

                  The Company estimates that if the TSA will claim such
difference from Huntleigh and will prevail in all of its contentions, and none
of Huntleigh's claims will be recognized, then the Company may suffer a net loss
in an amount of about $27 Million. The Company's above estimate assumes, that
under USA tax rules it will able to carry-back the losses (if any) that will
result from the above claims of the TSA. No provisions have been made by the
Company with respect to the above potential claims.

                  Claim for Loss of Business

                  The Security Act provides that all aviation security services
in the U.S. will be handled by the federal government through the TSA. As a
result of the passage of the Security Act the TSA took over aviation security in
the U.S. For the year ended December 31, 2002, the TSA accounted for 73% of our
revenues and for the year ended December 31, 2003 the TSA accounted for -0-% of
our revenues. Our failure to be able to meet the TSA's requirements or to secure
contracts from the TSA will have a material adverse affect on our business.

                  Huntleigh's main business was providing airport security
services to airlines and airports as a result of the creation of the TSA and the
requirement that the TSA take over airport security Huntleigh has lost its
principal business. Huntleigh has commenced legal action against the U.S.

<PAGE>
Government for the "Taking"of its business and to protect its rights under the
Fifth Amendment of the U.S. Constitution. Huntleigh seeks to recover the going
concern value of the lost business. The suit was brought in the U.S. Court of
Claim and is in the early stages. There can be no assurance as to the ultimate
outcome of such claim and whether or not Huntleigh will be successful in
prosecuting the same.

                  We face significant potential liability claims.

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

                  We are dependent on our key personnel.

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

                  We will be dependent on major customers.

                  If our relationship with our major customers is impaired, then
there may be a material adverse affect on our results of operations and
financial condition. Our major customers consist of the major airlines servicing
the United States. If such airlines encounter financial difficulty this may have
a material adverse impact on our business.

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

                  Under our new business strategy we intend to develop
technological solutions and systems for the aviation security industry, develop
or acquire security activities other than aviation security, invest in security
related and non-security related businesses, such as entertainment projects and
seek other revenue producing businesses and business opportunities.

                   We cannot assure you that we will be able to develop new
systems or develop systems that are commercially viable. Our success in
developing and marketing our systems will also depend on our ability to adapt to
rapid technology changes in the industry and to integrate such changes into our
systems.

                  We cannot assure you that we will be successful in our
attempts to change or implement our business strategy. We may not have the
expertise to be successful in developing our business in areas that are not
related to the security industry. Our failure to change our business strategy or
implement it successfully will have a material adverse affect on our financial
condition and results of operations.

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

                  Competition in the aviation security industry as well as in
the non-security related aviation services industry is intense. Many of our
competitors have greater financial, technical and marketing resources. We expect

<PAGE>
that our competitors will develop and market alternative systems and
technologies that may have greater functionality or be more cost effective than
the services we provide or the systems that we may develop. If our competitors
develop such systems we may not be able to successfully market our systems. Even
if we are able to develop systems with greater functionality which are more cost
effective than those developed by our competitors, we may not be able to achieve
market acceptance of our systems because our competitors have greater financial
and marketing resources.

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

                  The Security Act has had a significant negative impact on our
aviation security business. In addition, our ability to successfully market new
systems will be dependent upon government regulations over which we have no
control. Any existing or new regulation may cause us to incur increased expenses
or impose substantial liability upon us. The likelihood of such new legislation
is difficult to predict.

The  markets  for  our  products  and  services  may be  adversely  affected  by
legislation designed to protect privacy rights.

                  From time to time, personal identity data bases and
technologies utilizing such data bases have been the focus of organizations and
individuals seeking to curtail or eliminate the use of personal identity
information technologies on the grounds that personal information and these
technologies may be used to diminish personal privacy rights. In the event that
such initiatives result in restrictive legislation, the market for our products
may be adversely affected.

                  Our operations are dependent upon obtaining required licenses.

                  A license to operate is required from the airport authority in
the airports in which we currently operate. Our licenses are usually issued for
a period of 12 months and are renewable. The loss of, or failure to obtain, a
license to operate in one or more of such airports could result in the loss of
or the inability to compete for contracts in the airports in which we have
licenses.

                  Our contracts with airports or airlines may be canceled.

                  Our services are typically provided pursuant to contracts,
which are cancelable on short notice at any time, with or without cause. We
cannot assure you that an existing client will decide not to terminate us or
fail to renew a contract. Any such termination or failure to renew a contract
with us could have a material adverse effect on our results of operations or
financial condition.

                  Our financial condition is subject to currency risk.

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

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

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

<PAGE>
                  Certain shareholders own approximately 59% of our shares;
their interests could conflict with yours; significant sales of shares held by
them could have a negative effect on our stock price.

                  Mr. Menachem Atzmon, a director of the Company, as a
representative of the Atzmon Family Trust and The Estate of Ezra Harel,
collectively own or control 59% of our issued and outstanding common stock. As a
result of their ownership, and or control, the Atzmon Family Trust and the
Estate of Ezra Harel are able to significantly influence all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration may also have the effect
of delaying or preventing a change in control. In addition, sales of significant
amounts of shares controled by the Atzmon Family Trust or held by the Estate of
Ezra Harel or the prospect of these sales, could adversely affect the market
price of our common stock.

                  We cannot assure you that we will continue to pay dividends.

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

                  We are subject to the laws of the Netherlands.

                  As a Netherlands "Naamloze Vennootschap" (N.V.) public limited
company, we are subject to certain requirements not generally applicable to
corporations organized under the laws of jurisdictions within the United States.
Among other things, the authority to issue shares is vested in the general
meeting of shareholders, except to the extent such authority to issue shares has
been delegated by the shareholders or by the Articles of Association to another
corporate body for a period not exceeding five years. The issuance of the common
shares is generally subject to shareholder preemptive rights, except to the
extent that such preemptive rights have been excluded or limited by the general
meeting of shareholders (subject to a qualified majority of two-thirds of the
votes if less than 50% of the outstanding share capital is present or
represented) or by the corporate body designated to do so by the general meeting
of shareholders or the Articles of Association. Such a designation may only take
place if such corporate body has also been designated to issue shares.

          In this regard, the general meeting of shareholders has authorized our
Supervisory Board to issue any authorized and unissued shares at any time up to
five years from June 26, 2001 the date of such authorization and has authorized
the Supervisory Board to exclude or limit shareholder preemptive rights with
respect to any issuance of common shares prior to such date. Such authorizations
may be renewed by the general meeting of shareholders from time to time, for up
to five years at a time. This authorization would also permit the issuance of
shares in an acquisition, provided that shareholder approval is required in
connection with a statutory merger (except that, in certain limited
circumstances, the board of directors of a surviving company may resolve to
legally merge the company). Shareholders do not have preemptive rights with
respect to shares which are issued against payment other than in cash.

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

<PAGE>
misrepresented or not disclosed to the shareholders. An individual member of the
Supervisory Board or the Management Board who can prove that he is not at fault
for such an omission or misrepresentation would not be liable.

         A U.S. judgment may not be enforceable in The Netherlands.

         A significant number of our assets are located outside the United
States. In addition, members of the Management and Supervisory Boards [and
certain experts named herein are residents of countries other than the United
States ]. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against such
persons judgments of courts of the United States predicated upon civil
liabilities under the United States federal securities laws.

          There is no treaty between the United States and The Netherlands for
the mutual recognition and enforcement of judgments (other than arbitration
awards) in civil and commercial matters. Therefore, a final judgment for the
payment of money rendered by any federal or state court in the United States
based on civil liability, whether or not predicated solely upon the federal
securities laws, would not be directly enforceable in The Netherlands. In order
to enforce any United States judgment obtained against us, proceedings must be
initiated before a court of competent jurisdiction in The Netherlands. A court
in The Netherlands will, under current practice, normally issue a judgment
incorporating the judgment rendered by the United States court if it finds that
(i) the United States court had jurisdiction over the original proceeding, (ii)
the judgment was obtained in compliance with principles of due process, (iii)
the judgment is final and conclusive and (iv) the judgment does not contravene
the public policy or public order of The Netherlands. We cannot assure you that
that United States investors will be able to enforce any judgments in civil and
commercial matters, including judgments under the federal securities laws
against us or members of the Management or Supervisory Board [or certain experts
named herein] who are residents of The Netherlands or countries other than the
United States. In addition, a court in The Netherlands might not impose civil
liability on us or on the members of the Management or Supervisory Boards in an
original action predicated solely upon the federal securities laws of the United
States brought in a court of competent jurisdiction in The Netherlands.

          Item 4. Information on the Company

          History and Development of the Company.

Unless the context indicates  otherwise,  all references herein to the "Company"
include ICTS  International  N.V.  ("ICTS" or the "Company"),  its  consolidated
subsidiaries,  Demco Consultants, Ltd. ("Demco"), an Israeli affiliate, Procheck
International  B.V. ("PI", an affiliate in The Netherlands) and Ramasso Holdings
B.V.  ("Ramasso",  an  affiliate in The  Netherlands)  and  Huntleigh  USA Corp.
("Huntleigh").

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

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

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

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

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

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

          On December 23, 2003 the Company through wholly owned subsidiaries
purchased from ITA International Tourist Attractions, Ltd., ("ITA") certain
assets owned by ITA and used by it in the development, establishment and
operation of motion-based entertainment theaters. The assets purchased consist
primarily of intangible property and certain equipment. ITA is a company in
which a principal shareholder of the Company owned in the aggregate in excess of
50% of the shares. The purchase price for the assets purchased was
$5,429,151.00. The purchase price was paid by set-off against certain debts owed
by ITA to the Company, cash and notes. As a part of the transaction, certain
agreements made between the Company and ITA in 2001 were terminated, with the
result that the Company is no longer committed to involve ITA in its existing
and future entertainment projects. Prior to entering into the transaction the
Company obtained a fairness opinion as to the fairness of the consideration and
the transaction to the Company.

          Shortly after the Baltimore facility was opened and based on its
performances, the Company's management revaluated these two investments and
determined that the forecasted cash flows from these projects will not cover the
investments thereof, including amounts required to complete the development of
the facility in Atlantic City estimated as of December 31, 2003 in an amount of
$5 million. Based on the fair value using discounted cash flows model, the
Company had recognized an impairment loss of $2,002 in respect of its investment
in Baltimore, and wrote off of its investment in Atlantic City an amount of
$5,511.

          The Company currently operates a fully owned motion-based
entertainment theater in Baltimore, MD and is establishing a new fully-owned
multi-experience motion-based entertainment theater in Atlantic City, NJ
scheduled to open by mid-2004. The Company is also a partner in a movie-based
entertainment facility in Niagara Falls, NY.

          Business Overview

                  General

                  ICTS had specialized until 2002 in the provision of aviation
security services. Following the sale of its European operations in 2002 and the
taking of its aviation security business in the United States by the TSA in
2002, ICTS engages primarily in non-security related activities. These

<PAGE>
activities consist of non-security aviation security services, operation of
entertainment related projects and the development of technological services. In
addition, ICTS provides non-security related aviation services and develops
technological systems and solutions for the security market. ICTS also engages
in certain other activities, including constructing and developing entertainment
related projects.

                  Business Strategy

                  ICTS is currently pursuing the following business strategy.

                  Developing Security Related Technology.

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

                  Developing Entertainment Projects.

                  ICTS is developing entertainment projects know as "Time
Elevators". Time Elevators are educational tourist attractions which combine
motion based platforms with synchronized movies and sound effects. ICTS has
opened a Time Elevator project in Baltimore, Maryland and Niagara Falls, New
York in 2003 and in Atlantic City, New Jersey in 2004.

                  Aviation Security Operations in The Netherlands.

                  ICTS is engaged in aviation security operations in The
Netherlands. In 2002 ICTS increased its stake in its Dutch affiliate, ProCheck
International to 100%. ICTS also formed a partnership with ICTS Europe through
which it further expanded its aviation security operations in The Netherlands.
ICTS Europe was sold by ICTS in 2002 to an unaffiliated third party.

                  U.S. Operations.

                  ICTS continues to provide limited security services and
                  non-security aviation services in
the U.S.

                  Other Investments.

                  ICTS is making investments in companies and properties which
management believes have long term benefits. It is anticipated that such
investments will be in diverse industries and instruments.

                  Services

                  Services Offered in Europe. Prior to the sale of its European
operations, ICTS primarily provided aviation security services, operated airport
checkpoints, verified travel documents, provided baggage reconciliation
services, operated electronic equipment, such as x-ray screening devices, and
operated manual devices. Following the sale, ICTS primarily provides advanced
passenger screening services in The Netherlands and Russia.

                  Services Offered in the United States. Prior to the enactment
of the Security Act, Huntleigh was one of the leading providers of non-security
aviation services in the United States. Immediately following the enactment of
the Security Act, but prior to the TSA taking over aviation security services in
the United States, in November 2002, Huntleigh experienced a substantial
increase in its aviation security services.
<PAGE>
                  Huntleigh currently provides limited aviation security
services and nine other separate services at approximately 37 airports in 29
states which were not affected by the enactment of the Security Act. Each of the
non-aviation security services involves one of the following specific job
classifications:

                  Agent Services.

Agent services include: Passenger Service, Baggage Service, Priority Parcel, and
Cargo.  Although an agent is a Huntleigh employee,  the employee is considered a
representative of specific airlines.
                  Guard Services.

                  Guard services involve guarding secured areas, including
aircraft.

                  Janitorial Services.

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

                  Maintenance.

                  Huntleigh provides workers to maintain equipment in one
airport.

                  Aircraft Search.

                  Search of entire aircraft of international flights to detect
dangerous objects.

                  Ramp Services.

                  Ramp services include:

                  . directing aircraft into the arrival gate and from the
                  departure gate . cleaning the aircraft . conducting cabin
                  searches . stocking supplies . de-icing the aircraft and .
                  moving luggage from one airplane to another.

                  Shuttle Service. Huntleigh shuttles airline crews from their
hotels to the aircraft in one airport.

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

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

<PAGE>
                  Wheelchair attendants. Wheelchair attendants transport
passengers through the airport in airline and/or Company owned wheelchairs.
Working closely with the attendants are dispatch agents who monitor requests and
assignments for wheelchairs and dispatch the attendants as needed.

          Aviation Security Services

                  ICTS provides pre-departure screening services at airports in
The Netherlands and Russia. Prior to the enactment of the Security Act,
Huntleigh provided such services in the U.S. Such services are designed to
prevent or deter the carriage of any explosive, incendiary device, weapon or
other dangerous objects into the sterile area of an airport concourse and aboard
the aircraft. In 2002 Huntleigh provided such services in the United States
exclusively to the TSA.

                  Technological Systems and Solutions

                  The accumulated know-how and expertise of ICTS in the
implementation of processors for advanced passanger screening enabled ICTS to
develop its APS technology and system. The APS system is an automated
computerized system that enables the pre-departure analysis of passenger
information and is designed to screen airline passengers in a faster and more
efficient manner. The APS system is currently being operated by ICTS under
contract for services provided by ICTS Europe, an unaffiliated third party, to
major United States airlines on flights from Europe to the United States.

                  New Technology Initiatives.

                  IP@SS. ICTS launched in 2003 a trial phase of its IP@SS
project. IP@SS consists of a computerized platform integrating various
technologies, including document readers, biometrics identification systems and
a smart-card. The system is modular and may be used on a stand alone basis or
integrated into an existing check-in system. The system has been designed to
protect passenger privacy. The system is designed to speed up and simplify the
processes of identification and security checks of passengers at airports. The
system enhances customer service provided by airlines and airports to outbound
passengers.

                  The project is being developed by ICTS and is performed in
cooperation with various partners. The pilot program is being tested at Schiphol
Airport in Amsterdam, The Netherlands and at Newark Liberty International
Airport, and is planned to be expanded in the near term to other European
airports as well as other North American airports.

                  TravelDoc

                  ICTS has designed and developed the TravelDoc system for
airlines to quickly scan travel documents, to verify their accuracy and
authenticity and to ensure that they fulfill the requirements of the country of
destination. The TravelDoc system utilizes a full page scanner, a small computer
and an operator screen or can be installed on an existing workstation to meet
immigration requirements and reduce fines imposed on the carrier.

                  APIS

                  ICTS has designed and developed a system to assist airlines to
meet the requirements of the U.S. Customs Advance Passenger Information System
Program. The Security Act requires that all international carriers transmit data
to U.S. Customs about passengers and crew members on inbound flights prior to
their arrival in the U.S. at high levels of accuracy. ICTS has developed
advanced algorithms for scanning passports and visas that extracts the
information required by U.S. Customs. The system utilizes a full page scanner, a
small computer and an operator screen or can be installed on an existing
workstation.
<PAGE>
                  Consulting, Auditing and Training

                  ICTS provides consulting services to airlines and airports.
ICTS recommends the adoption of specified security procedures, develops
recruitment and training programs for clients to hire necessary security
personnel and works with airport authorities to ensure that they comply with
applicable local requirements. ICTS trains airline employees to screen
passengers and to perform other security measures through extensive courses and
written training manuals. ICTS provides these services in The Netherlands and
Russia, but does not expect to derive significant revenues from these services.

                  Airline and Airport Customers

                  In 2002, the TSA accounted for 73% of ICTS's total revenues.
In 2003 ICTS had over 400 clients of which four clients accounted for over 40%
of ICTS's revenue, in over 50 locations world-wide.

                  Entertainment Projects

                  ICTS develops tourist attractions combining motion based
platforms and synchronized movies and sound effects ("Time Elevators").

                  On December 23, 2003 the Company through wholly owned
subsidiaries purchased from ITA International Tourist Attractions, Ltd., ("ITA")
certain assets owned by ITA and used by it in the development, establishment and
operation of motion-based entertainment theaters. The assets purchased consist
primarily of intangible property and certain equipment. ITA is a company in
which a principal shareholder of the Company owned in the aggregate in excess of
50% of the shares. The purchase price for the assets purchased was
$5,429,151.00. The purchase price was paid by set-off against certain debts owed
by ITA to the Company, cash and notes. As a part of the transaction, certain
agreements made between the Company and ITA in 2001 were terminated, with the
result that the Company is no longer committed to involve ITA in its existing
and future entertainment projects. Prior to entering into the transaction the
Company obtained a fairness opinion as to the fairness of the consideration and
the transaction to the Company.

                  The Company currently operates fully owned motion-based
entertainment theaters in Baltimore, MD and in Atlantic City, NJ. The Company
is also a partner in a movie-based entertainment facility in Niagara Falls, NY.

                  Marketing and Sales

                  Marketing and Sales in the U.S. In 2002, substantially all of
the revenues of ICTS were derived in the U.S. ICTS derived most of its revenues
through contracts which were secured by ICTS as a result of competitive bidding.

                  Marketing and Sales in The Netherlands. Contracts for aviation
security services in The Netherlands are obtained through competitive bids that
are issued by the applicable airport authorities or agencies.

                  Marketing of Security Systems and Technology. ICTS intends to
market its new technology systems and technologies by establishing pilot
projects with airports and airlines. Upon the demonstration of the viability of
the systems or technology ICTS intends to develop a marketing plan to distribute
the systems and technology.

                  Marketing of Entertainment Activities. ICTS seeks to locate
its entertainment sites in areas that enjoy concentrated flows of tourists. It
intends to market its sites through advertising and establishing long term
relationships with tour and bus operators.
<PAGE>
                  Leasing Operation

                  In June 2002 ICTS purchased equipment for an aggregate
purchase price of $23.5 million. The purchase price payable was $14.5 million in
cash and the balance subject to an $8.5 million self amortizing non-recourse
promissory note payable over five years. Pursuant to an operating lease, the
equipment was leased to an unaffiliated private Dutch company. The lease
provides for annual lease payments in the amount of $2.6 million and an option
to purchase the equipment after five or seven years based upon the then fair
market value. In the event that the lessee does not exercise the option to
purchase the equipment upon the expiration of the lease term, then ICTS will be
obligated to pay license fees in connection with intellectual property
associated with the equipment in an amount equal to 5% of the revenue derived
from the use of the equipment if ICTS exercises its option to operate the
equipment.

                  In 2003, ICTS determined that the future cash flows from the
leased equipment (including the estimated proceeds from exercise of the option)
will not recover its investment, and as a result recorded an impairment loss of
$6,042. The value of the equipment at the option exercise date was based on an
external assessment.

                  The Company leases premises under long-term operating leases,
in most cases with renewal options. Lease expenses for the years ended December
31, 2003, 2002 and 2001 were $1,166, $928 and $1,739 respectively.

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

                                                     December 31,
                                                        2003

                           2004                           $1,208
                           2005                            1,110
                           2006                            1,012
                           2007                              946
                           2008 and afterwards            10,027
                                                         _________
                                                         $14,303
                                                         ========
                  Competition

                  Competition in the aviation security industry as well as in
the non-security related aviation services industry is intense. Many of our
competitors have greater financial, technical and marketing resources.

                   We expect that our competitors will develop and market
alternative systems and technologies that may have greater functionality or be
more cost effective than the services we provide or the systems that we may
develop. If our competitors develop such systems we may not be able to
successfully market our systems. Even if we are able to develop systems with
greater functionality which are more cost effective than those developed by our
competitors, we may not be able to achieve market acceptance of our systems
because our competitors have greater financial and marketing resources.

                  Restrictions on Competition

                  In connection with the sale of the European operations ICTS is
restricted from conducting business in Europe, (except for The Netherlands and
Russia) any of the activities in which ICTS Europe was engaged prior to the
sale. This restriction is effective through February 2005.
<PAGE>
                  Pursuant to an agreement dated as of July 1, 1995 with ICTS
Global Security (1995) Ltd. ICTS may not provide non-aviation security services
in Latin America, Turkey or Russia. ICTS Global Security is partially owned by
Lior Zouker and the Estate of Ezra Harel, the former Chief Executive Officer
and the former Chairman of Supervisory Board of ICTS and a principal
shareholder, respectively.

                  Aviation Security Regulatory Matters

                  ICTS aviation security activities are subject to various
regulations imposed by authorities and various local and federal agencies having
jurisdiction in the serviced area. ICTS on behalf of its clients was responsible
for adherence to such regulations relating to certain security aspects of their
activities. ICTS is also responsible to prevent passengers without proper travel
documentation from boarding a flight, thereby avoiding fines otherwise imposed
on its clients by immigration authorities.

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

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

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

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

          Organizational Structure.

                  The following are the significant subsidiaries of ICTS:

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

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

                  ICTS Leasing BV (The Netherlands - 100%)
                  Procheck International B.V. (The Netherlands -  100%)

          Property, Plant and Equipment.

                  The Company leases premises under long-term operating leases,
in most cases with renewal options. Lease expenses for the years ended December
31, 2003, 2002 and 2001 were $1,166, $928 and $1,739 respectively.
<PAGE>
                  Future minimum lease payments under long-term leases are as
follows:
                                                     December 31,
                                                         2003

                           2004                           $1,208
                           2005                            1,110
                           2006                            1,012
                           2007                              946
                           2008 and afterwards            10,027
                                                        ---------
                                                         $14,303
                                                        =========

          Item 5. Operating and Financial Review and Prospects

           Operating Results

                  General

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

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

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

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

                   In the fourth quarter of 2002, pursuant to the Security Act
the Federal government through the TSA took over substantially all of the

<PAGE>
aviation security operations in U.S. airports. As a result, ICTS through its
wholly-owned subsidiary Huntleigh USA Corp. ("Huntleigh"), provides limited
aviation security services in the United States.

          Critical Accounting Policies

          The preparation of ICTS's consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related footnotes. Actual results may differ from these
estimates. To facilitate the understanding of ICTS's business activities,
described below are certain ICTS accounting policies that are relatively more
important to the portrayal of its financial condition and results of operations
and that require management s subjective judgments. ICTS bases its judgments on
its experience and various other assumptions that it believes to be reasonable
under the circumstances. Please refer to Note 2 to ICTS's consolidated financial
statements included in this Annual Report on Form 20-F for the year ended
December 31, 2003 for a summary of all of ICTS's significant accounting
policies.

         The Company considers its most significant accounting policies to be
those discussed below.

         Contract with the TSA

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

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

         The Company estimates that if the TSA will claim such difference from
Huntleigh and will prevail in all of its contentions, and none of Huntleigh's
claims will be recognized, then the Company may suffer a net loss in an amount
of about $27 Million. The Company's above estimate assumes, that under USA tax
rules it will able to carry-back the losses (if any) that will result from the
above claims of the TSA. No provisions have been made by the Company with
respect to the above potential claims.

         Labor Department Issue

         In a letter dated November 21, 2003, the US Department of Labor ("DOL")
advised Huntleigh that it had failed to comply with a clause included in its
contract with the TSA under which Huntleigh had supposedly been required to pay
its employees certain minimum wages. The DOL claims that under this clause
Huntleigh owes such employees an amount of approximately MM $ 7.5 and has
requested that Huntleigh makes such payment forthwith. On any amount so due,
Huntleigh will also be required to pay certain employment taxes of approximately
20%.

         Huntleigh believes that it has valid defenses to the DOL claim. These
issues are under discussion with the DOL and no assurance can be given as to the
ultimate outcome or success to Huntleigh with the position it is taking. The
Company has made a provision in its financial statements in an amount the
Company deemed sufficient to account for its exposure for the above claim.
<PAGE>
          Goodwill

         As from January 1, 2002, pursuant to Statement of Financial Accounting
Standard ( FAS) No.142 of the Financial Accounting Standards Board of the United
States (the FASB ), "Goodwill and Other Intangible Assets" , goodwill is no
longer amortized but rather is tested for impairment annually. During 2002, the
Company identified its various reporting units, which consist of its operating
segments. The Company has utilized expected future discounted cash flows to
determine the fair value of the reporting units and whether any impairment of
goodwill existed as of the date of adoption of FAS 142. As a result of the
application of the transitional impairment test, the Company does not have to
record a cumulative effect of accounting change for the estimated impairment of
goodwill. The Company has designated December 31 of each year as the date on
which it will perform its annual goodwill impairment test. On December 31, 2003,
an impairment test was conducted on the unamortized goodwill pursuant to which
it was determined that, as of the date of the impairment test, an impairment
existed concerning Demco of $797,000. (see Notes 2(g) and 4(b) to the financial
statements). Changes in the fair value of the reporting units following material
changes in the assumptions as to the future cash flows and/or discount rates
could result in an unexpected impairment charge to goodwill.

In 2002, as a result of the enactment of the Security Act (as described  above),
ICTS  performed  quarterly  interim  impairment  tests,  taking into account the
expected  future cash flows from the TSA contract  through  November  2002,  and
subsequently  wrote off, as of  September  30, 2002 the balance of the  goodwill
attributable  to the U.S.  aviation  security  operations  in the amount of $8.5
million.

         Functional and reporting currency

         As of January 1, 2002, subsequent to the sale of ICTS's interest in
ICTS Europe, the functional currency of ICTS and its U.S. operations is the U.S.
dollar because substanitally all of the revenues and operating costs are in
dollars. Prior to January 1, 2002 the functional currency was primarily the euro
.. The financial statements of subsidiaries whose functional currency is not the
dollar are translated into dollars in accordance with the principles set forth
in Statement of Financial Accounting Standards ("FAS") No. 52 of the Financial
Accounting Standards Board of the USA ("FASB"). Assets and liabilities are
translated from the local currencies to dollars at year-end exchange rates.
Income and expense items are translated at average exchange rates during the
year.

         Revenue recognition

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

           Impairment in value of long-lived assets

          ICTS has adopted FAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", effective January 1, 2002. FAS 144 requires that
long-lived assets, held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. Under FAS 144, if the sum of the expected
future cash flows (undiscounted and without interest charges) of the long-lived
assets is less than the carrying amount of such assets, an impairment loss would
be recognized, and the assets would be written down to their estimated fair
values. On December 31, 2003 an impairment test was conducted on the carrying
value of long-lived assets of the Company pursuant to which it was determined
that, as of the date of the impairment test, the impairment existed in
connection with equipment at Explore's facilities in Baltimore, Maryland and
Atlantic City, New Jersey in the amount of $9,108,675and leased equipment of
$6,042,000. An amount of $1,595 was booked as liability concerning future
development costs. (see Notes 1(b) and 7(e) to the financial statements).
<PAGE>
           Discussion and Analysis of  Results of Operations

          The following table summarizes certain statement of operations data
for ICTS for the years ended December 31, 2001, 2002 and 2003:
<TABLE>
<CAPTION>
<S>                                                                               <C>
                                                              Year ended December 31,
                                                            2003               2002           2001
---------------------------------------------------- ------------------ -------------- --------------
REVENUES                                                      $ 71,571       $279,931       $212,137

---------------------------------------------------- ------------------ -------------- --------------
COST OF REVENUES                                                57,562        214,054        189,925
                                                                              -------        -------
---------------------------------------------------- ------------------ -------------- --------------
GROSS PROFIT                                                    14,009         65,877         22,212
---------------------------------------------------- ------------------ -------------- --------------
IMPAIRMENT OF ASSETS                                            14,352          9,156
---------------------------------------------------- ------------------ -------------- --------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                     9,216         25,636         19,461
                                                                               ------         ------
---------------------------------------------------- ------------------ -------------- --------------
OPERATING INCOME                                              ( 9,559)         31,085          2,751
---------------------------------------------------- ------------------ -------------- --------------
INTEREST INCOME                                                  2,248          2,072          1,649
---------------------------------------------------- ------------------ -------------- --------------
INTEREST EXPENSE                                               (1,222)        (1,678)        (1,637)
---------------------------------------------------- ------------------ -------------- --------------
EXCHANGE DIFFERENCES                                             (242)          2,356          1,965
---------------------------------------------------- ------------------ -------------- --------------
OTHER INCOME (EXPENSES)                                          (353)         41,229         29,520
                                                                               ------         ------
---------------------------------------------------- ------------------ -------------- --------------
INCOME BEFORE TAXES ON INCOME                                 ( 9,120)         75,064         34,248
---------------------------------------------------- ------------------ -------------- --------------
TAXES ON INCOME                                                  3,115         16,442          4,919
---------------------------------------------------- ------------------ -------------- --------------
INCOME FROM OPERATIONS OF THE COMPANY AND ITS
SUBSIDIAIRIES                                                 (12,243)         58,622         29,329
---------------------------------------------------- ------------------ -------------- --------------
SHARE IN PROFITS (LOSSES) OF ASSOCIATED COMPANIES
                                                               (6,661)        (1,807)          (395)
---------------------------------------------------- ------------------ -------------- --------------
MINORITY INTERESTS IN LOSSES (PROFITS) OF                            -
SUBSIDIARIES                                                                  _______        (2,736)
---------------------------------------------------- ------------------ -------------- --------------
NET INCOME FOR THE YEAR                                      $(15,904)        $56,815        $26,198
---------------------------------------------------- ------------------ -------------- --------------
OTHER COMPREHENSIVE INCOME (LOSS):
---------------------------------------------------- ------------------ -------------- --------------
Translation adjustments                                          3,456            710        (1,811)
Unrealized gains (losses) on marketable securities                 794            731          (345)
Reclassification adjustment for losses for
available for sale securities included in net income               237          (771)            368
                                                                                -----            ---
---------------------------------------------------- ------------------ -------------- --------------
                                                                 4,487            670        (1,788)
                                                                                  ---        -------
---------------------------------------------------- ------------------ -------------- --------------
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR                                $57,485        $24,410
                                                              $ 14,417         ======         ======
---------------------------------------------------- ------------------ -------------- --------------
EARNINGS PER SHARE:
          Basic                                                $(2.90)          $8.85          $4.18
                                                               ======           =====           ====
          Diluted                                              $(2.90)          $8.80          $4.09
                                                               =======           ====           ====

---------------------------------------------------- ------------------ -------------- --------------
</TABLE>
<PAGE>
          The following table sets forth, for the annual periods indicated,
certain statement of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                   Year Ended December 31,

                                                                      2003      2002    2001

          Revenues.....................                                100%     100%    100%
          Cost of revenues.............                               80.4%    76.5%   89.5%
          Gross profit................                                19.6%    23.5%   10.5%
          Selling, general and
            administrative expenses.....                              12.9%     9.2%    9.2%
          Operating income .............                             (13.4%)   11.1%    1.3%
          Net income ...................                             (26.4%)   20.3%   12.4%
</TABLE>

                  The statements of income for the year 2001 include the
activities of ICTS Europe, which was sold in February 2002.

          Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

          Revenues. Revenues for the year ended December 31, 2003 were $71.6
million (2002: $279.9 million), and consisted of $59.1 million (2002: $274
million) from U.S. operations, and $12.4 million (2002: $5.9 million) from other
operations.

          The decrease in revenues from U.S. operations is primarily the result
of decreased sales of aviation security services pursuant to contracts with the
TSA following the September 11th events. Revenues derived from such services in
2002 were $205.7 million (73% of ICTS's total revenues in that year). As a
result of the Security Act since November 2002, ICTS provides limited aviation
security services within the United States. Therefore, in 2003 the Company did
not generate any revenues pursuant to a contract with the TSA.

          Almost all revenues in the U.S. ($59.1 million), are derived from
other than aviation security services, compared with $39.0 million for 2002.
Such increase is primarily attributable to an increase in sales to existing
airline customers through expanding ICTS's location base and the offering of new
services.

          Gross Profit. Gross profit is defined as revenues less costs directly
related to such revenues as well as certain indirect expenses such as airport
offices, airport fees, local training and other direct labor related expenses
such as uniforms and transportation.  Gross profit was positively impacted by a
non-recurring contribution of $8.6 million in the third quarter. The
non-recurring contribution is primarily the result of a reversal of an accrual
made in 2002 to account for potential liabilities to former employees of the
Company in its USA aviation security business, net of certain new accruals
booked primarily to account for other estimated potential liabilities to such
employees.

          Gross profit for the year ended December 31, 2003 was $14.0 million,
19.6%, as a percentage of revenue (2002: $65.9 million, 23.5% as a percentage of
revenue). Management believes that the decrease in gross profit as a percentage
of revenues is primarily attributable to the decrease in
aviation security services as per the TSA contract.

Impairment  of Assets.  For the year ended  December  31,  2003,  ICTS  incurred
expenses of $14.3  million  (2002:  9.2 million)  attributable  to impairment of
assets.  The expense is primarily  attributable  to the  impairment of equipment
related to the Companies'  entertainment  business in the U.S.A. In addition,
the Company  recorded an  impairment  loss in amount of $6,042  related to lease
equipment  in The  Netherlands  and  goodwill  impairment  related to Demco,  an
Israeli subsidiary.
<PAGE>
          Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $9.2 million for the year ended December 31, 2003,
12.9% as a percentage of revenues, as compared to $25.6 million, 9.2% as a
percentage of revenues for the year ended December 31, 2002. The decrease in
selling, general and administrative expenses is primarily attributable to the
decrease in aviation security services.

          Operating Profit. Operating loss for the year ended December 31, 2003
was $16.4 million as compared to an operating profit of $31.1 million for the
year ended December 31, 2002.

          Financial (Expenses) Income, Net. Financial (expenses) income, net
includes interest income (net of interest expense), and adjustments due to the
impact of exchange rate fluctuations. The interest and financial income
increased due the sale of certain traded shares during 2003.

          Other Income (Expense), Net. Other income for the year ended December
31, 2003 was $353 thousand negative as compared to $41.2 million for the year
ended December 31, 2002. Other expenses during 2003 included mainly accounting
provisions related to the Companies' investments in Artlink. Other income for
the year ended December 31, 2002 includes the profit on the sale of 55% interest
in ICTS Europe which resulted in gross proceeds, in the amount of $41.2 million.

          Income Taxes. Although the company incurred a loss from operations
before taxes on a consolidated basis, it still incurred taxes in its USA
subsidiary, Huntleigh. The reason being that Huntleigh is a separate entity for
tax purposes and as such incurs taxes on its profits.

          Share in Profits and (Losses) of Associated Companies. The share in
losses of associated companies which includes amortization of intangible assets
for the year ended December 31, 2003 was $6.7 million.

          Net income. As a result of the foregoing, ICTS's net loss totaled
approximately $18.9 million in the year ended December 31, 2003, as compared to
approximately $56.8 million profit for the year ended December 31, 2002.

         Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

         Revenues. Revenues for the year ended December 31, 2002 were $279.9
million (2001: $212.1 million), and consisted of $274.0 million (2001: $96.7
million) from U.S. operations, no revenues (2001: $113.1 million) from ICTS
Europe and $5.9 million (2001: $2.3 million) from other operations. The lack of
revenue from ICTS Europe in 2002 is the result of the sale of ICTS's 55%
interest in ICTS Europe in February 2002.

         The increase in revenues from U.S. operations is primarily the result
of increased sales of aviation security services pursuant to contracts with the
TSA following the September 11th events. Revenues derived from such services
were $205.7 million (73% of ICTS's total revenues). For the first month and
one-half for 2002 the Company provided aviation security services to its airline
clients generating revenues of approximately $30 million. As a result of the
Security Act since November 2002, ICTS does not provide aviation security
services within the United States.

         Revenues derived in the U.S., other than from aviation security
services, were $39.0 million (2001: $27.7 million). Such increase is primarily
attributable to an increase in sales to existing airline customers through
expanding ICTS's location base and the offering of new services.

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

         Gross profit for the year ended December 31, 2002 was $65.9 million,
23.5%, as a percentage of revenue (2001: $22.2 million, 10.5% as a percentage of

<PAGE>
revenue). Management believes that the increase in gross profit as a percentage
of revenues is primarily attributable to the increase in the provision of
aviation security services.

         Impairment of Intangible Assets. For the year ended December 31, 2002,
ICTS incurred expenses of $9.2 million attributable to impairment of intangible
assets. The expense is primarily attributable to the impairment of goodwill in
the U.S. subsidiaries as a result of the TSA taking over aviation security
activities in the U.S. in November 2002.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $25.6 million for the year ended December 31, 2002,
9.2% as a percentage of revenues, as compared to $19.4 million, 9.2% as a
percentage of revenues for the year ended December 31, 2001. The increase in
selling, general and administrative expenses is primarily attributable to
increases in provisions for bad debts in the amount of $5 million, legal and
insurance costs in the amount of $2.6 million, payroll expenses in the amount of
$700,000 and offset by the reduction of selling, general and administrative
expenses attributable to ICTS Europe in the amount of $4.8 million.

         Operating Profit. Operating profit for the year ended December 31, 2002
was $31.1 million as compared to $2.8 million for the year ended December 31,
2001.

         Financial (Expenses) Income, Net. Financial (expenses) income, net
includes interest income (net of interest expense), and adjustments due to the
impact of exchange rate fluctuations. The interest income increased due to the
stronger cash position of ICTS, despite the decrease in interest rates on time
deposits over the course of 2002. Interest expenses increased compared to 2001,
as a result of additional credit facilities that were at ICTS's disposal during
2002.

         Other Income (Expense), Net. Other income for the year ended December
31, 2002 was $41.2 million as compared to $29.0 million for the year ended
December 31, 2001. Other income for the year ended December 31, 2002 includes
the profit on the sale of 55% interest in ICTS Europe which resulted in gross
proceeds, in the amount of $41.2 million.

           Income Taxes. ICTS's effective income tax rate for the year ended
December 31, 2002 was 21.9% as compared to 14.4% in the year ended December 31,
2001. The increase in the effective tax rate is primarily attributable to an
increase in non-deductible expenses for the year ended December 31, 2002 as well
as a decrease in non-taxable capital gains in The Netherlands as a percentage of
total income.

          Share in Profits and (Losses) of Associated Companies. The share in
profits (losses) of associated companies which includes amortization of
intangible assets for the year ended December 31, 2002 was $1.8 million.

          Net income. As a result of the foregoing, ICTS's net income increased
by approximately $30.6 million in the year ended December 31, 2002, to $56.8
million, as compared to approximately $26.2 million for the year ended December
31, 2001.

     Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Revenues. Revenues for the year ended December 31, 2001 were approximately
$212.1 million (2000: $147.4 million), and consisted of $113.1 million (2000:
$77.7 million) from ICTS Europe, $96.7 million (2000: $66.6 million) from U.S.
operations, and $2.3 million (2000: $3.1 million) from other operations. The
increase in revenues for both ICTS Europe and U.S. operations was primarily
attributable to internal growth of ICTS's operations due to newly added
locations together with price increases in the U.S. effective in October 2001.
The addition of new locations and the price increases outweighed the negative
impact of the cancellation of flights as a result of the September 11 events.

     For the year ended December 31, 2001, revenues derived from aviation
security services in the U.S. were $68.9 million (71% of U.S. revenues).
<PAGE>
    Revenues derived from services, other than aviation security services in
the United States, for the year ended December 31, 2001 were $30.1 million as
compared to $27.1 million for the year ended December 31, 2000.

     Gross Profit. Gross profit for the year ended December 31, 2001 was $22.2
million 10.5% as a percentage of revenues (2000: $15.8 million, 10.7% as a
percentage of revenues) consisted primarily of a profit of $13.2 million (2000:
$10.4 million) from ICTS Europe and a profit of $9.2 million (2000: $5.3
million) from U.S. operations. This increase in gross profit is due primarily to
the increase in revenue. The decrease in gross profit as a percentage of revenue
is due primarily to start-up costs of approximately $1.4 million resulting from
new airport locations in Europe, which was partially offset by an increase in
gross profit as a percentage of revenues from U.S. operations.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses was $19.4 million, 9.2% as a percentage of revenues, for
the year ended December 31, 2001, as compared to $11.6 million, 7.9% as a
percentage of revenues for the year ended Decemver 31, 2000. This increase is
primarily due to $4.9 million related to the sale of ICTS Europe, and expenses
related to the expansion of the headquarters of ICTS Europe.

     Operating Profit. Operating profit for the year ended December 31, 2001 was
$2.7 million and included $8.4 million (2000: $6.6 million) of operating profits
of ICTS Europe.

     Financial (Expenses) Income, Net. Financial (expenses) income, net includes
interest income (net of interest expense), and adjustments due to the impact of
exchange rate fluctuations. Interest Income increased due to the stronger cash
position of ICTS, as a result of the receipt of the proceeds for the sale of the
45% interest in ICTS Europe in early 2001, despite the decrease in interest
rates on time deposits over the course of 2001. Interest expenses decreased, as
a result of partial repayment of outstanding lines of credit.

     Other Income (Expense), Net. Other income for the year ended December 31,
2001 was $29.3 million. Other income was primarily attributable to the profit on
the sale of a 45% interest in ICTS Europe, in the amount of $34.3 million, which
was partially offset by a loss of approximately $4.5 million related to a
write-off of ICTS's investments in several technology start-up companies due to
their financial condition and ICTS's assessment of their future prospects.

     Income Taxes. ICTS's effective income tax rate for the year ended December
31, 2001 was 14.4% as compared to 47.4% in the year ended December 31, 2000. The
decrease in the effective tax rate was primarily attributable to non-taxable
capital gains in The Netherlands derived by ICTS from the sale of a 45% interest
in ICTS Europe.

     Minority Interest. This item reflects primarily the 45% interest of ICTS
Europe owned by an unaffiliated party effective January 2001.

     Share in losses of associated companies. Share in losses of associated
companies was $395,000 for the year ended December 31, 2001.

     Net income. As a result of the foregoing ICTS's net income increased by
$25.2 million for the year ended December 31, 2001, to $26.2 million, as
compared to $870,000 for the year ended December 31, 2000.

     Liquidity and Capital Resources

ICTS's  principal cash  requirement  for its operations is the payment of wages.
Working capital is financed  primarily by cash from operating  activities and by
short-term borrowings. As of December 31, 2003, we had cash and cash equivalents
of $7.7 million, and restricted cash and short term investments of $3.1 million.

Net cash used by operating  activities  for the year ended December 31, 2003 was
$19.1  million as compared to net cash  provided by operating  activities  $61.6
million for the year ended  December 31, 2002 and net cash provided by operating

<PAGE>
activities  of $987 for the year ended  December 31, 2001.  The decrease in cash
for the year ended December 31, 2003 was primarily  attributable  to net loss of
$25.8 million  offset by non-cash  expenses such as shares in losses of
associated  companies  of $6.7  million  and  changes  in  operating  assets and
liabilities of $28.8 million,.  The changes in operating  assets and liabilities
were primarily  attributable to $2.1 million decrease in accounts receivable and
an decrease of $28.9 million in accrued  expenses and other  liabilities,  which
was primarily  related to severance pay and employee's  claims of $19 million in
connection with the reduction of ICTS's aviation security activities.

     Net cash used in investing activities was $3.2 million for the year ended
December 31, 2003 as compared to net cash used in investing activities of
$324 for the year ended December 31, 2002 and net cash provided by investing
activities of $23.5 million for the year ended December 31, 2001. Net cash used
in investing activities was primarily attributable to the purchase of equipment
of $7.9 million, $5.2 million for other investments. This was partly offeset by
proceeds from sale of marketable securities at $3.7 million, repayment of loans
granted to related parties at $3.7 million, and decrease in time deposits and
restricted cash at $4.7 million.

     Net cash used in financing activities was $2.4 million and $46.1 million
for the years ended December 31, 2003 and December 31, 2002, respectively and
net cash used in financing activities was $10.5 million for the year ended
December 31, 2001.

     In June 2002 ICTS purchased equipment for an aggregate purchase price of
$23.5 million. The purchase price was payable $14.5 million in cash and the
balance subject to an $8.5 million self amortizing non-recourse promissory note
payable over five years. Pursuant to an operating lease, the equipment was
leased to a private Dutch company. The lease provides for annual lease payments
in the amount of E 2.9 million and an option to purchase the equipment after
five or seven years based upon the then fair market value. In the event that
the lessee does not exercise the option to purchase the equipment upon the
expiration of the lease term, then ICTS will be obligated to pay license fees in
connection with intellectual property associated with the equipment in an amount
equal to 5% of the revenue derived from the use of the equipment if ICTS
exercises its option to operate the equipment.

     On February 17, 2002, ICTS entered into an aviation security services
contract with the TSA to continue to provide aviation security services in all
of its current airport locations until the earlier of either the completed
transition of these security services on an airport by airport basis to the U.S.
Federal Government or November 2, 2002. In accordance with the contract, the
U.S. Federal Government provided ICTS with a non-interest bearing partial
payment of $26 million to be repaid at the rate of $1.3 million a month
commencing April 2002. As of December 31, 2003, $11.7 million of the $26 million
had been repaid. The TSA in accordance with standard practices is in the process
of auditing ICTS's billings to the TSA pursuant to the contract with the TSA for
the provision of aviation security services. In the event that the TSA has a
significant claim against ICTS and is successful, then there may be a material
adverse effect on ICTS's financial condition.

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

     The following table summarizes ICTS's obligations to make future payments
under contracts:

     Contractual Obligations Due by Period at December 31, 2003.

     The Company leases premises under long-term operating leases, in most cases
with renewal options. Lease expenses for the years ended December 31, 2003, 2002
and 2001 were $1,166, $____ and $______ respectively.
<PAGE>
              Future minimum lease payments under long-term leases are as
follows:
                                           December 31,
                                                2003
                                          ---------------
                   2004                     $1,208
                   2005                      1,110
                   2006                      1,012
                   2007                        946
                   2008 and afterwards      10,027
                                            ------
                                           $14,303
                                           ======

            The following table summarizes ICTS's guarantees and their
expiration dates:

         The Company has outstanding a guaranty to ABN Amro for rent in the
amount of $13 which is outstanding during the term of this lease. The Company,
in addition, has an outstanding guaranty to Bilu Investments, Ltd. in the amount
of $2,515.

         In January 2002, IMA entered into a loan facility agreement with a
German bank. As of December 31, 2003 the company and ITA, collectively and
individually, guaranteed the loan in full to the bank. The guarantee is a
continuing guarantee for the obligations of IMA. As of December 31, 2003 IMA's
net obligations to the bank amounted to $1,683. Taking into account the deferred
note to ITA of $546 (which serves as a security to this guarantee
the company recorded a liability of $1,137 in respect of this
guarantee.

         Our future capital requirements, the timing and amount of expenditures
will depend on our success in developing and implementing our new business
strategy. Based on our current plans, we believe that our existing cash
balances, cash flows from operating and available borrowing will be sufficient
to satisfy our capital requirements for at least the next 12 months.

         Research and development, patents and licenses, etc.

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

              The project is being developed by ICTS and is performed in
cooperation with various partners. The pilot program is being testedat Schiphol
Airport in Amsterdam, The Netherlands and at Newark Liberty International
Airport, New Jersey in the United States and is planned to be expanded in the
near term to other European airports as well as other North American airports.

         Trend information

              Labor market conditions at a particular airport location may
require the Company to increase its prices. Cost of labor is the most important
variable in determining any cost increases.

         Item 6. Directors, Senior Management and Employees

              The following table lists the directors and executive officers of
ICTS.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                      Age              Position
           Boaz Harel                 40               Chairman of the Supervisory Board
           Menachem Atzmon            59               Member of the Supervisory Board
           M. Albert Nissim           70               Member of the Supervisory Board, Secretary
           Elie Housman               64               Member of the Supervisory Board
           Moshe Winer                54               Member of the Supervisiory Board
           David W. Sass              68               Member of the Supervisory Board
           Philip M. Getter           67               Member of the Supervisory Board and
                                                       Chairman of the Audit Committee
           Lynda Davey                49               Member of the Supervisory Board
           Michael Barnea             48               Managing Director and CEO
           Stefan Vermeulen           33               Chief Financial Officer
<PAGE>
</TABLE>
Boaz Harel has been the  Managing  Director of Leedan  between 1993 and December
31, 1997.  Mr. Harel became  Chairman of the Company in January  2004.  Mr. Boaz
Harel is the  Director of  Pioneer  Commercial  Funding  Corp.  ("Pioneer"),  a
publicly-traded  company,  which has no business  at this time,  serving in such
capacity since November 1996. Pioneer is an affiliate of Harmony. Mr. Boaz Harel
is  the  brother  of the  late  Mr.  Ezra  Harel,  the  former  Chairman  of the
Supervisory Board of the Company.

Menachem J. Atzmon is a Chartered  accountant (Isr). Mr. Atzmon is a controlling
shareholder  of  Harmony  Ventures  B.V.  Since  1996 he has been  the  managing
director of Albermale  Investment  Ltd. and Kent  Investment  Holding Ltd., both
investment  companies.  Since  January  1998 he has  served  as CEO of  Seehafen
Rostock.  He has been a member of the Supervisory  Board of ICTS since 1999. Mr.
Atzmon has been investigated by the Israeli  Securities and Exchange  Commission
as a part of an  investigation  conducted by such agency for suspected  criminal
acts under Israeli law, in  connection  with his past  involvement  with Rogosin
Enterprises, Ltd., an Israeli company, as a third party.

M. Albert Nissim has served as Secretary of ICTS since January 1994 and became a
member of the Supervisory  Board in 2002. Mr. Nissim also serves as President of
ICTS - USA, Inc.  From 1994 to 1995, he worked as the managing  director of ICTS
and from 1990 to the present, he has been Vice-President and a director of Tuffy
Associates.  Mr.  Nissim has been the  President of Pioneer  Commercial  Funding
Corp. ("Pioneer") since January 1997 and also serves as the Chairman.

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

Moshe Winer became a member of the  Supervisory  Board of ICTS in 2002.  For the
past ten years has been the principal of several  businesses  in the  automotive
services field.

David W. Sass for the past 43 years has been a  practicing  attorney in New York
City and is  currently a senior  partner in the law firm of  McLaughlin & Stern,
LLP. He has been a director of ICTS since 2002.  Mr. Sass was also a director of
BarPoint.com,  Inc, an online and  wireless  product  information  and  shopping
service  provider..  He is also  corporate  secretary  and a director of Pioneer
Commercial  Funding  Corp.  Mr. Sass became a director of Inksure  Technologies,
Inc.  in  2003,  a  company  which  develops,   markets  and  sells   customized
authentication systems designed to enhance the security of documents and branded
products and to meet the growing demand for protection from  counterfeiting  and
diversion. He is also a director of several privately held corporations.

Philip M. Getter,  since 2000 he is a partner of DAMG  Capital,  LLC  Investment
Bankers.  Prior thereto he was most  recently  head of Investment  Banking and a
member of the board of directors of Prime Charter,  Ltd. He has more than thirty
years of corporate finance experience. Having served as Administrative Assistant
to the Director of United States Atomic Energy  Commission from 1958 to 1959, he
began his Wall  Street  career as an  analyst  at Bache & Co. in 1959.  He was a
partner with Shearson,  Hammill & Company from 1961 to 1969 and a Senior Partner
of Devon Securities,  an international  investment banking and research boutique
from 1969 to 1975.  Mr.  Getter was a member of the New York Society of Security
Analysts.  From 1975 to 1983 he was President and CEO of Generics Corporation of
America, a public company that was one of the largest generic drug manufacturers
in the United States.  As Chairman and CEO of Wolins Pharmacal from 1977 to 1983
he led the reorganization and restructuring one of the oldest and largest direct
to the profession distributors of pharmaceuticals.

He has been a member of the League of American Theatres and Producers,  Advisory
Board of the American  Theatre Wing,  Trustee of The Kurt Weill  Foundation  for
Music,  a member  of the Tony  Administration  Committee  and has  produced  for
Broadway,   television   and  film.   He  writes   frequently   concerning   the
communications, education and entertainment industries.

Mr. Getter received his B.S. in Industrial Relations from Cornell University. He
is a member of several  industry  organizations  and serves on various boards of

<PAGE>
both public and private organizations and is Chairman of the Audit Committees of
EVCI Career Colleges, Inksure Technologies, Inc. as well as the Company.

Lynda  Davey  is Chief  Executive  Officer  of  Avalon  Group,  Ltd.  a  private
investment  banking firm she  co-founded in 1992. She also serves as Chairperson
of Avalon Securities, Inc., an NASD member broker-dealer,  and NY Venture Space,
LLC, a provider of interim office space.  From 1988  throughout  1991, Ms. Davey
was Managing Director of The Tribeca Corporation,  a New York based buyout firm.
Prior to 1988, Ms. Davey was Vice President in the corporate finance  department
of Salomon  Brothers Inc. She is a director of Tuffy  Associates Corp. Ms. Davey
also serves on the Advisory Council of the Center for Women's Business  Research
and  Retail  Finance  Group of Wells  Fargo  Bank.  She  became a member  of the
Supervisory Board of ICTS in 2002.

Michael  Barnea has been employed by the Company since 2002. Mr. Barnea has also
been a member of the  supervisory  board of ICTS between  1996-2000 and has been
actively  involved with mergers and  acquisitions as well as other activities of
ICTS.  Mr.  Barnea is a graduate of the Tel Aviv School of Law.  Mr.  Barnea has
been investigated by the Israeli Securities and Exchange Commission as a part of
an  investigation  conducted by such agency for  suspected  criminal  acts under
Israeli law, in connection with his past involvement  with Rogosin  Enterprises,
Ltd., an Israeli company.

Stefan Vermeulen is a chartered accountant (the Netherlands).  Mr. Vermeulen has
been the Chief  Financial  Officer of ICTS since 2001.  Before joining ICTS, Mr.
Vermeulen  worked as an  internal  auditor  for Sara  Lee/Douwe  Egberts  in the
Netherlands from 1999 until 2001. Prior to that he worked as an internal auditor
for Intergraph for two years.  Previously  Mr.  Vermeulen  worked as an external
auditor with Deloitte & Touche in the Netherlands for seven years.  Mr.Vermeulen
holds a masters degree in information management.

         Compensation

           Effective as of January 1, 2004, ICTS entered into a two year
agreement with Mr. Boaz Harel providing for the following: base compensation in
the amount of $20,400 per month, per annum after taking a 30% pay reduction.

           Mr. Barnea is employed under a four (4) year Employment Agreement
commencing January 1, 2004 at an annual compensation rate of $140,000 per year.
The total cost of his employment for 2004 is approximately $330,000 and
approximately $320,000 for any year thereafter.

           Each member of the Supervisory Board who is not an employee of the
Company receives an annual fee of $10,000 and a fee for each Board or committee
meeting attended of $1,000 and the Chairman of the Audit Committee receives an
additional $10,000 per year.

         Board practices

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

           The members of the Supervisory Board and their period of service on
the Supervisory Board are as follows: Boaz Harel (2004), Menachem Atzmon (1999),
M. Albert Nissim (2003), Elie Housman (2002), Moshe Winer (2002), David W. Sass
(2002), Philip M. Getter (2003) and Lynda Davey (2003).

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

           ICTS's compensation committee consists of Boaz Harel, Chairman, Mr.
Nissim and Ms. Davey. The compensation committee determines salaries, incentives

<PAGE>
and other forms of compensation for ICTS's executive officers and administrators
stock plans and employee benefit plans.

         The Supervisory Board of the Company has adopted a Code of Ethics for
principal Executive Officers and Senior financial Officers.

           The Articles of Association of ICTS require at least one member for
both the Management Board and the Supervisory Board, but do not specify a
maximum number of members for such boards. The general meeting of shareholders
determines the exact number of members of both the Management Board and the
Supervisory Board. Under the laws of the Netherlands and the Articles of
Association, each member of the Supervisory Board and Management Board holds
office until such member's resignation, death or removal, with or without cause,
by the shareholders or, in the case of members of the Supervisory Board, upon
reaching the mandatory retirement age of 72.

         Employees

           Prior to the sale of its European operations, ICTS employed
approximately 5,000 people in Europe on a regular basis. After the sale of the
European operations, the number of employees in Europe is approximately 470.

           In the United States, prior to the enactment of the Security Act ICTS
employed approximately 5,000 people, of which approximately 1,300 were
unionized. Subsequent to the enactment of the Security Act, but prior to
November 2002 ICTS employed approximately 11,000 people, of which approximately
1,300 were unionized. Most of the unionized employees are skycaps and screeners.
ICTS believes that its relationships with employees are generally good. As a
result of the TSA taking over airport security ICTS currently employs
approximately 3,000 persons.


<PAGE>
         Share ownership.

           The following table sets forth the number of shares of common stock,
directly and indirectly, owned by all directors and executives of the Company as
of May 31, 2003.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                       Number of Shares
                                                       Beneficially Owned                 Percentage

         Boaz Harel                                            -                          -
         Atzmon Family Trust(1)                        3,948,500                          59%
         M. Albert Nissim                                      -                          -
         Moshe Winer                                       7,000                          *
         David W. Sass                                          -                         -
         Philip M. Getter                                       -                         -
         Lynda Davey                                            -                         -
         Michael Barnea                                         -                         -
         Eli Hausmann                                           -                         -
         Estate of Ezra Harel(1)                       3,948,500                          59%

         All Executive Officers and
         Directors as a Group 9 persons                3,955,500                          59.2%

         * Less than 1%
</TABLE>

         1. Harmony Ventures BV, owns directly and indirectly approximately 59%
of the issued and outstanding Common Shares. A family trust for the benefit of
the family of Mr. Menachem J. Atzmon (the "Atzmon Family Trust") and the Estate
of Ezra Harel own 100% of the outstanding shares of Harmony Ventures BV and may
be deemed to control Harmony Ventures BV. Mr. Atzmon disclaims any beneficial
interest in the Atzmon Family Trust. Harmony Ventures BV, the Atzmon Family
Trust and the Estate of Ezra Harel may be able to appoint all the directors of
ICTS and control the affairs of ICTS.

         Options to Purchase Securities.

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

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

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

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

<PAGE>
           As of May 31, 2004 ICTS has granted options to purchase 212,500
Common Shares, all of which have been granted to directors and executive
officers of the Company as a group, at exercise prices ranging from $4.50 to
$8.50 per share under the Plan. These options vest over various terms, ranging
from immediately to five years. Outstanding options expire at various times, but
not later than January 2007.

         Item 7. Major Shareholders and Related Party Transactions

         Major Shareholders.

           The following table sets forth certain information regarding the
beneficial ownership of the Common Shares of ICTS, as of May 31, 2004, by each
person, other than officers and directors, who is known by ICTS to own
beneficially more than 5% of the outstanding Common Shares:


                                      Number of Shares
                                      Beneficially Owned        Percentage

         Estate of Ezra Harel(1)      3,948,500                    59%
         Atzmon Family Trust(1)       3,948,500                    59%
         M. Albert Nissim                    -                      -
         Moshe Winer                      7,000                     *
         David W. Sass                       -                      -
         Philip M. Getter                    -                      -
         Lynda Davey                         -                      -
         Michael Barnea                      -                      -
         Eli Housman                         -                      -
         Boaz Harel                          -                      -

         All Executive Officers and    3,855,500                59.2%
         Directors as a Group 10 persons
         ---------------------------
         * Less than 1%

         1. Harmony Ventures BV, owns directly and indirectly approximately 59%
of the issued and outstanding Common Shares. The Atzmon Family Trust and the
Estate of Ezra Harel own 100% of the outstanding shares of Harmony Ventures BV
and may be deemed to control Harmony Ventures BV. Mr. Atzmon disclaims any
beneficial interest in the Atzmon Family Trust. Harmony Ventures BV, the Atzmon
Family Trust and the Estate of Ezra Harel may be able to appoint all the
directors of ICTS and control the affairs of ICTS.

<PAGE>
         Related Party Transactions.

           In 2001 and 2002, as part of the sale of its European operations,
ICTS in exchange for services rendered by the members of the Supervisory Board
and certain executives paid out the following bonuses:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

------------------------------------ --------------------- -----------------------------
           Name                                     2001                        2002
           ----                                     ----                        ----


         Ezra Harel                        $ 1,800,000 (1)                $  2,451,000(1)
         Boaz Harel                        $   169,000 (2)                $     71,000
         Savinoam Avivi                    $    18,000                    $     23,000
         Michael Barnea                    $   225,000 (3)                $    293,000(3)
         Gerald Gitner                     $   118,000                    $     24,000
         Menachem  Atzmon                  $   412,000 (4)                $    541,000(4)
         Amos Lapidot                      $    18,000                    $     23,000
         Lior Zouker                       $ 1,080,000 (5)                $  1,499,000(5)
         Albert Nissim                     $    30,000                    $     36,000
         Stefan Vermeulen                        0                        $     45,000
         Eli Talmor                        $     0                                   0
         Doron Zicher                      $    21,000                    $    146,000
         Leedan                            $   163,000 (6)                $  1,208,000
                                           $ 1,000,000

</TABLE>
         (1) This amount was due to Mr. Harel pursuant to his employment
agreement and was designated by him to be paid to Leedan, on behalf of Harmony.

         (2) Mr. Harel resigned as a member of the Supervisory Board on November
12, 2001. In exchange for this cash payment Mr. Harel also surrendered 16,667
stock options.

         (3) In consideration for services provided by Pinkhill Business Ltd.

         (4) Was assigned to Harmony BV in favor of the shareholder and was paid
to Leedan.

         (5) This amount was paid pursuant to Mr. Zouker's employment agreement.

         (6) In exchange for part of this cash payment Mr. Zicher surrendered
6,667 of stock options.


In August  1997,  ICTS,  as part of a group  consisting  of Leedan  Systems  and
Properties  Enterprises  (1993) Ltd. and Rogosin  Development  and Holdings Ltd.
("Rogosin"),  each at the time,  an  affiliate  of Leedan,  invested  in a joint
venture,  Bilu  Investments Ltd.  ("Bilu").  Bilu is engaged in the financing of
real  estate  projects  in  Israel,  primarily  in the  residential  market.  In
consideration for a 9.3% equity interest in Bilu, ICTS contributed  $259,000 and
has guaranteed  $2,915,000 of debt  obligations of Bilu. In 2000 Bilu issued 25%
of its shares to an unaffiliated party in consideration for an equity investment
of US $2,000,000 and the provision of guarantees for debt obligations of Bilu in
an amount of US  $3,800,000.  As a result , ICTS's  equity  interest in Bilu has
been  diluted to 7% and ICTS's  guarantee  was  reduced to  $2,515,000  of which
$700,000  is on behalf  of each of Leedan  and  Rogosin,  respectively.  Rogosin
became  an  unaffiliated  party  in  2002.  (See  Note  6(e)  to  the  financial
statements).

In connection with release of certain  guarantees of various debt obligations of
a third party procured by ICTS in 1997, in 2000 ICTS purchased from unaffiliated

<PAGE>
parties a $1,000,000  debenture  bearing interest at 10% per annum, due November
26,  2004,  issued by  Pioneer.  This  debenture  is  guaranteed  by Leedan,  an
affiliate of the Estate of Ezra Harel and Mr. Atzmon.

         In July 2000, each of ICTS and ICTS Tourist Attractions Ltd. ("ITA"),
purchased 16 common shares for $16,000 each of Ramasso from Leedan, representing
40% each of the outstanding share capital of Ramasso. The remaining 20% shares
in Ramasso are held by a company controlled by Leedan. ICTS provided loans to
Ramasso from time to time aggregating approximately $3,000,000 bearing an annual
interest rate of 4.25% which has no fixed repayment. Ramasso owns and operates,
a Time Elevator in Rome, Italy. In April, 2003 the Company provided a financial
institution that financed the Time Elevator in Rome, with a guaranty securing
the repayment of such financing. At the time the guaranty was provided the
amount of the financing provided by such financial institution to Time Elevator
in Rome has been net 1,838,390 Euro's. (See Note 5(b) to the financial
statements).

         In December 2000, ICTS exercised an option to purchase 100 common
shares of ITA for $600,000, representing 10% of the outstanding share capital of
ITA. On October 14, 2001, ICTS agreed to increase its investment in ITA under
the following principal terms: (a) ICTS provided ITA with a $3,000,000 loan
[which released a $1,000,000 bank guaranty previously provided by ICTS in favor
of ITA]; (b) ICTS was granted with a warrant to purchase 12% of ITA shares
exercisable during a period of three years, at an exercise price that shall be
determined according to an evaluation of ITA to be made by an independent
consultant; (C)) ICTS was granted [a right of first refusal] to establish and
own, on its own account, any Time Elevator project to be initiated by ITA in the
United States [and Europe]; (d) ITA will supervise and manage the establishment
of such projects for a fee that shall be equal to 20% of the projects costs; (e)
ICTS has the option to acquire from ITA 20% of ITA's stake in each Time Elevator
project of ITA in Europe for a period of two years from the start of such
project; and (f) ITA has the option to acquire from ICTS 20% of ICTS's stake in
each Time Elevator project of ICTS for a period of two years from the start of
such project. The first project for which ICTS exercise its right of first
refusal is in Atlantic City, New Jersey where ICTS is currently engaged in the
establishment of the Time Elevator project. The second project in which ICTS
exercised its right of first refusal, is in Baltimore, Maryland where ICTS is
currently establishing a Time Elevator project. As of May 31, 2004, ICTS has
invested $9,000,000 in the Atlantic City project and $4,400,000 in the
Baltimore, Maryland project. ITA is entitled to receive a management fee of 20%
for the services they provide in the development and construction of each of
these projects.

            On December 23, 2003 the Company through wholly owned subsidiaries
purchased from ITA International Tourist Attractions, Ltd., ("ITA") certain
assets owned by ITA and used by it in the development, establishment and
operation of motion-based entertainment theaters. The assets purchased consist
primarily of intangible property and certain equipment. ITA is a company in
which principal shareholder of the Company owed in the aggregate in excess of
50% of the shares. The purchase price for the assets purchased was
$5,429,151.00. The purchase price was paid by set-off against certain debts owed
by ITA to the Company, cash and notes. As a part of the transaction, certain
agreements made between the Company and ITA in 2001 were terminated, with the
result that the Company is no longer committed to involve ITA in its existing
and future entertainment projects. Prior to entering into the transaction the
Company obtained a fairness opinion as to the fairness of the consideration and
the transaction to the Company.

            The Company currently operates a fully owned motion-based
entertainment theater in Baltimore, MD and is establishing a new fully-owned
multi-experience motion-based entertainment theater in Atlantic City, NJ
scheduled to open by mid-2004. The Company is also a partner in a movie-based
entertainment facility in Niagara Falls, NY.

            ITA is an Israeli based private company established in 1994 which
has been engaged in the business of developing Time Elevators. Mr. Ezra Harel
and the Azmon Family Trust were the principal shareholders of ITA.
<PAGE>
            On July 24, 2001, ICTS, through an assignment from Noaz Management
Company, invested $400,000 in Artlink Inc, a company with expertise in curating
and producing art exhibits, servicing and representing young artists. Mr. Ezra
Harel was a principal shareholder of Noaz Management Company.

            During 2001 and 2002 ICTS provided loans to Leedan aggregating
approximately $3.6 million bearing interest at libor plus 3%. The loans were
repaid in the first half of 2003.

            During the period from April to September 2002, ICTS purchased
4,106,895 shares of Inksure Technologies Inc. ("Inksure"), which represents
34.3% of Inksure's outstanding shares for a purchase price of $5,986,000. In
October 2002, Mr. Elie Housman, the Chairman of the Board of Inksure, was
appointed to the ICTS Supervisory Board. Mr. Getter and Mr. Sass, members of the
ICTS Supervisory Board and our directors were elected to the Board of Inksure.
Messrs. Housman, Getter and Sass, as well as an entity assoicated with the
Atzmon Family Trust, own shares and warrants in Inksure. In addition, Messrs.
Housman, Getter and Sass hold options to purchase Inksure securities. Inksure
develops, markets and sells customized authentications systems designed to
enhance the security of documents and branded products and to meet the growing
demand for protection from counterfeiting and diversion. In March 2004 the
Company participated in Inksure's private placement purchasing 544,118
additional shares at an aggregate purchase price of $370,000. The Company owns
approximately 36% of the outstanding shares of Inksure.

            During 1998, ICTS purchased 150,000 shares of common stock of
Pioneer from Leedan for a purchase price of $5.00 per share. Pioneer is a sister
corporation through common ownership through Harmony. ICTS purchased 29,000
additional shares on October 10, 2001 at $2.25 per share. In addition, on
February 1, 2002, ICTS subscribed for an additional 260,000 shares at $2.00 per
share. In January 2003, ICTS purchased 235,300 shares of common stock of Pioneer
Commercial Funding Corp. at a purchase price of $0.90 per share in a private
placement. Mr. Albert Nissim, the secretary and member of the ICTS Supervisory
Board is the president and a Chairman of Pioneer, Lynda Davey, a member of the
ICTS Supervisory Board was a director of Pioneer and David W. Sass, a member of
the ICTS Supervisory Board is secretary of Pioneer and currently a director of
that company along with Mr. Boaz Hreal and M. Albert Nissim. The Estate of Ezra
Harel and the Atzmon Family Trust are also principal shareholders of Pioneer.

Item 8. Financial Information

Consolidated Statements and Other Financial Information.

  See pages F-1 through F- 49 incorporated herein by reference.

Legal Proceedings

         As a result of the September 11th terrorists attacks numerous lawsuits
have commenced against Huntleigh and ICTS. Huntleigh has been named in 51
lawsuits and ICTS in 51 lawsuits All of the cases were filed in the United
States District Court, Southern District of New York. The cases arise out of
Huntleigh's airport security service for United Flight 175 out of Logan Airport
in Boston, Massachusetts. All of the cases involve wrongful death except one
which involves property damage. The cases are in their early stages.

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

Under current legislation  Huntleigh and one other security company entered into
agreements with the TSA have their liability  limited to the amount of insurance
coverage that they carry. The legislation applies to Huntleigh, but not ICTS.
<PAGE>
The Company has commenced an action against the U.S.  Government  with regard to
the Fifth Amendment rights relating to the taking of its business.

Dividend Policy

         On each of July 23, 2001 and May 13, 2002, ICTS declared and paid a
$2.25 dividend per Share ($1.69 net of all withholding taxes required by The
Netherlands) and on December 10, 2002 ICTS declared and paid a dividend of $3.00
per share (net of all withholding taxes required by The Netherlands). For a
discussion of the applicable taxes on such dividends see, "Netherlands Dividend
Withholding Tax". The declaration of dividends will be at the discretion of our
board of directors and will depend upon our earnings, capital requirements,
financial position, general economic conditions, and other pertinent factors. We
cannot assure you that dividends will be paid in the future.

Significant Changes.

None

Item 9. The Offer and Listing

       ICTS's shares of common stock have traded on the NASDAQ National Market
since 1996 under the symbol ICTS.

The reported high and low sales prices per share during the years ending
December 31, 2001, 2002 and 2003 as reported on NASDAQ were as follows:

The reported  high and low closing sales prices per share during each quarter as
reported on NASDAQ were as follows:

          2001:                             High    Low
                                            ----    ---
                  First quarter             $7.81  $5.75
                  Second quarter             7.55   4.75
                  Third quarter             10.60   4.00
                  Fourth quarter            11.59   6.51


          2002:                             High     Low
                                            ----    ---
                  First quarter             $7.75   $6.71
                  Second quarter            10.20    6.04
                  Third quarter              7.72    5.00
                  Fourth quarter             8.62    4.91

         2003:                              High    Low
                                            ----    ---
                  First quarter             $6.14   $5.08
                  Second quarter             5.10    3.99
                  Third quarter              4.42    3.12
                  Fourth quarter             3.63    2.49

         2004:                              High    Low
                                            ----    ---
                  First quarter             $3.98   $3.03
                  Second quarter            $8.42   $3.25

<PAGE>
         Item 10. Additional Information
         Memorandum and Articles of Association

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

     Shares
     The Company's authorized share capital is currently divided into 17,000,000
common shares,par value 0.45 Euro per common share. The common shares may be in
bearer or registered form.

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

     Voting Rights

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

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

     Other general meetings of shareholders may be held as often as deemed
necessary by the Supervisory Board or the Management Board and must be held if
one or more shareholders or other persons entitled to attend the general meeting
of shareholders jointly representing at least 10% of the Company's issued share

<PAGE>
capital make a written request to the Supervisory Board or the Management Board
that a meeting must be held and specifying in detail the business to be dealt
with at such meeting. Resolutions are adopted at general meetings of
shareholders by a majority of the votes cast, except where a different
proportion of votes is required by the Articles of Association or Netherlands
law, in a meeting in which holders of at least one-third of the outstanding
common shares are represented. Each share carries one vote.

     Amendment of Articles of Association and Winding Up

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

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

     Liquidation Rights

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

         Issues of Shares; Pre-emptive Rights

         The Company's Supervisory Board has the power to issue shares. The
shareholders have by a authorizing resolution provided such authority for a five
year period ending June 30, 2006. The number of shares the Supervisory Board is
authorized to issue must be set at the time of the resolution and may not exceed
17,000,000 shares of the common shares then outstanding.

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

         Repurchase and Cancellation of Shares

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

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

For  material  contracts  See "Item 8 - Financial  Information,  B.  Significant
Changes".

          Exchange controls

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

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

         Taxation

         United States Federal Income Tax Consequences

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

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

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

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

           Taxation of Dividends

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

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

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

           Taxation on Sale or Disposition of Shares

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

           Gift and Estate Tax

         An individual U.S. Holder may be subject to U.S. gift and estate taxes
on shares in the same manner and to the same extent as on other types of
personal property.
<PAGE>
           Backup Withholding and Information Reporting

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

           Foreign Personal Holding Companies

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

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

         Taxes in the Netherlands

The following is a general discussion of the tax laws in the Netherlands as they
relate to the operations of the Company :

         Corporate Income Taxes

         Each subsidiary of ICTS is subject to taxation according to the
applicable tax laws with respect to its place of incorporation, residency or
operations. ICTS is incorporated under the laws of the Netherlands and is
therefore subject to the tax laws of the Netherlands.

         As of January 1 2002, for Dutch corporate income tax purposes business
affiliates should calculate their profits at arms length. Therefore, if in
transactions between such affiliates, certain benefits are bestowed on either
entity because of such affiliation and if any profits are realized due to such
association, then both entities should include such profits as part of their
income.

         Participation exemption

         In addition, all income of ICTS arising from dividends paid by its
subsidiaries or affiliates or capital gains from the sale of its shares in
subsidiaries or affiliates is exempt from corporate income tax in the
Netherlands if the following conditions are fulfilled: (i) ICTS must hold at
least 5% of the nominal paid-in capital of the subsidiary or affiliate, (ii) the
subsidiary or affiliate must be an operating company, (iii) the subsidiary or
affiliate must be subject to taxation of its profits in its jurisdiction of
incorporation or residence and (iv) for non-European Community subsidiaries or

<PAGE>
affiliates or for European Community subsidiaries or affiliates in which ICTS
owns less than 25% of the nominal paid-in capital, as well as for larger
shareholdings if the EU company is to benefit from the participation exemption,
ICTS must not hold the shares in the subsidiary or the affiliate merely as a
portfolio investment (which is deemed to be the case if the activities of the
subsidiary or affiliate consist mainly of the financing (directly or indirectly)
entities related to ICTS or assets of such entities). Furthermore, the
participation is denied if 70 percent or more of the assets of any participation
would consist of interests in companies which would not be considered qualifying
participations if the interests would have been directly held by ICTS. The
participation exemption will also be excluded for participations in EU companies
with foreign branches if the branches would not have been exempted in case they
would have been held directly by ICTS.

           Consequently, income of ICTS arising from dividends paid by its
subsidiaries or affiliates or capital gains from the sale of its shares in its
subsidiaries or affiliates may be exempt from corporate income tax in the
Netherlands.

         Limitations on set-off of losses

         As from 1 January 2004, new rules have been introduced that may affect
the carry forward of losses of prior years against profits made in 2004 and
subsequent years. Generally, the new rules provide that, if the activities of a
company for the entire year entirely or almost entirely (i.e. 90%) consist(ed)
for 90% or more of the holding of participations or (in)directly financing
related companies, losses resulting from these activities can only be set off
against:

1. the profits of years in which the activities of the taxpayer for (almost) the
entire year also (almost) entirely consisted of the holding of participations or
(in)directly financing of related companies; and 2. the book value of debt
claims on related companies less the book value of debts to these companies in
(almost) the entire year does not exceed the book value of other comparable
debts less the book value of other comparable debts at the end of the year in
which the loss was realized.

         The new rules clarify that the activities of a company will not be
deemed to be (almost) entirely consisting of the holding of participations or
(in)directly financing related companies if at least 25 employees are engaged in
other activities on a full-time basis.

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

         Netherlands Tax Consequences of Holding Shares

The following is a general discussion of the tax laws in the Netherlands as they
relate to the holding shares of the Company :

         Dividend Withholding Tax in the Netherlands

         ICTS currently does not anticipate paying any dividends in the
foreseeable future. To the extent that dividends are distributed by ICTS, such
dividends ordinarily would be subject, under the tax laws of the Netherlands, to
a withholding tax at a rate of 25%. Dividends include distributions in cash or

<PAGE>
in kind, constructive dividends and redemption and liquidation proceeds in
excess of, for the Netherlands tax purposes, recognized paid-in capital. Share
dividends are also subject to the Netherlands dividend withholding tax, unless
distributed out of the paid-in share premium of ICTS as recognized for tax
purposes in the Netherlands.

         A non-resident Shareholder can be eligible for a reduction or a refund
of the Dutch dividend withholding tax under a tax convention which is in effect
between the country of residence of the shareholder and the Netherlands. The
Netherlands has concluded such conventions with, among others, the United
States, most European Community countries, Canada, Switzerland and Japan. Under
most of these conventions, a dividend withholding tax in the Netherlands is
reduced to a rate of 15% or less.

         Under the tax convention currently in force between the United States
and the Netherlands (the "Treaty"), dividends paid by ICTS to an individual
shareholder resident in the United States or a corporate shareholder organized
under the laws of the United States or any State or territory thereof entitled
to the benefits of the Treaty (each, a "U.S. Treaty Shareholder") are generally
eligible for a reduction in the rate of the Netherlands= dividend withholding to
15%, unless such U.S. Treaty Shareholder has a permanent establishment in the
Netherlands to which the Common Shares are attributable.

         Generally, there is no dividend withholding tax applicable in the
Netherlands on the sale or disposition of Common Shares to persons other than
ICTS or its subsidiaries or affiliates. In case of sale or disposition of common
shares to ICTS or any of its subsidiaries, the dividend withholding tax in the
Netherlands may apply. However, after January 1, 2001, in limited circumstances,
the Dutch dividend withholding tax will not apply to repurchases of shares by
ICTS.

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

         Income Tax and Corporate Income Tax in the Netherlands

         A non-resident Shareholder will not be subject to income tax and
corporate income tax in the Netherlands with respect to dividends distributed by
ICTS on the Common Shares or with respect to capital gains derived from the sale
or disposal of Common Shares, provided that:

                  (a) the non-resident Shareholder does not carry on a business
in the Netherlands through a permanent establishment or a permanent
representative to which or to whom the Common Shares are attributable; and

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

                  (c) the non-resident Shareholder is not entitled to a share in
the profits of an enterprise effectively managed in the Netherlands, other than
through ownership of securities or through employment, to which enterprise the
Common Shares are attributable.

         Generally, a substantial interest in the share capital of ICTS does not
exist if the non-resident Shareholder, alone or together with certain close
relatives, does not own, directly or indirectly, 5% or more of the issued
capital of any class of shares in ICTS, options to acquire 5% or more of the
issued capital of any class of shares or certain profit-sharing rights. In case
of a substantial interest claims the non-resident Shareholder has on ICTS may
belong to such substantial interest. Non-resident Shareholders owning a
substantial interest in ICTS may be subject to income tax upon the occurrence of
certain events, for example when they cease to own a substantial interest.

         The above paragraph concerning substantial interest holders refers to
tax legislation which became effective January 1, 1997. Special rules may apply
to non-resident Shareholders who owned a substantial interest or deemed

<PAGE>
substantial interest under the rules applicable before such dates and to
non-resident Shareholders who own a substantial interest or deemed substantial
interest as a result of modifications of the special tax regime for substantial
interest holders as of such dates.

         As of January 1, 2001, a non-resident individual taxpayer can opt to be
treated like a resident of the Netherlands for tax purposes. This choice will
allow the individual to benefit from deductions and other tax benefits only
available to residents of the Netherlands. However, in most cases, this choice
may not prove beneficial since then the individual will be liable for its
worldwide income as well as its entire worldwide holdings to taxes in the
Netherlands.

         Net Wealth Tax in the Netherlands

         Net wealth tax in the Netherlands was abolished on January 1, 2001.


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

         A gift or inheritance of Common Shares from a non-resident Shareholder
will not be subject to gift, inheritance tax, and transfer tax upon gift or
death in the Netherlands provided that:

                  (a) (i) the Common Shares are not an asset attributable to a
resident enterprise or to a permanent establishment or a permanent
representative of a non-resident enterprise, as well as the Common Shares are
not an asset that comes of a co-entitlement other than being a shareholder, in
such an enterprise and (ii) the non-resident Shareholder is not entitled to a
share in the profits of an enterprise effectively managed in the Netherlands,
other than through ownership of securities or through employment, to which
enterprise the Common Shares are attributable.

                  (b) the Common Shares held by the non-resident do not qualify
as "fictitious real estate holdings" for Dutch real estate transfer tax
purposes.

                  (c) the non-resident Shareholder has not been a resident of
the Netherlands at any time during the ten years preceding the time of the gift
or death or, in the event he or she has been a resident of the Netherlands in
that period, the non-resident Shareholder is not a citizen of the Netherlands at
the time of the gift or death; and

                  (d) for purposes of the tax on gifts, the non-resident
Shareholder has not been a resident of the Netherlands at any time during the
twelve months preceding the time of the gift.

                  (e) the beneficiaries of a deceased non-resident Shareholder
have not requested the treatment of the deceased Shareholder as a resident of
the Netherlands according to the Dutch inheritance taxes.

                  (f) In case of a grant of the Common Shares by a non-resident
Shareholder, the donee has not requested to have the donor treated as a resident
of the Netherlands for Dutch gift tax purposes.

Documents on display

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, the
Company files reports and other information with the United States Securities
and Exchange Commission (`SEC'). These materials may be inspected at the
Company's office in Amstelveen, The Netherlands.. Documents filed with the SEC
may also be read and copied at the SEC's public reference room at Room 1024,

<PAGE>
Judiciary Plaza Building, 450 Fifth Street N.W., Washington, D.C. 20549 and at
the regional offices of the SEC located at 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The SEC also maintains a web site at
http://www.sec.gov that contains reports, proxy statements and other information
regarding registrants that file electronically with the SEC.

 Subsidiary Information

         Not applicable

Item 11. Quantitative and Qualitative Disclosure About Market Risk

     Foreign Currency Exchange Risk -  See Item 3 - Risk Factors;

See Item 5. Operating and Financial  Review and Prospects - Operating  results -
General; and See Item 10 - Exchange Controls.

Item 12. Description of Securities Other than Equity Securities

         Not applicable

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

         Not applicable

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

         Not applicable

Item 15. Controls and Procedures.

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

  There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their most recent evaluation.

<PAGE>
         Item 16C.         Principal Accountant Fees and Services

         Auditors' fees for the year 2003 were the following:

Audit fees
Audit fees                                          $452,544
Other accounting services fees                        $  685
Sub total                                           $453,229
Non-Audit services:
Tax consultation services                            $50,527
Tax returns                                          $54,000
Total non-audit services                            $104,527

Total fees                                          $557,756


                                                                    PART III
         Item 17. Financial Statements
                   See Item 18.
         Item 18. Financial Statements
         Report of Independent Auditors
         Consolidated Financial Statements:
         Consolidated Balance Sheets
         Consolidated Statements of Operations
         and Comprehensive Income
         Consolidated Statements of Changes in
         Shareholders' Equity.
         Consolidated of Statements of Cash Flows
         Notes to Consolidated Financial Statements

         Item 19.  Exhibits
         1. Articles of Association of the Company.*

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

     Certification by the Registrant's Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
     Certification by the Registrant's Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
      * Incorporated by reference to the Company's 1999 annual report
filed with the Commission on Form 20-F.
<PAGE>
                             ICTS INTERNATIONAL N.V.
                               2003 ANNUAL REPORT

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                                                                     Page
Report of independent auditors                                                                    F-2 - F-3
Consolidated financial statements:
    Consolidated balance sheets                                                                   F-4 - F-5
    Consolidated statements of operations and comprehensive income (loss)                            F-6
    Consolidated statements of changes in shareholders' equity                                       F-7
    Consolidated statements of cash flows                                                          F-8- F-9
Notes to consolidated financial statements                                                       F-10 - F-52

<PAGE>

                                                                                         Kesselman & Kesselman
                                                                                         Certified Public Accountants
                                                                                         (Isr.)
                                                                                         Trade Tower, 25 Hamered Street
                                                                                         Tel Aviv 68125 Israel
                                                                                         P.O Box 452 Tel Aviv 61003
                                                                                         Telephone +972-3-7954555
                                                                                         Facsimile +972-3-7954556

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
ICTS INTERNATIONAL N.V.

We  have  audited  the   accompanying   consolidated   balance  sheets  of  ICTS
International  N.V. (the "Company") and its subsidiaries as of December 31, 2003
and  2002,   and  the  related   consolidated   statements  of  operations   and
comprehensive income, changes in shareholders'equity and cash flows for each of
the  three  years  in the  period  ended  December  31,  2003.  These  financial
statements  are the  responsibility  of the  Company'  board of  directors  and
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We did not audit the financial statements of certain subsidiaries,  whose assets
included in  consolidation,  constitute  approximately 2% of total  consolidated
assets  as of  December  2002,  and whose  revenues  included  in  consolidation
constitute  approximately  0.3% and 14% of total  consolidated  revenues for the
years  ended  December  31,  2002 and 2001  respectively.  We did not  audit the
financial statements of certain associated  companies,  the Company's investment
in which, as reflected in the balance sheets as of December 31, 2003 and 2002 is
$4 million and $9.6 million,  respectively,  and the Company's share in excess
of losses over profits of which is a net amount of $1.7 million,  $1.6 and $0.39
million in 2003, 2002 and 2001,  respectively.  The financial  statements of the
above  subsidiaries and associated  companies were audited by other  independent
auditors,  whose reports have been furnished to us, and our opinion,  insofar as
it relates to amounts included for those  companies,  is based on the reports of
the other independent auditors.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting  Oversight  Board  (United  State) and auditing  standards  generally
accepted in Israel,  including those prescribed by the Israeli auditors (Mode of
performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates made by the Company's  Supervisory  board of directors and management,
as well as evaluating the overall financial statement  presentation.  We believe
that our  audits  and  reports  of the  other  independent  auditors  provide  a
reasonable basis for our opinion.

In our  opinion,  based on our  audits  and the  reports  of  other  independent
auditors,  the  consolidated  financial  statements  referred  to above  present
fairly, in all material  respects,  the consolidated  financial  position of the
Company  and  its  subsidiaries  as of  December 31, 2003  and  2002,  and  the
consolidated  results of their operations and comprehensive  income, the changes
in their  shareholders'  equity and their cash flows for each of the three years
in the period ended December 31,  2003, in conformity with accounting principles
generally accepted in the United States of America.

F-2

<PAGE>
Without  qualifying our opinion,  we draw attention to Note 14b(3),  regarding a
dispute between the company's  subsidiary in the U.S.A.  and the  Transportation
Security  Administration  ("TSA"),  with respect to the basis of  calculation of
payments for security  services  rendered in 2002, in respect of which,  the TSA
might be claiming refund of material amounts.

As  discussed in note 2g to the  consolidated  financial  statements,  effective
January 1, 2002,  the Company  changed its method of accounting  for goodwill to
conform with FASB Statement of Financial  Accounting  Standard No. 142 "Goodwill
and Other Intangible Assets".



Tel Aviv, Israel                                                                      Kesselman & Kesselman
    July 13, 2004                                                             Certified Public Accountants (Isr.)
F-3
<PAGE>

                                                        ICTS INTERNATIONAL N.V.
                                                      CONSOLIDATED BALANCE SHEETS
                                                (US $ in thousands, except share data)


                                                                                          December 31,
                                                                                       2003          2002
                                       A s s e t s
         CURRENT ASSETS:
             Cash and cash equivalents (note 2c)                                         $7,660       $32,465
             Restricted cash and short term investments (note 3)                          3,114        13,083
             Accounts receivable - trade                                                 13,798        15,628
             Short-term loan to a related party (note 19c)                                              3,738
             Prepaid expenses                                                             1,323         1,108
             Deferred income taxes (note 16b)                                               385         5,409
             Other current assets                                                         4,583         1,804
                                                                                        _______       _______
                    T o t a l  current assets                                            30,863        73,235
                                                                                        _______       _______
         INVESTMENTS:
             Investments in associated companies (note 5)                                 5,308         9,919
             Other investments (note 6)                                                  16,287         9,558
             Deferred income taxes (note 16b)                                                33            28
                                                                                        _______       _______
                                                                                         21,628        19,505
                                                                                        _______       _______
         PROPERTY AND EQUIPMENT (note 7):
             Cost                                                                        30,629        32,408
             Less - accumulated depreciation and amortization                             6,666         2,991
                                                                                        _______       _______
                                                                                         23,963        29,417
                                                                                        _______       _______
         GOODWILL (note 8)                                                                  314         1,167
                                                                                        _______       _______
          OTHER ASSETS , net of
             accumulated amortization (note 9)                                            7,732         2,120
                                                                                        _______       _______
                    T o t a l  assets                                                   $84,500      $125,444
                                                                                        _______       _______
                                                                                        _______       _______


F-4
<PAGE>

                                                                                                December 31,
                                                                                             2003          2002
                             Liabilities and shareholders' equity
       CURRENT LIABILITIES:
           Short-term bank credit (note 10)                                                   $4,387        $8,651
           Current maturities of long-term liabilities (note 12)                               2,752         2,097
           Accounts payable - trade                                                              964           975
           Liabilities for losses of associated companies (note 5)                             2,130
           Accrued expenses and other liabilities (note 11)                                   17,865        46,585
                                                                                             _______       _______
                  Total  current liabilities                                                  28,098        58,308
                                                                                             _______       _______
       LONG-TERM LIABILITIES:
           Accrued severance pay (note 13)                                                        90            78
           Deferred income taxes (note 16b)                                                       19
           Long-term liabilities, net of current maturities (note 12)                          9,332         5,680
                                                                                             _______       _______
                  T o t a l  long-term liabilities                                             9,441         5,758
                                                                                             _______       _______
       COMMITMENTS AND CONTINGENT
           LIABILITIES (note 14)
                                                                                             _______       _______
                  T o t a l  liabilities                                                      37,539        64,066
                                                                                             _______       _______
       SHAREHOLDERS' EQUITY:
          Share capital - shares of common stock, par value 0.45 Euro,
              December 31, 2003 and 2002:
              Authorized - 17,000,000 shares; issued and outstanding -
              6,672,980 shares.                                                                3,605         3,605
           Additional paid-in capital                                                         19,670        19,670
           Retained earnings                                                                  30,612        49,516
           Accumulated other comprehensive loss                                               (5,947)      (10,434)
                                                                                             _______       _______
                                                                                              47,940        62,357

       Treasury stock at cost - December 31, 2003 and 2002-159,880 shares                       (979)         (979)
                                                                                             _______       _______
                  Total  shareholders' equity                                                 46,961        61,378
                                                                                             _______       _______
                  Total  liabilities and shareholders' equity                                $84,500      $125,444
                                                                                             _______       _______
                                                                                             _______       _______



                         The accompanying notes are an integral part of the consolidated financial statements.
F-5
<PAGE>


                                                        ICTS INTERNATIONAL N.V.
                                    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                              (US $ in thousands, except per share data)

                                                                                        Year ended December 31,
                                                                                    2003           2002          2001

REVENUES (note 1b,c)                                                               $71,571       $279,931      $212,137
COST OF REVENUES                                                                    57,562        214,054       189,925
                                                                                   _______        _______       _______
GROSS PROFIT                                                                        14,009         65,877        22,212
SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                         9,216         25,636        19,461
IMPAIRMENT OF ASSETS (notes 7,8,9)                                                  14,352          9,156
CONTRACT SETTLEMENT EXPENSES (note 5a(3))                                            9,559
                                                                                   _______        _______       _______
OPERATING INCOME (LOSS)                                                            ( 9,559)        31,085         2,751
INTEREST INCOME                                                                      2,248          2,072         1,649
INTEREST EXPENSE                                                                    (1,222)        (1,678)       (1,637)
EXCHANGE DIFFERENCES                                                                  (242)         2,356         1,965
OTHER INCOME (EXPENSES), net (note 15)                                                (353)        41,229        29,520
                                                                                   _______        _______       _______
INCOME (LOSS) BEFORE TAXES ON INCOME                                               ( 9,128)        75,064        34,248
TAXES ON INCOME (note 16)                                                            3,115         16,442         4,919
                                                                                   _______        _______       _______
INCOME (LOSS) FROM OPERATIONS OF THE COMPANY
    AND ITS SUBSIDIARIES                                                           (12,243)        58,622        29,329
SHARE IN LOSSES OF ASSOCIATED
    COMPANIES - net (note 5)                                                        (6,661)        (1,807)         (395)
MINORITY INTERESTS IN PROFITS OF
    SUBSIDIARIES - net                                                                                           (2,736)
                                                                                   _______        _______       _______
NET INCOME (LOSS) FOR THE YEAR                                                    $(18,904)       $56,815       $26,198
                                                                                   _______        _______       _______
OTHER COMPREHENSIVE INCOME (LOSS):
    Translation adjustments                                                          3,456            710        (1,811)
    Unrealized gains (losses) on marketable securities                                 794            731          (345)
    Reclassification adjustment for losses for available for sale
        securities included in net income                                              237           (771)          368
                                                                                   _______        _______       _______
                                                                                     4,487            670        (1,788)
                                                                                   _______        _______       _______
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE
    YEAR                                                                          $(14,417)       $57,485       $24,410
                                                                                   _______        _______       _______
                                                                                   _______        _______       _______
EARNINGS (LOSSES) PER SHARE (note 20):
    Basic                                                                           $(2.90)         $8.85         $4.18
                                                                                   _______        _______       _______
                                                                                   _______        _______       _______
    Diluted                                                                         $(2.90)         $8.80         $4.09
                                                                                   _______        _______       _______
                                                                                   _______        _______       _______


The accompanying notes are an integral part of the consolidated financial statements.
F-6
<PAGE>


                                               ICTS INTERNATIONAL N.V.
                              CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                        (US $ in thousands, except share data)



                                  Shares of common                                               Accumulated
                                      stock                Additional    Other                   other
                                    Number                  paid-in      capital      Retained   comprehensive   Treasury
                                    of shares    Amount     capital      surplus      earnings    loss            stock     Total

BALANCE AT JANUARY 1, 2001          6,248,869    $3,565      $19,102        $45       $14,824    $(9,316)      $(1,775)   $26,445
CHANGES DURING 2001:
  Stock options exercised              69,100        27          435                                                          462
                                                                                                                           _______
  Cost of acquisition of treasury     (18,902)                                                                    (132)      (132)
stock
                                                                                                                           _______
  Stock options exercised from
treasury
    Stock                              33,333                               (20)                                   187        167
                                                                                                                           _______
  Dividend                                                                                (14,092)                         (14,092)
                                                                                                                           _______
  Comprehensive income:
    Net income                                                                             26,198                           26,198
    Other comprehensive income
(loss):
      Translation adjustments                                                                         (1,811)               (1,811)
      Unrealized gains on marketable
       Securities                                                                                         23                   23
                                                                                                                            _______
      Total comprehensive income                                                                                            24,410
                                    ________   _______      _______    _______       _______        _______       _______   _______
BALANCE AT DECEMBER 31, 2001       6,332,400   13,592       19,537         25        26,930      * (11,104)      (1,720)   $37,260
                                   ________   _______      _______    _______       _______        _______        _______   _______
CHANGES DURING 2002:
  Stock options exercised             32,400       13          133                                                             146
                                                                                                                           _______
  Cost of acquisition of treasury   (120,000)                                                                      (907)      (907)
stock
                                                                                                                               ___
  Options issued to consultants                                           29                                                    29
(note 21)
                                                                                                                              _____
  Stock options exercised from
treasury
    Stock                            268,300                            (54)          (36)                           1,648    1,558
                                                                                                                             ______
  Dividend                                                                         (34,193)                                 (34,193)
                                                                                                                            _______
  Comprehensive income:
    Net income                                                                      56,815                                  56,815
    Other comprehensive income
(loss):
      Translation adjustments                                                                           710                    710
      Unrealized losses on marketable
       Securities                                                                                       (40)                   (40)
                                                                                                                            _______
      Total comprehensive income                                                                                            57,485
                                   ________   _______      _______    _______       _______        _______        _______   _______
BALANCE AT DECEMBER 31, 2002      6,513,100     3,605       19,670        --        49,516      * (10,434)         (979)   $61,378
                                   ________   _______      _______    _______       _______        _______        _______   _______
CHANGES DURING 2003:

  Comprehensive loss:
    Loss                                                                           (18,904)                                (18,904)
    Other comprehensive income:
      Translation adjustments                                                                              3,456            3,456
      Unrealized gains on marketable
       Securities                                                                                          1,031            1,031
                                                                                                                            ______
      Total comprehensive loss                                                                                            (14,417)
                                  ________   _______      _______    _______       _______        _______        _______   _______
BALANCE AT DECEMBER 31, 2003     6,513,100    $3,605      $19,670        --       $30,612       $*(5,947)        $(979)   $46,961
                                  ________   _______      _______    _______       _______        _______        _______   _______

* Composed as follows:
                                                                                       December 31,
                                                                             2003          2002          2001
    Cumulative translation adjustments                                       $(6,677)     $(10,133)     $(10,843)
    Cumulative unrealized gains (losses) on marketable securities                730          (301)         (261)
                                                                             _______       _______       _______
                                                                             $(5,947)     $(10,434)     $(11,104)
                                                                             _______       _______       _______

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

F-7
<PAGE>
                                                                                                       (Continued) - 1
                                               ICTS INTERNATIONAL N.V.
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (US $ in thousands)

                                                                                            Year ended December 31,
                                                                                     2003           2002            2001
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss) for the year                                                $(18,904)       $56,815       $26,198
    Adjustments to reconcile net income to net cash provided by
       (used in) operating activities:
       Depreciation and amortization.                                                3,417          1,481         2,105
       Impairment of  assets                                                        14,352          9,156
              Loss on contract settlement                                            5,266
       Deferred income taxes                                                         5,047         (4,273)          (84)
       Increase (decrease) in accrued severance pay                                      6             (9)            8
       Options to service providers and consultants                                                    29
       Capital loss (gain) on fixed assets                                               6             (3)          550
       Gain on sale  of the investment in ICTS Europe                                             (42,797)      (34,260)
       Realized loss (gain) on sale of other investments                                             (108)       (1,232)
       Unrealized profit on sale of APS                                                                            (468)
        Realized loss (gain) on marketable securities                                 (737)            89           780
        Revaluation of short term deposits                                                            (33)
       Write off of loans                                                                                           334
       Write off of Investments and impairment of investment                           400          1,672         4,489
       Minority interests                                                                                         2,736
       Share in losses of associated companies                                       6,661          2,036           395
       Interest from other long-term investments (derivative)                          (31)           (52)
              Interest on a loan to associated company                                (100)
       Changes in operating assets and liabilities:
           Accounts receivable                                                       2,097          8,784       (13,768)
           Other current assets and prepaid expenses                                (2,436)           469        (1,248)
           Accounts payable                                                            (44)           139         1,441
           Accrued expenses and other liabilities                                  (28,852)        28,230        13,011
                                                                                    ______         ______        ______
    Net cash provided by (used in) operating activities                            (19,118)        61,625           987
                                                                                    ______         ______        ______
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of equipment and construction of entertainment projects                (7,895)       (20,346)       (1,564)
    Acquisitions of subsidiaries and operations (a)                                   (711)        (1,273)
    Associated companies - acquisition of shares and granting of loans              (2,109)        (8,448)       (3,524)
    Acquisition of the 20% minority share in subsidiary                                                          (1,900)
    Other investments                                                               (5,202)        (9,050)       (2,100)
    Proceeds from sale of equipment                                                     92            508           557
    Proceeds from sale  of investment in ICTS Europe, net                                          49,387        38,420
    Cash in subsidiary excluded from consolidation                                                               (7,388)
    Proceeds from sale of associated company                                                                      2,000
    Proceeds from sale of other investments                                          1,000          1,458            79
    Long term loans granted to a related party                                                     (1,500)       (2,219)
       Repayment of long term loans granted to related parties                       3,700
    Decrease (increase) of time deposits and restricted cash                         4,735         (8,154)
    Purchase of marketable securities available for sale                                           (3,309)       (1,235)
    Proceeds from sale of marketable securities available for sale                   3,726            318           388
    Proceeds from sale of short-term investments                                                        7         2,031
    Decrease (increase) in other assets                                               (579)            78           (19)
                                                                                    ______         ______        ______
    Net cash provided by (used in) investing activities                             (3,243)          (324)       23,526
                                                                                    ______         ______        ______
CASH FLOWS FROM FINANCING ACTIVITIES:
    Stock options exercised                                                                         1,704           629
    Cost of acquisition of treasury stock                                                            (907)         (132)
    Dividend paid                                                                                 (34,193)      (14,092)
    Long-term loan received                                                          4,113                       51,078
    Repayments of long-term liabilities                                             (2,266)       (16,249)      (51,282)
    Net increase (decrease) in short-term bank credit                               (4,270)         3,587         3,287
                                                                                    ______         ______        ______
    Net cash used in financing activities                                           (2,423)       (46,058)      (10,512)
                                                                                    ______         ______        ______
EFFECT OF CHANGES IN FOREIGN CURRENCY
    EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                        (21)          (192)       (2,893)
                                                                                    ______         ______        ______
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   (24,805)        15,051        11,108
BALANCE OF CASH AND CASH EQUIVALENTS
    AT BEGINNING OF YEAR                                                            32,465         17,414         6,306
                                                                                    ______         ______        ______
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR                                 $7,660        $32,465       $17,414
                                                                                    ______         ______        ______
                                                                                    ______         ______        ______
F-8
<PAGE>
                                               ICTS INTERNATIONAL N.V.
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (US $ in thousands)



                                                                                     Year ended December 31,
                                                                                2003          2002          2001
SUPPLEMENTAL DISCLOSURES OF CASH
    FLOW ACTIVITIES:
    Cash paid during the year for:
    Interest                                                                       $578         $906        $1,199
                                                                                _______       ______        ______
    Taxes on income                                                              $5,679      $19,876        $2,548
                                                                                _______      _______       _______
SUPPLEMENTAL DISCLOSURES OF NON-CASH
    INVESTING AND FINANCING ACTIVITIES:
    Investment in Subsidiary (note 4b)                                                          $589
                                                                                             _______
    Purchase of  equipment (note 7d)                                                          $8,500
                                                                                             _______


                                                                             Year ended December 31,
                                                                                2003         2002
(a) Acquisitions of subsidiaries and operations (see notes 4
       and 5a(3)):
       Assets and liabilities of the subsidiaries and operations
         acquired at date of acquisition, net of cash acquired:
           Working capital, excluding cash and cash equivalents                                $410
           Property, equipment and investments                                   $163           183
              Intangible assets                                                 5,266         2,701
           Accrued severance pay                                                                 (3)
                                                                             _______          _______
                                                                                5,429         3,291
       Goodwill                                                                               1,181
       Less:
         Carrying amount of investments in those companies
           prior to consolidation                                                            (2,610)
         Long term liabilities - issuance of notes                             (1,176)
         Loan, including interest thereon, which was granted
           in the past and waived                                              (3,542)
                                                                             _______         _______
                                                                                  711         1,862
       Less- non-cash investment                                                                589
                                                                             _______         _______
                                                                                 $711        $1,273

                The accompanying notes are an integral part of the consolidated financial statements.
F-9
<PAGE>

NOTE 1 - GENERAL

a.       Operations

                  ICTS International  N.V.,  including its subsidiaries  (collectively  referred to
                  herein as "ICTS" or "the Company"),  is a provider of aviation security and other
                  aviation  related  services.  ICTS also  engages  in  certain  other  activities,
                  including  constructing  and  developing   entertainment  related  projects,  and
                  leasing of equipment.
                  As mentioned in b. below,  in 2002 the Company  derived a substantial  portion of
                  its revenues from  providing  aviation  security  services to the  Transportation
                  Security  Administration  ("TSA").  Commencing  November 2002 the Company  ceased
                  providing  such  services to the TSA but  continues to provide  such  services to
                  aviation companies and others. As to Segment Information see note 18.

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

                  On November  19,  2001,  as a result of the events of  September  11,  2001,  the
                  Aviation  and  Transportation  Security Act was signed into law. The Aviation and
                  Transportation  Security Act made airport security  including  security screening
                  operations for passenger air  transportation  and intrastate air transportation a
                  direct  responsibility of the Federal government as administered by the TSA. As a
                  result, in accordance with a contract signed with the TSA ("TSA  Contract"),  the
                  Company has  provided  screening  services in its  airport  locations  during the
                  transition   period  through   November  2002,  when  all  such  activities  were
                  transferred  to the TSA.  Through  December  31,  2002,  the Company has recorded
                  revenues  of  approximately  $205  million  from  the  TSA.  As a  result  of the
                  foregoing  the  Company  closed  certain  locations  and  dismissed  part  of its
                  employees.  Closure and  severance  expenses in the amount of $27.3  million were
                  included in  operating  expenses of 2002.  As to the dispute with the TSA,
                  see note 14b(3).

                  During 2003, the  Department of Labor in the US ("DOL")  finalized its audit of the
                  Company's  subsidiary  concerning  the pay rates used to  compensate  employees for
                  services rendered  pursuant to the TSA Contract.  The DOL concluded that in certain
                  instances,  employees  had not been paid the correct  base rate,  fringe  benefits,
                  vacation  and holiday pay by the  subsidiary.  As of December  31, 2003 a liability
                  relating  to  the  audit  of  approximately   $7.2  million  was  recorded  in  the
                  consolidated financial statements.

                  The TSA Contract  indicates that the Company will receive  notification  in writing
                  at  least  30  calendar  days  in  advance  of a  location  transition.  Under  the
                  provisions of the Worker  Adjustment  and  Retraining  Notification  Act (the "WARN
                  Act"),  the  Company  is  required  to  give 60 days  written  notification  to its
                  employees of an involuntary  termination.  At December 31, 2002 and throughout most
                  of fiscal 2003,  management estimated the Company's liability under the WARN Act to
                  approximate $18.9 million, which had been

F-10
<PAGE>
NOTE 1 - GENERAL (continued)

                   recorded by the Company in cost of  revenues in 2002.  However,  during the fourth
                  quarter  of fiscal  2003,  the  Company  obtained  a legal  letter  from an outside
                  counsel  indicating  that the Company  may have  meritorious  defenses  against the
                  payment of a  substantial  portion  of the  recorded  accrual.  Based on the points
                  noted in the legal  letter  and given  the fact that no claims  have been  filed to
                  date by former employees seeking  compensation  under the WARN Act provisions,  the
                  Company  reviewed its  original  estimate  and reduced the  estimated  liability to
                  approximately  $1.1  million at December  31, 2003 by recording a credit to cost of
                  revenues in 2003 of approximately  $17.8 million.  The Company is still pursuing an
                  exemption  from the U.S.  Federal  government for all or a portion of the liability
                  under the WARN Act;  however,  at December 31, 2003, no exemption has been received
                  nor has the  Company  obtained  an  opinion  from its  legal  counsel  that such an
                  exemption is probable.

                  As to the other outstanding issues, see note 14b(3).

             c.   Sale of ICTS Europe Holding B.V. ("ICTS Europe"):

                 1) On October 5, 2000,  the Company  entered into a share  purchase  agreement  (the
                 "Share  Purchase  Agreement")  with Fraport AG  ("Fraport"),  whereby Fraport was to
                 acquire,  in two  stages of 45% and 55% in 2001 and 2002,  respectively,  the shares
                 of ICTS Europe.
                     As a result of the sale, the Company has fully  divested  itself of its European
                     operations  except  for  the  operations  of  the  Company's  subsidiary  in the
                     Netherlands   and  countries  that  were  formerly  part  of  the  Soviet  Union
                     republics,   including   Russia,   and   Kazakhstan,   and  took  upon   certain
                     restrictions on its operations, see note14c.

                     The  capital  gains  on  these  sales,   net  of  transaction   expenses,   were
                     approximately  $42 million  and $34  million,  and were  included  among  "other
                     income" in the first quarters of 2002 and 2001, respectively.

                     As a result of the sale,  as above,  and  under its  provisions,  ICTS  could no
                     longer  exercise  control over ICTS Europe.  Therefore,  as of December 31, 2001
                     ICTS  Europe's  assets  and  liabilities   were  excluded  from   consolidation;
                     however,  the 2001  consolidated  results of  operations  include the results of
                     ICTS Europe through December 31, 2001.

                  2) The following  table presents the operating data of ICTS Europe  included in the
                     financial statements:
                                                                              Year ended December
                                                                                      31,
                                                                             -----------------------
                                                                                      2001

                          Revenues                                                   113,088
                                                                                     _______
                          Gross profit                                                13,253
                                                                                     _______
                          Operating income                                            8,418
                                                                                     _______
                          Net income                                                  4,166
                                                                                     _______

F-11
<PAGE>

NOTE 1 - GENERAL (continued)

             d.   Use of estimates in the preparation of financial statements

                  The preparation of financial  statements in conformity with U.S. GAAP (as defined
                  herein)  requires  management to make estimates and  assumptions  that affect the
                  reported  amounts of assets and liabilities  and disclosure of contingent  assets
                  and  liabilities  at the  dates  of the  financial  statements  and the  reported
                  amounts of revenues and expenses  during the reporting  periods.  Actual  results
                  could differ from those estimates.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

             The significant accounting policies are as follows:

             a.   Functional and reporting currency

                  The  accompanying  financial  statements  have  been  prepared  in  U.S.  dollars
                  ("dollars"  or  "$").  As of  January  1,  2002,  subsequent  to the  sale of the
                  Company's European activities,  (see note 1c),  substantially all of the revenues
                  of ICTS  and its U.S.  operations  are  received,  and  substantially  all of its
                  operating costs are incurred in dollars.  Therefore,  the functional  currency of
                  ICTS and its U.S.  operations  is the dollar  (prior to January 1, 2002 the Dutch
                  Guilder was the functional currency of the Company).  The financial statements of
                  subsidiaries  whose  functional  currency is not the dollar are  translated  into
                  dollars in  accordance  with the  principles  set forth in Statement of Financial
                  Accounting  Standards ("FAS") No. 52 of the Financial  Accounting Standards Board
                  of the USA  ("FASB).  Assets  and  liabilities  are  translated  from the  local
                  currencies to dollars at year-end  exchange  rates.  Income and expense items are
                  translated at average exchange rates during the year.

                  Gains or losses resulting from  translation are included as a separate  component
                  of other  comprehensive  income (loss).  Cumulative  translation  adjustments are
                  reflected  as  a  separate  component  of  shareholders'   equity,  under  other
                  comprehensive income (loss).

                  Until  December 31, 2001, the  functional  currency of ICTS and its  subsidiaries
                  was the local currency in which the entity operated.  The financial statements of
                  ICTS  and  its  subsidiaries,  in  which  the  dollar  was not  their  functional
                  currency,  were  translated  into dollars in accordance  with the  principles set
                  forth in FAS 52.

                  The Company accounted for the change of the functional currency  prospectively as
                  from January 1, 2002.

F-12
<PAGE>


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

b.       Principles of consolidation

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

             c.   Cash equivalents

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

             d.   Marketable securities and other investments:

                  1)   Marketable securities

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

                  2)   Other investments

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

             e.   Investments in associated companies

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

F-13
<PAGE>

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

             f.   Property and equipment

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

                                                                              Years
                      Equipment leased out                                     8-15
                      Equipment and facilities                                 3-16
                                                                           (mainly 15)
                      Vehicles                                                 3-7
                      Office furniture and equipment                           3-14


                  Leasehold  improvements are amortized by the straight-line method over the period
                  of the lease or the  estimated  useful  life of the  improvements,  whichever  is
                  shorter (3-5 years).

             g.   Goodwill

                  On January  1,  2002,  the  Company  adopted  FAS No.  142,  "Goodwill  and Other
                  Intangible  Assets".  Pursuant to FAS 142  goodwill is no longer  amortized  but
                  rather tested for impairment at least annually.

                  Prior to January 1, 2002 goodwill was amortized by the straight-line  method over
                  the period of 20 years, see also note 8b.

                  The  Company  identified  its  various  reporting  units,  which  consist  of its
                  operating  segments.  The Company has utilized  expected  future  discounted cash
                  flows to  determine  the fair  value  of the  reporting  units  and  whether  any
                  impairment of goodwill existed as of the date of adoption.

                  The Company  has  selected  December 31 of each year as the date on which it will
                  perform its annual goodwill  impairment test. As of December 31, 2003 goodwill of
                  $797 relating to the other operating segment was written off (see note 4b).

                  In  addition  to the  annual  impairment  test  and as a  result  of the  imposed
                  transfer of the aviation  security  operations  to the TSA in November  2002 (see
                  note 1b), the Company performed interim  impairment tests, based on expected cash
                  flows from the TSA  Contract,  on the  goodwill  relating to its U.S.A  reporting
                  unit. The interim  impairment test performed as of September 30, 2002 resulted in
                  an impairment  and the company wrote off the balance of the goodwill in an amount
                  of $8,484 in 2002.

             h.   Other assets and Intangible assets

                  The intangible  asset  pertaining to customer  relationships  is being  amortized
                  over 10 years.  Technology is being  amortized  over 3 years and presented net of
                  write down in value. See note 9.
                  As to know-how acquired in December 2003 see notes 5a(3) and 9.
F-14
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

i.       Impairment in value of long-lived assets

                  The Company has adopted FAS 144,  "Accounting  for the  Impairment or Disposal of
                  Long-Lived  Assets",  effective January 1, 2002. FAS 144 requires that long-lived
                  assets,  held and used by an entity be reviewed for impairment whenever events or
                  changes in circumstances  indicate that the carrying amount of the assets may not
                  be  recoverable.  Under  FAS 144,  if the sum of the  expected  future cash flows
                  (undiscounted  and without  interest  charges) of the  long-lived  assets is less
                  than the carrying amount of such assets,  an impairment loss would be recognized,
                  and the assets would be written down to their estimated fair values.

             j.   Treasury stock

                  The treasury  stock was acquired by the Company for issuance upon the exercise of
                  options  issued under the employee  option plan.  The treasury stock is presented
                  as a reduction of shareholders'  equity,  at its cost. Gains on the sale of these
                  shares,  net of losses and of the related tax, are recorded  under "other capital
                  surplus".

             k.   Revenue recognition

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

                  Revenue from leased equipment is recognized ratably over the lease term.

             l.   Earnings (losses) per share ("EPS"):

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

                  2)   Diluted EPS is computed by  dividing  net income  (loss) by the  weighted
                       average  number of shares  outstanding  during the year,  net of treasury
                       stock,  taking into account the potential  dilution that could occur upon
                       the  exercise of options  granted  under stock  options  plan,  using the
                       treasury stock method.

             m.   Deferred income taxes

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

F-15
<PAGE>

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

             n.   Concentrations of credit risks - allowance for doubtful accounts
                  The Company and its  subsidiaries  operate  mostly in the  aviation  industry.  The
                  Company  renders  services  to a large  number  of  airline  companies  to which it
                  provides  credit,  with  no  collateral.  Due to  the  slow-down  in  the  aviation
                  industry,  (see also note 1b),  some airline  companies  may have  difficulties  in
                  meeting their financial  obligations.  This could have a material adverse effect on
                  the  Company's  business.  The Company and its  subsidiaries  regularly  review the
                  credit worthiness of their customers and determine the credit line, if any.
                  The allowance for doubtful  accounts is determined  for specific  debts doubtful of
                  collection.  The bad debts expenses  (collection)  were $(264),  $5,297 and $684 in
                  2003, 2002, and 2001 respectively.

o.       Advertising costs

                  These costs are expensed as incurred. Advertising costs in, 2003 were $552 (in
                  2002 and 2001 there were no advertising costs).

p.       Stock based compensation:

                  1)   Employee stock based compensation
                       The Company  accounts for employee  stock based  compensation  in accordance  with
                       Accounting  Principles  Board  Opinion  No. 25  "Accounting  for  Stock  Issued to
                       Employees"  ("APB  25") and  related  interpretations.  Under APB 25  compensation
                       cost for employee stock option plans is measured  using the intrinsic  value based
                       method  of  accounting,  and is  amortized  by the  straight-line  method  against
                       income, over the expected service period.

                       FAS 123,  "Accounting for Stock-Based  Compensation",  establishes a fair value based
                       method of accounting for employee stock options or similar  equity  instruments,  and
                       encourages  adoption of such method for stock compensation  plans.  However,  it also
                       allows  companies to continue  accounting for those plans according to the accounting
                       treatment prescribed by APB 25.

                       The Company has elected to continue  accounting  for  employee  stock option plans
                       under APB 25, and has accordingly complied with the disclosure
                       requirements  set forth in FAS 123 and amended by FAS 148 for  companies  electing
                       to apply APB 25.

F-16
<PAGE>
                 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

                  The following  table  illustrates the effect on net income and earnings per share
                  assuming  the  Company  had  applied  the fair value  recognition  provisions  of
                  FAS 123 to stock-based employee compensation:

                                                                                       Year ended December 31,
                                                                                   2003          2002           2001
                                                                                             in thousands
                                                                              ----------------------------------------
                                                                                       (except per share data)
                  Net income as reported                                           $(18,904)      $56,815       $26,198
                  Add: stock based employee compensation expenses,
                        included in reported net income                                   -             -             -
                  Deduct: stock based employee compensation expenses
                        determined under fair value method for all awards               (27)         (493)         (809)
                                                                                    _______       _______         _______
                  Pro-forma net income                                             $(18,931)      $56,322       $25,389
                                                                                    _______       _______        _______
                  Earnings (losses)  per share:
                        Basic - as reported                                          (2.90)         8.85          4.18
                                                                                    _______       _______       _______

                        Basic  - pro-forma                                           (2.91)         8.77          4.05
                                                                                    _______       _______       _______
                        Diluted - as reported                                        (2.90)         8.80          4.09
                                                                                    _______       _______        _______
                        Diluted - pro-forma                                          (2.91)         8.73          3.96
                                                                                    _______       _______       _______


                  2)   Non-employee stock based compensation

                       The Company  accounts  for options  granted to  non-employees  in exchange for
                       services  received,  using  the fair  value  based  method  of  accounting  as
                       prescribed by FAS 123, based on the fair value of the options granted.

             q.   Comprehensive Income (loss)

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

             r.   Costs Associated with Exit or Disposal Activities

In June 2002, the FASB issued  Statement on Financial  Accounting  Standards No.
146  ("SFAS  146"),  Accounting  for  Costs  Associated  with  Exit or  Disposal
Activities. SFAS 146 provides guidance on the financial accounting and reporting
for costs  associated  with exit or disposal  activities and nullifies  Emerging
Issues Task Force Issue No. 94-3,  Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a  Restructuring).  The Company's  adoption of SFAS 146 during
the  current  fiscal  year  did not  have a  material  impact  on the  Company's
financial  statements as no new  restructuring  activity has occurred  since the
Company's adoption of SFAS 146.

F-17
<PAGE>
 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

             s.   Recently issued accounting pronouncements

                  1)   In December 2003, the FASB issued SFAS No. 132 (revised  2003),  "Employers'
                       Disclosures about Pensions and Other Postretirement  Benefits,  an amendment
                       of FASB  Statements No. 87, 88 and 106, and a revision of FASB Statement No.
                       132  ("FAS  132  (revised   2003)")".   This  Statement  revises  employers'
                       disclosures about pension plans and other  postretirement  benefit plans. It
                       does not change the  measurement  or  recognition  of those  plans.  The new
                       rules require  additional  disclosures about the assets,  obligations,  cash
                       flows,  and net periodic  benefit cost of defined  benefit pension plans and
                       other postretirement benefit plans.
                       Part of the new  disclosures  provisions  are  effective  for 2003  calendar
                       year-end  financial  statements,  and  accordingly  have been applied by the
                       company  in  these  consolidated  financial  statements.  The  rest  of  the
                       provisions  of this  Statement,  which  have a  later  effective  date,  are
                       currently being evaluated by the company.

                  2)   In May 2003, the FASB issued FAS No. 150,  "Accounting for Certain Financial
                       Instruments with  Characteristics of both Liabilities and Equity" (FAS 150).
                       FAS 150  establishes  standards  for how an issuer  classifies  and measures
                       certain financial  instruments with  characteristics of both liabilities and
                       equity.  FAS 150 is  effective  for  financial  instruments  entered into or
                       modified after May 31, 2003, and otherwise (except for certain  instruments)
                       is effective at the beginning of the first interim  period  beginning  after
                       June 15, 2003. Effective July 1, 2003, the Company adopted FAS 150.
                       The  adoption  of FAS 150 did not have a  material  effect on the  company's
                       financial position or results of operations.

                  3)   In January 2003, the FASB issued FASB  Interpretation  No. 46,  "Consolidation  of
                       Variable  Interest  Entities" (FIN 46). Under FIN 46,  entities are separated into
                       two  categories:  (1) those  for  which  voting  interests  are used to  determine
                       consolidation  (this is the most  common  classification)  and (2) those for which
                       variable  interests  are used to determine  consolidation.  FIN 46 explains how to
                       identify  Variable  Interest  Entities ("VIE"s) and how to determine when a public
                       company should include the assets,  liabilities,  non-controlling  interests,  and
                       results of activities of a VIE in its consolidated financial statements.

                       Since  issuing  FIN  46,  the  FASB  has  proposed   various   amendments  to  the
                       interpretation  and has deferred its effective dates.  Most recently,  in December
                       2003,  the  FASB  issued  a  revised  version  of FIN 46 (FIN  46-R),  which  also
                       provides for a partial deferral of FIN 46. This partial  deferral  established the
                       effective  dates for the  application  of FIN 46 and FIN 46-R  based on the nature
                       of the VIE and the date upon which the public  company  became  involved  with the
                       VIE. In general,  the deferral  provides that (i) for VIEs created before February
                       1, 2003, a public  company must apply FIN 46-R at the end of the first  interim or

F-18
<PAGE>

                       annual  period  ending after March 15,  2004,  and may be required to apply FIN 46
                       at the end of the first interim or annual  period ending after  December 15, 2003,
                       if the VIE is a special  purpose  entity,  and (ii) for VIEs created after January
                       31,  2003, a public  company must apply FIN 46 at the end of the first  interim or
                       annual period ending after  December 15, 2003,  as previously  required,  and then
                       apply FIN 46-R at the end of the first interim or annual  reporting  period ending
                       after March 15, 2004.

                       As of December 31, 2003 the company has no variable  interests in any VIE.
                       Accordingly, while there can be no assurance  that it will not have variable interests
                       in one or more VIEs in the future, the company believes that the adoption of FIN 46 and
                       FIN 46-R will not have  material  impact on its  financial  position,  results  of
                       operations and cash flows.

v.       Reclassification

                  Certain  comparative  figures  have been  reclassified  to conform to the current
                  year presentation.

NOTE 3 - RESTRICTED CASH AND SHORT TERM INVESTMENTS


                                                                                   December 31,
                                                                                 2003         2002
              Time deposits and restricted cash *                                $3,088       $10,337
              Marketable securities - available for sale                             26         2,746
                                                                                 ______        ______
                                                                                 $3,114       $13,083
                                                                                 ______        ______
                                                                                 ______        ______
              Gross unrealized gains (losses) resulting from
                    their presentation at market value                               $1         $(237)
                                                                                 ______        ______
                                                                                 ______        ______


                * As of December 31, 2003, dollar  denominated  deposits bearing interest mainly at
                    3.7%.

F-19
<PAGE>

NOTE 4 - TRANSACTIONS REGARDING CERTAIN SUBSIDIARIES:

             a.   In  September   2002,   ICTS  increased  its  percentage   interest  in  Procheck
                  International  B.V.  ("PI")  to 100%  for  a cash  consideration  of  $2,845.  PI
                  provides security services in The Netherlands at Schiphol Airport Amsterdam.  The
                  purchase  price  exceeded  the  acquired  share of the fair  market  value of the
                  identified net assets of PI by approximately  $1,879,  which was allocated to the
                  contract  with  Schiphol  Airport.  This  intangible  asset is  amortized  by the
                  straight line method,  over its estimated  useful life, which is estimated as 10
                  years. PI is fully consolidated as from September 30, 2002.

             b.   In July 1, 2002,  ICTS  increased its  percentage  interest in Demco  Consultants
                  Ltd.  ("Demco")  from 37% to 67% for cash  consideration  of $410. As part of the
                  above  transaction,  ICTS has been granted a 13 months option  commencing July 1,
                  2003 to purchase  the  remaining  33% equity from the  minority  shareholders  in
                  Demco for $589,  and the  Company  has granted to the  minority  shareholders  an
                  option to sell the same equity to the company for $533. As a result,  the Company
                  had fully  consolidated  Demco as of July,  2002, and recorded a liability to the
                  minority  in the amount of $589.  The  purchase  price  exceeded  the fair market
                  value of the  tangible  net  assets  of Demco by  approximately  $440,  which was
                  allocated  to  goodwill.   The  goodwill  was  attributed  to  "other  operations
                  segment".

                  Demco provides  services for planning,  organization  and  establishment of large
                  scale national systems infrastructures  designed to assist local governments with
                  the  operations,  control and the proper decision making during national or local
                  emergencies.

                  During 2003 the minority  shareholder  exercised  its put option.  The balance of
                  the  liability  (in excess of the final cost of the  option  that was  exercised)
                  was written off against the goodwill  that was recorded in 2002,  at the time the
                  exercise was recorded.
                  At the end of the third  quarter of 2003, as it turned out that Demco will not be
                  able to realize its  business  plans,  the company  tested  Demco's  goodwill for
                  impairment and wrote off the balance of this goodwill of $797.

C.       Information regarding first time consolidation of PI and Demco

                  The following table presents the pro forma results of operations for 2001 and
                  2002 as if the acquisitions of control in PI and Demco had occurred on the first
                  day of the periods presented:

                                                                          Year ended December 31,
                                                                      ---------------------------------
                                                                            2002             2001

                          Revenues                                        $285,895         $217,571
                                                                           _______          _______
                                                                           _______          _______
                          Gross profit                                     $67,652          $24,156
                                                                           _______          _______
                                                                           _______          _______
                          Operating income                                 $34,257           $4,718
                                                                           _______          _______
                                                                           _______          _______
                          Net income                                       $58,427          $27,069
                                                                           _______          _______
F-20

<PAGE>
NOTE 4 - TRANSACTIONS REGARDING CERTAIN SUBSIDIARIES (continued):

c.       As to the sale of the European holdings operations, see note 1c.

d. In April 2001, ICTS entered into an agreement with the minority  shareholders
of AMS Ltd.  ("AMS"),  for the exchange of its  shareholding  in AMS (51%),  for
shares held by AMS, which  primarily  included its 33%  shareholding in APS B.V.
The exchange was recorded at fair value and as a result, ICTS recognized capital
gain of $980.  In November  2001,  ICTS sold its  acquired  interests in APS (as
above) to PI for a cash consideration of $2,000. As a result of this transaction
ICTS  recognized  a  capital  gain of $237  (representing  the  part of the gain
realized from the sale to the minority of PI).

e. On January  10,  2001,  the  Company  exercised  its option to  purchase  the
remaining  20% of the  shares  of  common  stock of  Huntleigh  USA  Corporation
("Huntleigh"),  a company based in St. Louis, Missouri, for $1,900. The purchase
price exceeded the fair market value of the acquired share in the identified net
assets of Huntleigh by approximately $2,229, which was allocated to goodwill.

As to the changes  relating to Huntleigh's  operations as a result of the events
of September 11, and the Aviation and Transportation  Security Act, see note 1b.
As to the impairment and write off of goodwill assigned to the U.S.  operations-
see note 2g.


NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES

             a.   Composed and presented as follows:

                                                                                              December 31,
                                                                                           2003          2002
                Investment in Pioneer (1)                                                  $1,725        $1,765
                Investment in 35.7% interest of InkSure Technologies Inc. (2)               3,583         4,926
                Investment in 10% interest in ITA-International Tourist
                    Attraction Ltd. (3)                                                         -         3,184
                Investment in 40% interest in Ramasso Holding B.V. (4)                     (1,137)
                Investment in 50% interest in ICTS-NAS (5)                                   (993)           44
                                                                                           ______        ______
                                                                                           $3,178        $9,919
                                                                                           ______        ______

                The investment is presented in the balance sheets as follows:
                    Among investments                                                       5,308         9,919
                    Among current liabilities                                              (2,130)
                                                                                           ______        ______
                                                                                           $3,178        $9,919
                                                                                           ______        ______
                                                                                           ______        ______
F-21
<PAGE>


                  NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)


                       (1) Investment in Pioneer - Composed as follows:
                                                                                         December 31,
                                                                                         2003          2002
                        Shares (14.2%) (a)                                               $356          $496
                        Subordinated debentures (b)                                     1,369         1,269
                                                                                      _______       _______
                                                                                       $1,725        $1,765
                                                                                      _______       _______
                                                                                      _______       _______


(a) In 1998,  ICTS  acquired  5.4%  interest  in  Pioneer.  In 2002 the  Company
acquired in private placement  offerings  additional shares  (representing  8.8%
shareholding). After these transactions the Company holds approximately 14.2% of
the outstanding shares of Pioneer (443,250 shares). The excess of costs of these
investments  over  the  acquired  share  in  Pioneer's  net  assets  of $766 was
attributed  to goodwill.  In addition,  Pioneer  granted to the Company a 5 year
warrant (commencing February 2002) to purchase 13,000 shares at a price of $2.25
per share and a 3 year  warrant  (commencing  January  2003) to  purchase  5,883
shares at a price of $1.00 per share.

Following  the  2002  acquisition  ICTS  has  determined  that  it had  obtained
significant influence, and as a result changed its method of accounting for this
investment to the equity  method.  Prior years  figures have been  retroactively
adjusted.

Effective  February 20, 2003,  Pioneer's shares are no longer listed on the NASD
Electronic  Bulletin Board stock market and the company is no longer a reporting
company under the Securities Exchange Act of 1934.

(b) In January 2000, ICTS acquired a $1,000 non-marketable debenture of Pioneer,
bearing  interest at the rate of 10% per annum. The debenture is due in November
2004,  and its repayment is guaranteed  by Leedan  International  Holdings B.V a
subsidiary of Leedan Business  Enterprise Ltd. (hereafter - "Leedan" - a company
controlled  by the  company's  shareholders).  As of December  31, 2003 the loan
includes an accrued  interest of $369 (2002 - $269). Due to legal procedures and
based on the opinion of its legal  advisors,  management  estimates that Pioneer
will be able to repay the  debenture,  however,  not before the  procedures  are
finalized, therefore the amount is classified among long term assets.

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

F-22
<PAGE>

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)

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

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

                       The  market  value  of the  shares  (35.7%)  as of  December  31,  2003  was
                       $4,494.

                  (3)  In December  2000,  the Company  exercised  an option to purchase a total of
                       10%  interest  of  ITA (a  company  under  the  control  of  one  of  ICTS's
                       shareholders).

                       Comprised as follows:
                                                                                 December 31,
                                                                             2003           2002
                       Investment in 10% of the shares (a)                                   $184
                       Loan (b)                                                             3,000
                                                                             ______        ______
                                                                               $-          $3,184
                                                                             ______        ______


                       In December 2003 the Company  signed an agreement to buy the  activities and
                       fixed   assets   ($163)  of  ITA.   The  Company  paid  a  total  amount  of
                       approximately  $5.4  million by waiving  the  $3,000  loan and $542  accrued
                       interest,  issuing a deferred note of $546 and a promissory note of $685 and
                       by paying  $711 in cash to ITA.  As to the  terms of these  notes - see note
                       12. The purchase price was based on fairness  opinion that was based on free
                       cash  generated  from  future  projects  of ITA,  in which  ICTS  planned to
                       invest.  Through  the date of  acquisition  the free cash of ITA was derived
                       mainly  from  ICTS  under an  agreement  between  ICTS and  ITA,  which  was
                       cancelled in the acquisition  agreement  mentioned above (see note 19g). The
                       amount  exceeding the fair value of the net tangible  assets was  attributed
                       to know-how.

                       Subsequent  to  December  31,  2003,  as a result of the poor  results  of the
                       entertainment projects (see note 7e) and their impairment,  management resolved
                       to cease the development of this  business  and not to start new projects in the
                       foreseeable  future.  As a result,  the company  has  written off the entire
                       amount of the  know-how as above,  and carried the loss from the impairment to
                       results from operations in 2004 (see note 9).


                       (a)  In October  2001,  the  Company  was  granted a warrant to  purchase an
                            additional  12% of ITA  shares,  exercisable  over a  period  of  three
                            years,  at an exercise  price that shall be determined  according to an
                            evaluation  of  ITA  to be  made  by an  independent  consultant.  As a
                            result, ICTS has determined that it obtained  significant  influence in
                            ITA and  therefore,  accounted for its investment by the equity method.
                            As a result of the  agreement  signed in  December  2003,  the  warrant
                            expired. The investment in ITA as of December 2003 is valued at zero.
F-23
<PAGE>

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)

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

                   (4)  (a) The  investment  is comprised  of  investment  in 40% of the  outstanding
                            shares of Ramasso Holdings B.V.  ("Ramasso") and a loan (see below).  The
                            remaining  60%  shareholdings  of Ramasso are held by ITA (40%) and other
                            affiliates.  The loan,  in an original  amount of $2,988 and  $2,464,  at
                            December  31,  2003 and 2002,  respectively,  bears  annual  interest  of
                            4.25%, and has no fixed repayment date.
                            Ramasso is engaged in  construction of an  entertainment  project in Rome
                            owned and  managed  by  Italian  Multimedia  Attraction  SPA  ("IMA"),  a
                            wholly owned subsidiary of Ramasso.

                            In 2003 Ramasso  recognized an impairment  loss on its  investment in IMA's
                            assets and  recorded a loss of $2,429 which  resulted in a negative  equity
                            in the amount of $4,588.  After  taking into account the  additional  loans
                            granted by ICTS in 2003,  and the  guarantee  described in (b) below,  ICTS
                            recorded its share in the losses of Ramasso in the amount of $2,361.

                        (b) In January 2002,  IMA entered into a loan facility  agreement with a German
                            bank.  As of  December  31,  2003 the  Company  and ITA,  collectively  and
                            individually,  guaranteed  the loan in full to the bank. The guarantee is a
                            continuing  guarantee for the  obligations  of IMA. As of December 31, 2003
                            IMA's net obligations to the bank amounted to $1,683.
                            Taking into  account the  deferred  note to ITA of $546 (which  serves as a
                            security  to this  guarantee  (see  (3)  above))  the  company  recorded  a
                            liability of only $1,137 in respect of this guarantee.

                           Subsequent  to  December  31,  2003  as a  result  of IMA not  been  able to
                           continue  and  finance  its   operations,   IMA  entered   into   bankruptcy
                           procedures,  and ICTS  representatives in the board of directors of IMA have
                           resigned.  Although the Company  believes  that it accounted in full for its
                           exposure  as to this  investment,  it is still  dependent  on the outcome of
                           the Italian court bankruptcy proceedings.

                  (5)  In  September  2002,  ICTS and ICTS Europe  established  a joint  venture,  ICTS
                       Netherlands  Airport Services VOF ("NAS"),  owned equally by the parties,  which
                       provides  security  services at Amsterdam  Schiphol  Airport in The Netherlands.
                       NAS  commenced  operations  in December  2002.  In 2003 and 2002 the company has
                       invested in NAS $1,399 and $135,  respectively,  and  recorded  losses on equity
                       in amount of $2,392 and $91, respectively.


F-24
<PAGE>


NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)

             c.   Below is summarized financial data of Inksure, Ramasso and NAS:

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

              Inksure:
              Balance sheet data:
                                                                      December 31,
                                                                    2003         2002
                 Current assets                                     $2,194        $5,320
                                                                   _______       _______
                 Non-current assets                                   $745          $845
                                                                   _______       _______
                 Current liabilities                                  $613          $860
                                                                   _______       _______
                 Capital deficiency                                 $2,207        $5,230
                                                                   _______       _______


              Operating results data:
                                                                Year ended December 31,
                                                                  2003          2002
                Revenues                                              $608       $2,693
                                                                   _______      _______
                Gross profit                                          $474       $2,291
                                                                   _______      _______
                Net loss                                            $2,965         $821
                                                                   _______      _______



              Ramasso:
              Balance sheet data:
                                                                    December 31,
                                                                 2003         2002
              Current assets                                         $81          $16
                                                                 _______      _______
              Non-current assets                                               $1,272
                                                                              _______
              Current liabilities                                   $543         $341
                                                                 _______      _______
              Capital deficiency                                  $4,588       $3,705
                                                                 _______      _______


              Operating results data:
                                                                       Year ended December 31,
                                                                   2003         2002         2001
                 Net loss                                           $2,365       $2,247         $949
                                                                    _______      _______      _______


F-25
<PAGE>


NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)


                NAS:
              Balance sheet data:
                                                                    December 31,
                                                                 2003         2002
               Current assets                                     $2,330         $228
                                                                 _______      _______
               Non-current assets                                   $277          $73
                                                                 _______      _______
               Current liabilities                                $4,690         $221
                                                                 _______      _______
               Shareholders' equity (capital deficiency)         $(1,986)         $88
                                                                 _______      _______


              Operating results data:
                                                             Year ended December 31,
                                                                2003         2002

              Revenues                                          $13,759           $6
                                                                 _______      _______
              Gross loss                                         $2,852          $63
                                                                 _______      _______
              Net loss                                           $4,784         $182
                                                                 _______      _______


NOTE 6 - OTHER INVESTMENTS
                                                                                                December 31
                                                                                             2003          2002
              Long term deposits (a)                                                        $10,107        $5,052
                                                                                            _______       _______
              Restricted deposits (e)                                                         2,515
                                                                                            _______
              Marketable securities:
                   Investment in 6.1% interest in VCON Ltd.(b(1))                               686           364
                   Investment in 17.63% interest in PlanGraphics, Inc. (c)                    1,028           514
                                                                                            _______       _______
                                                                                            * 1,714         * 878
                                                                                            _______       _______
              Non-marketable securities:
                   Investments in Start-up companies (d)                                                      400
                   Investment in a 7% interest in Bilu Investments Ltd. (e)                     228           228
                   Investment in a 8% interest in Power Plant LLC                                           1,000
                   Investment in a convertible debenture of VCON Ltd. (b(2))                  1,520         2,000
                                                                                            _______       _______
                                                                                              1,748         3,628
                                                                                            _______       _______
              Long term loan to an employee (f)                                                 150
              Other                                                                              53
                                                                                             _______       _______
                   Total                                                                    $16,287        $9,558
                                                                                            _______       _______

                       *Includes:
                            Gross unrealized gains                                             $804          $54
                                                                                            _______       _______
                                                                                            _______       _______
                            Gross unrealized losses                                                           $86
                                                                                                          _______
F-26

<PAGE>

                                                                                                          _______

NOTE 6 - OTHER INVESTMENTS (continued)

             (a)  Long term deposits:
                  During 2002 and 2003, ICTS invested in long term bank deposits.  The amounts invested
                  bear minimum annual  interests plus interests based on performance of several indices
                  as follows:
                                                                       December 31
                                            Interest                2003                  2002
                                                rate             Index      Amount
                                                   %                %
                   Nasdaq                          1.5%        106.00       $3,180        $3,015
                   Himalaya                        2.0%         98.68        1,974         2,037
                   China Dragon                    1.1%         99.06        4,953
                                                                           _______       _______
                                                                           $10,107        $5,052
                                                                           _______       _______

                  Both the  Nasdaq  and  Himalaya  deposits  were sold in April 2004 at 106% and
                  99%, respectively.


(b) Investment in VCON Ltd. ("VCON"):

(1) In January 2002, ICTS purchased  909,091 shares of VCON for $1.10 per share
and invested in a convertible note with a fare value of $2 million.  See 92) below.
VCON is a publicly held company,  the  shares of which are traded on Nouveau
March.  The share price as of December  31, 2003 was $0.75.  In  addition,  ICTS
received 3 year  warrants  to purchase  1,402,597  shares of VCON at a price per
share of $1.40.  The fair value of the warrants as of December 31, 2003 is $348.
The fair value of the warrants was  calculated  using Black & Scholes  Valuation
model.

(2) The note, secured by a second degree floating charge to all existing debt of
VCON,  is  convertible  into shares of VCON at a  conversion  price of $1.00 per
share,  bears  annual  interest at the rate of 2% and is  repayable in quarterly
installments  of $160  starting  May  2004.  The note is  presented  net of a
current maturity of $480, which is presented among other current assets.

The value of the conversion feature amounted to $262, is accumulating as
additional interest over the terms of the note.

(c) Investment in PlanGraphics, Inc. ("PlanGraphics")-

In January 2002,  ICTS  purchased  17,142,857  shares (17.6%) of common stock of
PlanGraphics  (formerly "Integrated Spatial Information  Solutions, Inc.") for
$0.035 per share.  PlanGraphics  is a publicly held company,  the  securities of
which are traded on the NASD Electronic  Bulletin  Board.  The price share as of
December 31, 2003 was $0.06.  Unrealized  gain as of December 31, 2003 amount to
$428 (2002 - unrealized loss of $86).

F-27
<PAGE>


NOTE 6 - OTHER INVESTMENTS (continued)


(e) Investment in Bilu Investments Ltd.

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

(f) Long term loan to an employee

In December 2003 ICTS granted a loan of $150 to one of its  employees.  The loan
bears an interest of 2% per annum and is repayable in four equal payments, every
six months, starting January 2005.


NOTE 7 - PROPERTY AND EQUIPMENT

             a.   Property and equipment are composed as follows:
                                                                                         December 31,
                                                                                      2003          2002
                  Cost:
                     Equipment and facilities (d,e)                                  *$27,794       $29,374
                     Buildings (f)                                                                    1,100
                     Vehicles                                                             627           454
                     Leasehold improvements                                               847           636
                     Office furniture and equipment                                     1,361           844
                                                                                      _______       _______
                                                                                       30,629        32,408
                  L e s s -  accumulated depreciation and amortization                 (6,666)       (2,991)
                                                                                      _______       _______
                                                                                      $23,963       $29,417
                                                                                      _______       _______

                    *  Net of an impairment provisions of $13,555, see (d,e) below.

             b.     Depreciation expense totaled $3,169, $1,449 and $1,285 in 2003, 2002 and 2001, respectively.

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

F-28
<PAGE>

NOTE 7 - PROPERTY AND EQUIPMENT (continued)

d. In June 2002  equipment  in the amount of $23.5 - million was  purchased  and
leased back to the seller an unaffiliated  private Dutch company, for 7 years in
an operating  lease  agreement  (with respect to equipment in an amount of $12.5
million, the company entered into a purchase and lease agreement that replaced a
predecessor  acquirer,  see below).  Annual rental fees are denominated in euros
and amount to Euro 2,650 (at  December  31,  2003 - $2,995).  The seller has the
option to buy back the assets  after 5 or 7 years,  at their fair  value,  which
will be  determined  by an  appraiser.  In case the seller does not exercise its
option to purchase the assets upon termination of the lease , ICTS was granted a
license to manufacture by the above assets and to use the intellectual  property
and technical  information  in which case it will have to pay royalties up to 5%
of the revenues derived from those assets to the seller. The term of the license
will be equal to the  remaining  economic  life of the  assets.  The company has
undertaken to repay the predecessor acquirer's liability to a bank, in an amount
of $8.7 million,  and issued him a promissory  note. As to the balance and terms
of the note - see note 12. The loan is  non-recourse.  In 2003,  ICTS determined
that the future cash flows from the leased  equipment  (including  the estimated
proceeds from exercise of the option) will not recover its investment,  and as a
result recorded an impairment loss of $6,042.  The value of the equipment at the
option exercise date was based on an external assessment.

e. Equipment and facilities  include an amount of $10,700 (cost) relating to the
construction  and development of entertainment  projects in Maryland,  Baltimore
and in Atlantic City, New Jersey. The construction was supervised and managed by
ITA, see also note 19g. The Baltimore facility was opened and started operations
in June 2003. The facility in Atlantic City was still under  construction  as of
December 31, 2003 (commenced running-in in June 2004).

Shortly after the Baltimore  facility was opened and based on its  performances,
the company's management revaluated these two facilities and determined that the
forecasted  cash  flows  from  them  will not  cover  the  investments  thereof,
including  amounts  required  to complete  the  development  of the  facility in
Atlantic  City  estimated  as of  December  31, 2003 in an amount of $5 million.
Based on their fair  value  which was  calculated  using  discounted  cash flows
model, the company had recognized an impairment loss of $2,002 in respect of its
investment  in  Baltimore, and wrote off of its investment in Atlantic City in
amount of $5,511.

f. In 2002  the  Company  invested  in a  building  in  Philadelphia,  with  the
intention  to use  it for  one of  its  entertainment  projects.  Subsequent  to
December 31, 2003,  the  building was sold and  therefore it is presented  among
other current assets.

F-29
<PAGE>


NOTE 8 - GOODWILL:

a. The changes in the carrying  value of goodwill,  as assigned to the Company's
reportable segments, for the year ended December 31, 2003, are as follows:

                                                                           Aviation
                                                                           Security    ----------     Total
                                                                                         Other
                 Balance as of January 1, 2002                                 $8,484                    $8,484
                 Goodwill arising from previous investments in
                    companies consolidated for the first time                     314          $427         741
                 Goodwill arising on acquisition during the year                                440         440
                 Translation adjustments and differences                                        (14)        (14)
                 Impairment of Goodwill                                        (8,484)                   (8,484)
                                                                              _______       _______     _______
                 Balance as of December 31, 2002                                  314           853       1,167
                 Adjustment resulting from exercising
                    option (see note 4b)                                                        (56)        (56)
                 Impairment of Goodwill (see note 4b)                                          (797)       (797)
                                                                              _______       _______     _______
                 Balance as of December 31, 2003                                 $314          $-          $314
                                                                              _______       _______     _______



b. As explained  in note 2g,  commencing  January 1, 2002  goodwill is no longer
amortized.  The following table  illustrates the Company's  results  adjusted to
eliminate the effect of goodwill amortization  expense,  including goodwill with
respect to an associated company accounted for by the equity method:

                                                                                 Year ended December
                                                                                         31
                                                                                        2001
                  Net income as reported                                              $26,198
                  Add back:  Goodwill amortization                                        820
                          Goodwill amortization included in share
                            in losses of an associated company                            223
                                                                                      _______
                  Net income -adjusted                                                $27,241
                                                                                      _______

                  Earning per share:
                     Basic - as reported                                                 4.18
                     Add back: Goodwill amortization                                     0.13
                                 Goodwill amortization included in share
                                    in losses of an associated company                   0.04
                                                                                      _______
                     Basic - adjusted                                                    4.35
                                                                                      _______

                     Diluted - as reported                                               4.09
                     Add back: Goodwill amortization                                     0.13
                                       Goodwill amortization included in
                   share
                                    in losses of an associated company                   0.03
                                                                                      _______
                     Diluted - adjusted                                                 $4.25
                                                                                      _______

F-30
<PAGE>


NOTE 9 - OTHER ASSETS:

a.       As of  December 31, 2003, comprised of the following:

                                                                                               December 31,
                                                             December 31, 2003                     2002
                                                   Gross
                                                 carrying   -------------------   Amortized      Amortized
                                                  amount        Accumulated        balance        balance
                                                               amortization

                  Know-how(1)                         $5,266                        $5,266
                  Customer relationship(2)*            1,879         $188           $1,691         $1,879
                  Technology(3)**                        277          147              130            172
                  Other                                  645                           645             69
                                                     _______      _______          _______        _______
                                                      $8,067       $  335           $7,732         $2,120
                                                     _______      _______          _______          _____
                                                     _______      _______          _______          _____


                  (1)    Relating to the acquisition of the entertainment business, see note 5a(3).
                         Subsequent to December 31, 2003 this asset was written off.
                  *(2)   Relating to contract with Schiphol Airport, see note 4a.
                  **(3)  Relating to technology acquired by a subsidiary.

                  Amortization expense in 2003 totaled $248. In addition,  the Company recorded as of
                  December 31, 2002 an impairment  loss of the technology in the amount of $672. This
                  impairment  was  determined by  management,  under the provision of FAS 144, due to
                  management's  evaluation of  significant  decrease in forecasted  revenues  derived
                  from services using the technology.

b. Estimated  amortization  expense for each of the following five years amounts
to: $245; $245; $198 and $188 afterwards.


NOTE 10 - SHORT-TERM BANK CREDIT

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

                                                         Weighted average
                                                          interest rates
                                                               as of
                                                           December 31,            December 31,
                                                               2003              2003         2002
                                                                 %
               ICTS -
                In dollars (a)                                 2.31               $2,560        $2,513
              Subsidiaries:
                 In dollars (b)                                  4                   500         6,068
                 In other currencies (mainly in Euros)(c)                          1,327            70
                                                                                 _______       _______
              Total short-term bank credit                                        $4,387        $8,651
                                                                                 _______       _______
                                                                                 _______       _______


(a)      These loans were  received as part of an  arrangement  with a bank,  following  which the money  received and
                   additional amounts were deposited with the bank, (see note 6(a)).
F-31
<PAGE>

NOTE 10 - SHORT-TERM BANK CREDIT (continued)

(b)      In 2002, a subsidiary  entered into a Revolving  Line of Credit (RLC).  The RLC provides a borrowing  base of
                    (i) an amount up to 85% of  Eligible  Accounts  receivable  of the  subsidiary
                    and (ii) an amount up to $2.5  million  under some  conditions  stipulated  in
                    the RLC. In May 2003, the RLC was extended to May 2004.
                     As of December 31, 2003, the revolving  credit facility is  collateralized  by
                     the restricted cash held by the Company.  Interest accrues at the bank's prime
                     rate  (4.00   percent  and  4.25  percent  at  December  31,  2003  and  2002,
                     respectively).At  December 31, 2003, $0.5 million was outstanding and $4.8 was
                     available under the revolving credit facility for additional  borrowings.  The
                     borrowing  agreement also provides for an additional  commitment  guarantee of
                     up to a maximum of $3 million for  letters of credit and  requires a per annum
                     fee equal to 1.25 percent.
                     The Company had letters of credit  outstanding of approximately  $2.7 and $1.9
                     at December 31, 2003 and 2002, respectively.

                (c)  An amount of $1,309  relates to a long term loan  granted to a  subsidiary  in
                     2003.  The  subsidiary  did not  comply  with the  covenants  included  in the
                     credit  agreement  with the bank and  therefore,  the loan has to be repaid by
                     June  2004.  The loan  bears ABN AMRO euro  base  rate plus  1.75-2.5  percent
                     points.


NOTE 11 - ACCRUED EXPENSES AND OTHER LIABILITIES


                                                                                         December 31,
                                                                                      2003          2002
              Payroll and related liabilities                                          $3,603        $6,469
              Severance pay and employees' claims (see note 1b)                         9,389        24,560
              Liabilities for future development costs (see note 7e)                    1,595
              Taxes to government institutions, including taxes payable                 1,199         5,452
              Related parties                                                              21         1,074
              Accrued expenses and other                                                3,653         9,030
                                                                                      _______       _______
                                                                                      $17,865       $46,585
                                                                                      _______       _______
                                                                                      _______       _______
F-32
<PAGE>


NOTE 12 - LONG-TERM LIABILITIES:

                  a. Composition:
                                                              Interest rate as of
                                                                  December 31,            December 31,
                                                                      2003              2003         2002
                   In dollars:
                     Banks (1)                                mainly - 1.93%              $4,103
                     Promissory Note (2)                               3.12%                 631
                                                                                         _______
                                                                                           4,734
                   In euros - Promissory Note  (3)             Libor + 2.05%               6,804       $7,777
                   Other - Deferred note (4)                      See (4)                    546
                                                                                         _______      _______
                                                                                          12,084        7,777
                   Less - current maturities                                              (2,752)      (2,097)
                                                                                         _______      _______
                                                                                          $9,332       $5,680
                                                                                         _______      _______
                                                                                         _______      _______



(1) This loan was  received as part of the  arrangement  with a bank,  following
which the money received and an additional  amount were deposited with the bank,
the deposit amount as of December 31, 2003 is $4,953 (see note 6(a)).

(2) The promissory note was issued in connection with the purchase  agreement of
the  operations  of ITA (see note  5a(3)).  The note is payable in 13  quarterly
installments of which the first was paid in December 2003.

(3) The  Promissory  Note  was  granted  to the  seller  of  part of the  leased
equipment (as explained in note 7d). The Promissory  Note bears annual  interest
of Euro Libor+2.05% (4.947% as of December 31, 2003) and is repaid over 5 years.
The Company paid to the seller annual guarantee fees of $94 and $113 in 2003 and
2002, respectively.  The Promissory Note is secured by a first priority security
interest  to a bank on part of the leased  assets  ($12.3  million)  and all the
rights under the equipment leases.

(4) The deferred  note was issued in connection  with the purchase  agreement of
ITA (see note  5a(3))  .The note is payable in three  equal  payments  every six
months commencing December 2004. The interest will be 7% or The Israeli Consumer
Price Index  (CPI) plus 4%, the higher of. A guarantee  granted to IMA (see note
5a(4)) is secured by this note.

b. The long term liabilities (net of current maturities) mature in the following
years after the balance sheet date:

                                                December 31,
                                                     2003
                                              ------------------
                              2005                   $2,928
                              2006                    6,364
                              2007                       21
                              2008                       19
                                                   ________
                                                     $9,332
                                                   ________


F-33

<PAGE>

                                                   ________
NOTE 13 - ACCRUED SEVERANCE PAY

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

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

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

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

The amount of  severance  pay charged to income in the years ended  December 31,
2003,  2002 and 2001 were  approximately  $98, $100 and $100  respectively.  The
amounts do not include  expenses for severance pay in 2002 in an amount of $18.9
million and reversal of $17.8 million in 2003 (see note 1b). The Company expects
to contribute in 2004 $80 to the insurance companies in respect of its severance
pay obligation.


NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES:

a.       Operating leases

1) The Company leases premises under long-term  operating  leases, in most cases
with renewal options. Lease expenses for the years ended December 31, 2003, 2002
and 2001 were $1,166 $928 and $1,739, respectively.

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

                                                        December 31,
                                                            2003
                        2004                               $1,208
                        2005                                1,110
                        2006                                1,012
                        2007                                  946
                        2008 and afterwards                10,027
                                                          _______
                                                          $14,303
                                                          _______
                                                          _______


                  2)  As to income from leasing of equipment, see note 7d.

F-34
<PAGE>


                  NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):

             b.   Operations in the U.S.:

1) As a result of the  September 11 terrorist  attacks,  numerous  lawsuits have
commenced against the Company.  Huntleigh has been named in 27 lawsuits and ICTS
in 25  lawsuits.  All of the cases  were filed in the  United  States  Districts
Court,  Southern District of New York. The cases are in their early stages.  The
Company reviewed its security services provided at Boston's Logan  International
Airport,  from  which  one  of the  airplanes  commandeered  by  the  terrorists
departed,  subsequent to September 11, 2001 for evidence of non-compliance  with
the policies of the Federal Aviation Administration. Based on the contracts with
the airlines,  the Company may be  indemnified by the airlines if the Company is
found  to have  followed  the  procedures  enumerated  by the  Federal  Aviation
Administration.  However,  if the  Company  is  found  to  have  violated  these
screening  regulations,  it could be liable for damages.  Based on the Company's
review,  no evidence of  non-compliance  has been identified with respect to the
services provided at Boston's Logan International Airport on September 11, 2001.
The Company maintains an aviation  insurance  policy,  which may provide limited
coverage for liabilities that may be assessed against the Company as a result of
the events of September 11, 2001.

Management  is unable to  estimate  the impact of the  litigation  or fines,  as
described above. Accordingly,  no provision in respect of these matters has been
made.

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

3) On February 17, 2002,  the Company was awarded a security  services  contract
(the "TSA Contract") by the TSA to continue to provide security  services in all
of its  current  airport  locations  until the  earlier of either the  completed
transition of these  security  services on an airport basis to the U.S.  Federal
Government or November 19, 2002.  In accordance  with the terms of the Contract,
the U.S.  Federal  Government  provided the Company with a non-interest  bearing
partial  payment  of $26  million  to be paid  back on a  monthly  basis of $1.3
million at the  beginning of every month  commencing  April 1, 2002. At December
31, 2002,  approximately  $11.7 million of the $26 million had been paid back to
the TSA (in 2003 no  additional  payments have been paid back to the TSA). As of
December  31, 2003 the amount due from the TSA in respect of  services  provided
under  the  contract  aggregates  $17.2  million;  this  amount,  net  of  $14.3
million-the balance of the prepayment, is presented among trade receivables.

F-35
<PAGE>

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):

                       The TSA in accordance with standard practices, is in the process of
                       auditing ICTS's billings to the TSA pursuant to the TSA Contract for
                       the provision of aviation security services. This process requires the
                       Company to provide pricing data to the U.S. Federal government to
                       support its pricing structure under the TSA Contract and eventually
                       will result in final negotiations on the price of the Company's
                       services from February 17, 2002 through the end of the Contract term.

                       In  connection  with  payments  made by the TSA to the Company for  aviation
                       security services  provided in 2002, the Defense Contract  Management Agency
                       has indicated  that it believes  that the Company  should not have been paid
                       on a fixed  cost  basis as  believed  by the  Company,  but on the  basis of
                       actual  costs plus what the TSA would  consider a reasonable  profit.  Under
                       the last basis the Company  may be required to repay the TSA the  difference
                       between such amount and the actual  amounts paid to it. The Company  however
                       has various  claims for  additional  amounts it considers  due to it for the
                       services provided to the TSA.
                       The  Company's  management  estimates  that  if  the  TSA  will  claim  such
                       difference  and  will  prevail  in all  of  its  contentions,  and  none  of
                       Company's claims will be recognized,  then the Company may suffer a net loss
                       in an amount of about $27 Million.  The Company's  above  estimate  assumes,
                       that under USA tax rules it will be able to  carry-back  the losses (if any)
                       that will result from the above claims of the TSA.  Management and its legal
                       counsel are unable to estimate at this stage the final  outcome of the above
                       mentioned dispute.  Accordingly,  no provision in respect of this matter has
                       been made.

                       The Company had also filed a claim  against the US Federal  Government,  for
                       what it alleges to be a taking of its US aviation  security  business by the
                       TSA in 2002.


F-36
<PAGE>


NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):

             c.   Restrictions on operations

                  As part of the sale of its European  operations,  the Company is restricted  from
                  conducting  in Europe  (except for The  Netherlands  and the former  Soviet Union
                  republics,  including  Russia,  Georgia and  Kazakhstan) any of the activities in
                  which ICTS Europe was engaged prior to such sale.  This  restriction is effective
                  through February 2005.

                  Pursuant  to an  agreement  dated July 1, 1995 with ICTS Global  Security  (1995)
                  Ltd. ("ICTS Global Security"),  the Company may not provide non-aviation security
                  services  in  Latin  America,  Turkey  or  the  former  Soviet  Union  republics,
                  including Russia, Georgia and Kazakhstan.

             d.   Following the sale of the European  operations,  ICTS has undertaken to indemnify
                  ICTS Europe and its  subsidiaries  in respect of any liability or loss originated
                  prior to December 31,  2001 and not known at that date. As of December 31,  2003,
                  management has not received any notification for any such liability or loss.

             e.   On December 28, 1995, the Company  entered into an employment  contract with Lior
                  Zouker,  its Chief  Executive  Officer  and a member  of its board of  directors,
                  pursuant to which the  Company  agreed to employ Mr.  Zouker in those  capacities
                  for a 30 month term.  The contract was extended for an additional  three years on
                  November 25, 1997 and again on December 12,  2000. Pursuant to such contract, Mr.
                  Zouker is entitled  to a bonus,  which is  calculated  at 3% of the net income of
                  ICTS and was provided in the accounts.  On April 2004, Mr. Zouker resigned as the
                  Chief Executive Officer of the Company.

             f.   On December 16, 2003,  the Company  entered into an agreement with Mr. Boaz Harel
                  the  chairman  of the  Supervisory  Board of Directors, on which  basis he  receives
                  for his services to the Company a compensation of $245 on an annual basis.

             g.   In 2002 the Company,  and one of its  subsidiaries,  entered  into a  consultancy
                  services  agreement with a company,  owned by a former member of the  Supervisory
                  Board of the Company.  The agreement provided for annual fees of $75 for a period
                  of 2 years and shall be  automatically  renewed for an  additional  period of one
                  year.  In May 2004 the  consultancy  company's  owner was  appointed  CEO and the
                  agreement was amended.  In January 2004 the agreement has been amended by two new
                  agreements.  In May 2004 the consultancy company's owner was appointed CEO and the
                  agreement was amended. The agreement shall be valid for 5 years with an automatic
                  extension of an undefined period, with a notice period of 12 months. The compensation is
                  settled on approximately US$ 300.


             h.   As mentioned in note 5a(4) ICTS guaranteed certain bank loans of IMA which has
                  commenced bankruptcy proceedings in Italy.  As explained in this note the company
                  provided for the full exposure relating to the balance of such loans as of
                  December 31, 2003.  Under the Italian law and in certain defined cirucumstances the
                  liquidator of IMA may reclaim a refund of amount paid by IMA to the bank, in which
                  case the company might be required to repay such amounts under the above guarantee up
                  to the amount of original guarantee. The maximum contingent liability of the company is
                  $1,000,000. The company is currently not in a position to assess the likelihood that this
                  contingency will materialze.

             i.   As to the guarantee given to Bilu Investment Ltd., see note 6e.


F-37
<PAGE>

NOTE 15 - OTHER INCOME (EXPENSES)

                                                                                Year ended December 31,
                                                                                 2003        2002        2001
             Sale of ICTS Europe, see note 1c                                              $42,797     $34,260
             Write off of Investments in start-up companies                      $(400)                 (4,489)
             Capital gain from sale of other companies, net                                     43       1,182
             Write-down of investment in Ramasso                                              (932)
             Loss realized on marketable securities                                           (690)       (780)
             Write off of loans *                                                                         (334)
             Other                                                                  47          11        (319)
                                                                               _______     _______     _______
                                                                                 $(353)    $41,229     $29,520
                                                                               _______     _______     _______
                                                                               _______     _______     _______


              *   In 2001, ICTS wrote off a non-recourse loan to a former  shareholder of a subsidiary,
                  since the former shareholder pledged his shares in another company.


NOTE 16 - INCOME TAXES:

             a.   Each  subsidiary of ICTS is subject to tax according to the tax rules applying with
                  respect to its place of incorporation or residency.  ICTS is incorporated under the
                  laws  of The  Netherlands  and  is,  therefore,  subject  to the  tax  laws  of The
                  Netherlands.  Intercompany  payments  are subject to  withholding  taxes at varying
                  rates  according  to their  nature  and the  payer's  country of  incorporation  or
                  residency.

             b.   Deferred taxes:

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

                                                                                     December 31,
                                                                                    2003          2002

                       Carryforward losses                                          9,660       $3,004
                       Fixed assets and intangible assets                           2,554
                       Provision for Shut down costs                                             3,528
                       Accruals and other reserves                                   (367)       1,046
                       Provision for bad debts                                        735          812
                       Other                                                           31           51
                                                                                  _______      _______
                                                                                   12,613       $8,441
                       Less - valuation allowance                                  12,214        3,004
                                                                                  _______      _______
                                                                                      399       $5,437
                                                                                  _______      _______


F-38


<PAGE>


NOTE 16 - INCOME TAXES (continued):

2)       Deferred taxes are presented in the balance sheets as follows:

                                                                                  December 31,
                                                                                   2003        2002

                    Among other current assets                                     $385      $5,409
                       Among investments and long-term receivables                   33          28
                       Among long term liabilities                                  (19)
                                                                                _______     _______
                                                                                   $399      $5,437
                                                                                _______     _______



             c.   Income (loss) before taxes on income is comprised of the following:

                                                                                  Year ended December 31,
                                                                               2003         2002         2001
                        ICTS and subsidiaries in The Netherlands               $(7,820)      $54,603     $28,112
                        Subsidiaries outside The Netherlands                    (1,308)       20,461       6,136
                                                                               _______       _______     _______
                                                                              $( 9,128)      $75,064     $34,248
                                                                               _______       _______     _______
                                                                               _______       _______     _______


             d.   Taxes on income included in the income statements:

                                                                                  Year ended December 31,
                                                                               2003         2002         2001
                        Current:
                           In The Netherlands                                     $(85)        $(223)     $1,314
                           Outside The Netherlands                              (1,847)       20,938       3,689
                                                                               _______       _______     _______
                                                                                (1,932)       20,715       5,003
                                                                               _______       _______     _______
                        Deferred:
                           In The Netherlands                                                    187         268
                           Outside The Netherlands                               5,047        (4,460)       (352)
                                                                               _______       _______     _______
                                                                                 5,047        (4,273)        (84)
                                                                               _______       _______     _______

                                                                                $3,115       $16,442      $4,919
                                                                               _______       _______     _______
                                                                               _______       _______     _______

F-39


<PAGE>


NOTE 16 - INCOME TAXES (continued):

             e.   The Company's  effective income tax rate differs from The Netherlands'  statutory
                  rate of 34.5% with respect to the following:
                                                                                    Year ended December 31,
                                                                                 2003         2002         2001
                   Income (loss) before taxes and equity in
                      results of associated companies                           $( 9,128)      $75,064      $34,248
                                                                                 _______       _______      _______
                   Statutory tax rate                                              34.5%         34.5%        35%
                                                                                 _______       _______      _______

                   Expected tax at statutory rate                                $(3,149)      $25,897      $11,987
                   Reconciliation for earnings taxed at different rates               18            86          296
                   Disallowable expenses                                             460         8,124          740
                   Non-taxable expense (income)*                                     275       (14,248)     (10,365)
                   Changes in valuation allowance                                  6,513        (3,330)       2,091
                   Provision to return matters                                      (812)
                   Other                                                            (190)          (87)         170
                                                                                 _______       _______      _______
                   Income taxes                                                   $3,115       $16,442       $4,919
                                                                                 _______       _______      _______



                       *  In 2002 and 2001  including  a tax  exempted  capital  gain (from sale of
                          the European operations).

             f.   Carryforward tax losses

                  As of  December 31,  2003,  the  Company  has  carryforward  tax  losses  in  the
                  Netherlands,  in the amount of approximately  $28 million.  As a result of change
                  in the  Netherlands  tax law,  commencing  January 1, 2004,  utilization  of such
                  losses is limited in certain circumstances.


NOTE 17- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

             a.   Fair market value of financial instruments

                  Based on borrowing rates  currently  available to the Company for bank loans with
                  similar terms and maturities,  the fair market value of the Company's  short-term
                  and long-term debt  approximates  the carrying value.  Furthermore,  the carrying
                  value  of  other  financial  instruments   potentially  subject  to  credit  risk
                  (principally  consisting  of  cash  and  cash  equivalents,   time  deposits  and
                  marketable   securities,   accounts   receivable   and  accounts   payable)  also
                  approximates fair market value. Certain financial instruments,  included in other
                  investments  (including  inter alia the  investment  in Bilu,  which was acquired
                  from  related  party),  do not have  quoted  market  prices and,  accordingly,  a
                  reasonable  estimate of fair market  value  could not be made  without  incurring
                  excessive costs.

F-40
<PAGE>


NOTE 17 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

             b.   Risk management:

                  1)   The Company  operates in the USA,  Europe and other  countries,  which gives
                       rise to  exposure  to market  risks in  respect  of  foreign  exchange  rate
                       fluctuations.  The Company did not utilize derivative financial  instruments
                       to reduce these risks.  Since January 1, 2002,  the  functional  currency is
                       the dollar and the exposure to foreign currency fluctuations is reduced.

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

                  2)   At December  31, 2003,  two major  customers  accounted  for 32% of accounts
                       receivable (at December 31,  2002, four major customers accounted for 48% of
                       accounts receivable).
                       For the  years  ended  December  31,  2003,  2002 and  2001,  sales to major
                       customers  (constituting 10% or more of the Company's consolidated revenues)
                       amounted to 36%, 73% and 21% of revenues, respectively, as set forth below:

                                                                          Year ended December 31,
                                                                      2003          2002          2001
                                                                        (% of consolidated revenues)
                       Customer A                                     14%
                       Customer B                                     11%                         11%
                       Customer C                                     11%                         10%
                       Customer D                                                   73%


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

                  4)   Except for  guarantees  provided  for (see note 5), the  Company  guarantees
                       debts of third  parties,  as  discussed in notes 6 and 14.  Regarding  these
                       guarantees, the Company does not believe exposure to loss is likely.


F-41
<PAGE>


NOTE 17 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

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


F-42
<PAGE>


NOTE 18 - SEGMENT INFORMATION:

             The Company adopted FAS 131,  which establishes  disclosure and reporting requirements
             in respect of segments.

             a. Business segment data:

1)       Financial data relating to reportable operating segments:

                  Year ended December 31, 2003:

                                                   Aviation
                                                   Security    -----------    Entertainment        Other          Total
                                                                 Leasing
       Revenues:
         Unaffiliated customers                      $66,454        $2,995         $643              $1,479       $71,571
         Intersegment                                    418                                          3,884         4,302
                                                     _______      _______        _______            _______       ________
       Total revenues                                $66,872        $2,995         $643              $5,363       $75,873
                                                     _______      _______        _______            _______       ________
                                                     _______      _______        _______            _______       ________
       Operating income (loss)                       $12,215       $(5,476)     $(10,114)           $(3,603)     $( 6,978)
                                                     _______      _______        _______            _______       ________
                                                     _______      _______        _______            _______       ________
       Assets (at end of year)                       $36,087       $36,340      $ 10,401            $51,594      $134,422
                                                     _______      _______        _______            _______       ________
                                                     _______      _______        _______            _______       ________
       Goodwill (at end of year)                        $314                                                         $314
                                                     _______                                                      ________
                                                     _______                                                      ________
       Expenditures for segment assets                  $259                      $7,451               $299        $8,009
                                                     _______                     _______            _______       ________
                                                     _______                     _______            _______       ________
       Depreciation and amortization                    $493    $2,427              $265               $184        $3,369
                                                     _______      _______        _______            _______       ________
                                                     _______      _______        _______            _______       ________
       Non cash expenditures other
          than depreciation and amortization                    $6,042            $7,513               $797       $14,352
                                                                  _______        _______            _______
                                                                                                                   _______
                                                                  _______        _______             ______        _______


                  Year ended December 31, 2002:

                                                   Aviation
                                                   Security    -----------    Entertainment        Other          Total
                                                                 Leasing
       Revenues:
         Unaffiliated customers                     $277,636        $1,370                             $925      $279,931
         Intersegment                                 12,263                                         12,926        25,189
                                                     _______      _______                           _______       ________
       Total revenues                               $289,899        $1,370                          $13,851      $305,120
                                                     _______      _______                           _______       ________
                                                     _______      _______                           _______       ________
       Operating income (loss)                      $37,731          $271        $(517)             $1,963       $39,448
                                                     _______      _______         _____             _______       ________
                                                     _______      _______         _____             _______       ________
       Assets (at end of year)                       $52,809       $36,605       $7,259             $54,840      $153,513
                                                     _______      _______         _____             _______       ________
                                                     _______      _______         _____             _______       ________
       Goodwill (at end of year)                        $314                                           $853        $1,167
                                                     _______                                        _______       ________
                                                     _______                                        _______       ________
       Expenditures for segment assets                  $320    $23,384          $3,618              $2,088       $29,410
                                                     _______      _______         _____             _______       ________
                                                     _______      _______         _____             _______       ________
       Depreciation and amortization                    $206    $1,158                                  $79        $1,443
                                                     _______      _______                           _______       ________
                                                     _______      _______                           _______       ________
       Non cash expenditures other
        Than depreciation and amortization            $9,156                                           $932       $10,778
                                                     _______                                        _______       ________
                                                     _______                                        _______       ________

F-43
<PAGE>


NOTE 18 - SEGMENT INFORMATION (continued):

       Year ended December 31, 2001:

                                                   Aviation
                                                   Security    ------------------      Other         Total
                                                                 Entertainment
       Revenues:
         Unaffiliated customers                     $211,707                              $430       $212,137
         Intersegment                                  1,186                               679          1,865
                                                     _______                            _______      ________
       Total revenues                               $212,893                            $1,109       $214,002
                                                     _______                            _______      ________
                                                     _______                            _______      ________
       Operating income (loss)                       $13,723                           $(1,145)       $12,578
                                                     _______                            _______      ________
                                                     _______                            _______      ________
       Assets (at end of year)                       $39,261        $3,480              $5,126        $47,867
                                                     _______         _____              _______      ________
                                                     _______         _____              _______      ________
       Goodwill (at end of year)                      $8,484                                           $8,484
                                                     _______                                         ________
                                                     _______                                         ________
       Expenditures for segment assets                $1,496            $2                             $1,498
                                                     _______         _____                           ________
                                                     _______         _____                           ________
       Depreciation and amortization                  $2,061                               $29         $2,090
                                                     _______                            _______      ________
                                                     _______                            _______      ________


2)       Following is a reconciliation of net revenues, operating income and assets of the reportable segments to
                the data included in the consolidated financial statements:


                                                                            Year ended December 31
                                                                       2003           2002           2001
     Revenues:
         Total revenues of reportable segments                        $70,510        $291,269       $212,893
         Other revenues                                                 5,363          13,851          1,109
         Elimination of intersegment revenues                          (4,302)        (25,189)        (1,865)
                                                                        _______       ________      ________
         Total consolidated revenues                                  $71,571        $279,931       $212,137
                                                                        _______       ________      ________
                                                                        _______       ________      ________

     Operating Income:
         Total operating income (loss) of reportable segments        $( 3,375)        $37,485        $13,723
         Other                                                         (3,603)          1,963         (1,145)
         Amounts not allocated to segments:
           General and administrative expenses                         (2,581)         (8,363)        (9,827)
           Interest income                                              2,248           2,072          1,649
           Interest expense                                            (1,222)         (1,678)        (1,637)
           Exchange defferences                                          (242)          2,356          1,965
           Other income (expenses)                                       (353)         41,229         29,520
                                                                        _______       ________      ________
         Consolidated income (loss) before taxes on income           $( 9,128)        $75,064        $34,248
                                                                        _______       ________      ________
                                                                        _______       ________      ________

     Assets (at end of year):
         Total assets of reportable segments                          $82,828         $98,673        $42,741
         Total goodwill of reportable segments                            314             314          8,484
         Other assets                                                  51,594          55,693          5,126
         Elimination of intersegment balances                         (71,108)        (41,774)       (13,378)
         Assets not allocated to segments                              20,872          10,174         30,990
                                                                        _______       ________      ________
         Total consolidated assets (at end of year)                   $84,500         $12,538        $73,963
                                                                        _______       ________      ________
                                                                        _______       ________      ________




F-44
<PAGE>


NOTE 18 - SEGMENT INFORMATION (continued):

             b.   Geographical information

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

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


                                                                    Year ended December 31,
                                                              2003          2002            2001
                        Germany                                                               $26,574
                        France                                                                 25,756
                        United Kingdom                                                         30,938
                        Italy                                                                   7,005
                        USA                                    $59,146       $274,082          96,748
                        The Netherlands                         10,034          4,834           2,274
                        Other                                    2,390          1,015          22,842
                                                               _______        _______         _______
                        Total                                  $71,571       $279,931        $212,137
                                                               _______        _______         _______
                                                               _______        _______         _______

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

                                                                         December 31,
                                                              2003          2002            2001
                        The Netherlands                       $19,569       $23,543         $9,107
                         USA                                    9,098         5,393            621
                        Other                                     562           480             68
                                                              _______       _______        _______
                        Total                                 $29,229       $29,417         $9,796
                                                              _______       _______        _______
                                                              _______       _______        _______


             c.   As to the Company's major customers, see note 17b(2).


F-45
<PAGE>


NOTE 19 - RELATED PARTIES - TRANSACTIONS AND BALANCES:

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

                                                                                    Year ended December 31,
                                                                                  2003        2002        2001

                  Revenues                                                                        $27        $571
                                                                                              _______     _______
                                                                                              _______     _______
                  Cost of revenues                                                                             $7
                                                                                                          _______
                                                                                                          _______
                  Selling, general and administrative expenses                     $1,618      $4,453        $153
                                                                                  _______     _______     _______
                                                                                  _______     _______     _______
                  Interest income                                                    $517        $660        $123
                                                                                  _______     _______     _______
                                                                                  _______     _______     _______
                  Contract settlement expenses (note 5a(3))                        $5,266
                                                                                  _______
                                                                                  _______
                  Bonuses related to the sale of the European
                      operation *                                                              $4,704      $3,212
                                                                                              _______     _______
                                                                                              _______     _______
                  *  Include bonuses to Leedan, see c2) below.


a.       Balances with related parties:

                                                                                    December 31,
                                                                                  2003        2002
                  Other current assets                                                $382      $5,417
                                                                                   _______     _______
                                                                                   _______     _______
                  Long term loans to associated companies                           $2,988      $5,464
                                                                                   _______     _______
                                                                                   _______     _______
                  Subordinated debentures including accrued interest                $1,369      $1,269
                                                                                   _______     _______
                                                                                   _______     _______
                  Accrued expenses and other liabilities                               $21      $1,074
                                                                                   _______     _______
                                                                                   _______     _______



             c.   1)   In 2001 and 2002,  the Company lent Leedan $2,200 and $1,500,  respectively.
                       The loans bear  interest  at the rate of  Libor for  3 months +3% per annum.
                       The loans were repaid in February 2003 and April 2003, respectively.

                  2)   Leedan  provided  the  Company  with  certain  management,   administrative,
                       consulting  and advisory  services,  as well as advice and  assistance  with
                       respect to potential acquisitions and investor relations.  Such services are
                       provided on an ad-hoc basis as authorized by the ICTS Supervisory  Board. In
                       2003 the Company  recorded no expenses  for such  services (in 2002 and 2001
                       the Company recorded $1.2 million and $1 million, respectively).

             d.   In  2001  30,000  options  were  granted  to Mr Lior  Zouker,  the  former  Chief
                  Executive  Officer,  for an exercise price of $4.5 per share.  The exercise price
                  reflected the share price at the grant dates.
                  As to the employment contract with him, see note 14e.

F-46
<PAGE>


NOTE 19 - RELATED PARTIES - TRANSACTIONS AND BALANCES (continued):

             e.   In 2002,  ICTS  bought  vested  and non vested  options  from its  employees  and
                  directors.  The difference  between the price paid and the exercise price for the
                  options bought back,  aggregating  $1,618,  was recorded as selling,  general and
                  administrative expenses.
                  In 2003 ICTS did not buy any options from its employees and directors.

             f.   On July 24, 2001 Noaz Management  Company  assigned to ICTS an investment of $400
                  (out of its total  investment of $1 million) in ArtLink Inc.,  representing  4.1%
                  of  the  class  A  preferred  shares.  A  major  shareholder  and  member  of the
                  Supervisory  Board  of the  Company  is a major  shareholder  in Noaz  Management
                  Company. This investment was written off in 2003.

             g.   As part of the  investment  in ITA   (a company controlled by a
                  significant shareholders of ICTS, see Note 5a(3), ITA provided  to the  Company
                  supervision and management  services on establishment  of Entertainment  project for
                  a fee equal to 20% of the project  costs.  In addition,  the Company was granted the
                  right of first  refusal to  establish  its own ITA  Entertainment  project in Europe
                  and in the USA.  The  Company  also had an option to  acquire  from ITA 20% of ITA's
                  stake in each  project  and ITA had the option to acquire  from the  Company  20% of
                  its  stake in each  such  project  for a  period  of 2 years  from the  start of the
                  project.  As a result of the  transaction  with ITA in December 2003, (see Note 5a(3)
                  ICTS acquired the entertainment business of ITA and therefore this arrangement expired.

h.       As to guarantees issued in favor of related parties - see note 6(e).


NOTE 20 - EARNINGS (LOSSES) PER SHARE

              The  following  table  presents  the data used for  computation  of basic and diluted
              earnings (losses) per share:
                                                                                         Year ended December 31,
                                                                                     2003          2002         2001
       Basic:
           Net income (loss)                                                         $(18,904)      $56,815       $26,198
                                                                                     ________      ________      ________
                                                                                     ________      ________      ________
           Weighted average shares of common stock outstanding                      6,513,100     6,419,575     6,263,909
                                                                                     ________      ________      ________
                                                                                     ________      ________      ________
       Diluted:
           Net income (loss)                                                         $(18,904)      $56,815       $26,198
                                                                                     ________      ________      ________
                                                                                     ________      ________      ________
           Weighted average number of shares of common stock
             outstanding                                                            6,513,100     6,419,575     6,263,909
           Incremental shares of common stock from stock options -
             Calculated under the treasury stock method                                              33,872       148,626
                                                                                     ________      ________      ________
           Adjusted weighted average number of shares of common stock               6,513,100     6,453,447     6,412,535
                                                                                     ________      ________      ________
                                                                                     ________      ________      ________

F-47
<PAGE>


                                               ICTS INTERNATIONAL N.V.
                                      NOTES TO FINANCIAL STATEMENTS (continued)
                                                 (US $ in thousands)

NOTE 21 - STOCK OPTIONS

             In 1995 and 1999,  ICTS adopted share option plans  pursuant to which  600,000  common
             shares were  reserved  under each plan for issuance upon the exercise of options to be
             granted to employees, consultants and members of the Supervisory Board of the Company.

             As of December 31, 2003, ICTS has granted  options to purchase  253,500 common shares,
             all of which have been granted to directors,  consultants  and  executive  officers of
             the Company as a group, at exercise prices ranging from
             $4.50 to 8.50 per share under the Plan,  which were the fair market value at the dates
             of grant.  These options vest over various  terms,  ranging from  immediately  to five
             years. Outstanding options expire at various times, but not later than January 2007.

             In 2002,  ICTS bought vested and non vested  options from its employees and directors.
             The  difference  between the price paid and the exercise  price for the options bought
             back,  aggregating  $1,618,  was  recorded  as  selling,  general  and  administrative
             expenses in 2002.
             In 2003 ICTS did not buy any options from its employees and directors.

             The options  granted under the  Company's  plans are  exercisable  for the purchase of
             shares as follows:
                                                                               December 31,
                                                                           2003            2002
              At balance sheet date                                         224,000        195,832
              During the first year thereafter                               16,500         40,668
              During the second year thereafter                              13,000         29,000
              During the third year thereafter                                    0         13,000
                                                                            _______        _______
                                                                            253,500        278,500
                                                                            _______        _______
                                                                            _______        _______


             ICTS  accounts for the options  granted to a director and other  service  providers in
             exchange  for  services   received  using  the  fair  market  value  based  method  of
             accounting,  as  prescribed  by FAS 123,  based on the fair market value of the equity
             instruments  issued,  which is more reliably measurable than the value of the services
             received.

             The fair value of each  option  granted is  estimated  on the date of grant  using the
             Black & Scholes option-pricing model with the following weighted average assumptions:

                                                                           For options granted in
                                                                            2002            2001
               Expected life of options (years)                                3              3
               Expected volatility                                           100%            46%
               Risk free interest rate                                       3.5%            3.5%
               Expected dividend yield                                        0%              0%

---------------------------------------------------------------------------------------------------
             The weighted  average fair value of options granted during the year, using the Black &
             Scholes option-pricing model was $2.03 and $1.67 for 2002 and 2001, respectively.
             During 2003 no options were granted.

F-48
<PAGE>


NOTE 21 - STOCK OPTIONS (continued)

             Information regarding options for 2003, 2002 and 2001 is as follows:

             1)   Options to employees:
                                                2003                          2002                         2001
                                                      Weighted                      Weighted                     Weighted
                                         Shares        average        Shares        average        Shares        average
                                          (in         exercise         (in          exercise         (in         exercise
                                       thousands)       price       thousands)       price       thousands)       price
  Options outstanding
      at beginning of year                   236          7.12            578          6.64             484         7.15
  Options granted                                                          70          5.3              203         4.73
  Options exercised and bought
      back  by the Company                                               (412)         6.07            (109)        5.07
                                           _____         ______         _____           ______       ______        ______
  Options outstanding at
      end of year                            236          7.12            236          7.12             578         6.64
                                           _____         ______         _____           ______       ______        ______
                                           _____         ______         _____           ______       ______        ______
  Options exercisable at
      end of year                            218                          196                           439
                                           _____                       ______                        ______
                                           _____                       ______                        ______


             2)   Options to non-employees:
                                                2003                          2002                         2001
                                                      Weighted                      Weighted                     Weighted
                                         Shares        average        Shares        average        Shares        average
                                          (in         exercise         (in          exercise         (in         exercise
                                       thousands)       price       thousands)       price       thousands)       price
Options outstanding
    at beginning of year                      42          5.32            380          6.10             228         7.27
Options granted                                                            42          5.3              211         4.50
Options exercised and bought
    back by the Company                                                  (355)         6.14             (59)        6.85
Expired options (2003- cancelled)            (25)                         (25)         5.49
                                           _____                        _____                         _____
                                                           _____                        _____                        _____
Options outstanding at
    end of year                               17          5.32             42          5.32             380         6.10
                                           _____                        _____                         _____
                                                           _____                        _____                        _____
                                           _____                        _____                         _____
                                                           _____                        _____                        _____
Options exercisable at
    end of year                                6                            -                           380
                                           _____                        _____                         _____
                                           _____                        _____                         _____


             3)   Total number of options:
  Total options outstanding
      At end of year                         253                          278                           958
                                           _____                        _____                         _____
                                           _____                        _____                         _____
  Total options exercisable
      At end of year                         224                          196                           819
                                           _____                        _____                         _____
                                           _____                        _____                         _____

F-49
NOTE 22 - SUBSEQUENT EVENT




</TABLE>
F-50
<PAGE>

                                   SIGNATURES

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

                                            ICTS INTERNATIONAL N.V.

                                            By:/s/ Michael Barnea
                                            Name: Michael Barnea
                                            Title: Chief Executive Officer



         Date:    July 13, 2004

<PAGE>

                                              CERTIFICATIONS

                  I, Michael Barnea, certify that:

                  1.       I have reviewed this annual report on Form 20-F of
                           ICTS International N.V.;

                  2.       Based on my knowledge, this annual report does not
                           contain any untrue statement of a material fact or
                           omit to state a material fact necessary to make the
                           statements made, in light of the circumstances under
                           which such statements were made, not misleading with
                           respect to the period covered by this annual report;

                  3.       Based on my knowledge, the financial statements, and
                           other financial information included in this annual
                           report, fairly present in all material respects the
                           financial condition, results of operations and cash
                           flows of the registrant as of, and for, the periods
                           presented in this annual report;

                  4.       The registrant's other certifying officers and I are
                           responsible for establishing and maintaining
                           disclosure controls and procedures (as defined in
                           Exchange Act Rules 13a-14 and 15d-14) for the
                           registrant and have:

                                    a. designed such disclosure controls and
                           procedures to ensure that material information
                           relating to the registrant, including its
                           consolidated subsidiaries, is made known to us by
                           others within those entities, particularly during the
                           period in which this annual report is being prepared;

                                    b. evaluated the effectiveness of the
                           registrant's disclosure controls and procedures as of
                           a date within 90 days prior to the filing date of
                           this annual report (the "Evaluation Date"); and

                                    c. presented in this annual report our
                           conclusions about the effectiveness of the disclosure
                           controls and procedures based on our evaluation as of
                           the Evaluation Date;

                  5.       The registrant's other certifying officers and I have
                           disclosed, based on our most recent evaluation, to
                           the registrant's auditors and the audit committee of
                           registrant's board of directors (or persons
                           performing the equivalent function):

                                    a. all significant deficiencies in the
                           design or operation of internal controls which could
                           adversely affect the registrant's ability to record,
                           process, summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                                    b. any fraud, whether or not material, that
                           involves management or other employees who have a
                           significant role in the registrant's internal
                           controls; and

                  6.       The registrant's other certifying officers and I have
                           indicated in this annual report whether or not there
                           were significant changes in internal controls or in
                           other factors that could significantly affect
                           internal controls subsequent to the date of our most
                           recent evaluation, including any corrective actions
                           with regard to significant deficiencies and material
                           weaknesses.


         Date:   July 13, 2004
         By: /s/ Michael Barnea


<PAGE>


                  CERTIFICATIONS
                  I, Stefan Vermuelen, certify that:

                  1.       I have reviewed this annual report on Form 20-F of
                           ICTS International N.V.;

                  2.       Based on my knowledge, this annual report does not
                           contain any untrue statement of a material fact or
                           omit to state a material fact necessary to make the
                           statements made, in light of the circumstances under
                           which such statements were made, not misleading with
                           respect to the period covered by this annual report;

                  3.       Based on my knowledge, the financial statements, and
                           other financial information included in this annual
                           report, fairly present in all material respects the
                           financial condition, results of operations and cash
                           flows of the registrant as of, and for, the periods
                           presented in this annual report;

                  4.       The registrant's other certifying officers and I are
                           responsible for establishing and maintaining
                           disclosure controls and procedures (as defined in
                           Exchange Act Rules 13a-14 and 15d-14) for the
                           registrant and have:

                                    a. designed such disclosure controls and
                           procedures to ensure that material information
                           relating to the registrant, including its
                           consolidated subsidiaries, is made known to us by
                           others within those entities, particularly during the
                           period in which this annual report is being prepared;

                                    b. evaluated the effectiveness of the
                           registrant's disclosure controls and procedures as of
                           a date within 90 days prior to the filing date of
                           this annual report (the "Evaluation Date"); and

                                    c. presented in this annual report our
                           conclusions about the effectiveness of the disclosure
                           controls and procedures based on our evaluation as of
                           the Evaluation Date;

                  5.       The registrant's other certifying officers and I have
                           disclosed, based on our most recent evaluation, to
                           the registrant's auditors and the audit committee of
                           registrant's board of directors (or persons
                           performing the equivalent function):

                                    a. all significant deficiencies in the
                           design or operation of internal controls which could
                           adversely affect the registrant's ability to record,
                           process, summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                                    b. any fraud, whether or not material, that
                           involves management or other employees who have a
                           significant role in the registrant's internal
                           controls; and

                  6.       The registrant's other certifying officers and I have
                           indicated in this annual report whether or not there
                           were significant changes in internal controls or in
                           other factors that could significantly affect
                           internal controls subsequent to the date of our most
                           recent evaluation, including any corrective actions
                           with regard to significant deficiencies and material
                           weaknesses.


         Date: July 13, 2003

         By: /s/ Stefan Vermuelen